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Emerging Markets

Deutsche Bank under renewed pressure on Turkmen loans

New questions raised as ex-EBRD official embroiled in controversy

Deutsche Bank faces renewed demands from corporate governance campaigners to come clean about its relationship with the late Turkmen dictator Saparmurat Niyazov, as evidence piles up about his personal control over funds kept in Frankfurt.

Hubert Pandza, who negotiated with Turkmenistan on Deutsche’s behalf throughout the 1990s, and later headed the EBRD’s Russia and Central Asia department, has also been caught up in the controversy.

Deutsche’s claims that Niyazov had no control over Turkmen central bank accounts at Deutsche have been challenged by Khudabedy Orazov, the former governor of Turkmenistan’s central bank now living in exile in Sweden.

Deutsche recently acknowledged the existence of one such account in a letter to Global Witness, the anti-corruption campaign group. Deutsche spokespeople claimed the account was not under Niyazov’s control – but Orazov told Emerging Markets: “Although I had to sign relevant documents, I had to have written permission from Niyazov for every single transaction.”

Niyazov died in December last year after ruling Turkmenistan for 21 years. He was president for life, terrorising government with frequent purges and lengthy prison sentences for opponents, and tolerating no media or political freedom. Proceeds from gas exports, Turkmenistan’s main source of wealth, were held in accounts abroad estimated by Global Witness to contain $3 billion.

Tom Mayne, researcher at Global Witness, said that after Orazov left the Central Bank in 1999, three more governors were jailed, confirming the assumption by financial analysts that the institution was not independent.

Mayne called on Deutsche CEO Josef Ackermann to make public information about Turkmenistan’s other accounts, and in particular the foreign exchange reserve fund. The IMF, EBRD and other institutions have asked questions about the account, which is believed to have contained at least $2 billion of the gas export proceeds and to have been under Niyazov’s direct control.

Deutsche has refused to confirm the existence of this account, although Germany’s financial regulator has implied in correspondence with Global Witness that there was more than one Turkmen account at Deutsche.

Mayne said it was “completely hypocritical” of Deutsche to claim that it accepts the UN Global Compact – which states that businesses “must not be complicit in human rights abuses” and “must work against corruption in all its forms” – while refusing to explain its relationship with the Turkmen dictator.

He added: “It would be interesting to hear from the Deutsche Bank officials who negotiated with Turkmenistan, and to learn their thoughts on this issue now.”

Emerging Markets put that question to Pandza, who participated in managing Deutsche’s relationship with the Turkmen Central Bank in the 1990s, from 1998 as CEO of Deutsche Bank Moscow, and was EBRD business group director for Russia and Central Asia in 2002-06. He said that the German market regulator, Bafin, had found that Deutsche’s relationship with Turkmenistan had conformed to German legal requirements.

Pandza, now an independent director of Amtel Vredestein of Russia and Kazkommertsbank of Kazakhstan, has become a corporate governance campaigner, and recently addressed a London Stock Exchange seminar on best practice principles. Asked whether he could point to Deutsche’s relationship with Turkmenistan as an example of best practice, he said: “I understand the position Deutsche took. We didn’t know then, in the early 1990s, what we know now.”

A Deutsche spokesman said the bank had adhered to the Global Compact.

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