Addressing Weaknesses in Investor Protection in Kyrgyzstan
Press release issued on October 13, 2014
Foreign investor protection in Kyrgyzstan is weak, very weak. But the need for foreign investment is high. Kyrgyzstan lacks domestic investment capacity due to the large shadow economy and underdeveloped financial sector. SIA’s focus is to increase foreign investment by improving investor protection. SIA’s approach is simple, to work with actual cases to identify weaknesses in investor protection, and rectify the weaknesses using approaches that already work in Kyrgyzstan. Working with actual cases helps to identify and focus on the most relevant weakness.
A number of serious weaknesses have been revealed by SIA’s first case, such as overreliance on official documentary evidence. In cases involving fraud or tax evasion, official documentary evidence is most likely to be inaccurate or incorrect, hence it is not a reliable form of evidence. Other forms of evidence need to be considered. And this is what SIA is trying to achieve.
Another weakness is that a case is only opened as a criminal case once there is 100% certainly that a criminal offence has been committed. This means a decision is made by the fraud investigating agency even before all the evidence has been obtained and considered. And the decision is made by the investigating agency, when it should actually be made by a judge. SIA is trying to change the ‘general rule’. The current ‘general rule’ is to not open a case as a criminal case unless there is 100% certainly. SIA’s suggestion is that all SIA cases should be opened unless there are strong reasons justifying that it should not be opened. No harm will be done using this approach. If a case is opened and there is insufficient evidence, the case can be closed. But at least the case goes through the due process.
Another major weakness is significant delays. SIA’s first case was referred to the relevant state agency in January 2014. Nine months later it is still in the initial investigation phase. The same case was previously referred for investigation twice and the file closed, causing a delay of many years.
Delays, like other weaknesses, are a major discouragement for prospective investors. Why would foreign investors invest under such situations when they have many other countries to choose from? Weaknesses need to be addressed to increase foreign investor confidence. SIA is working together with local and foreign partners to address the weaknesses. Through TrustLaw three global law firms did research and wrote a detailed memo on how investor fraud is regulated and investigated in UK, USA and Russia. The memo helped to highlight areas that need to be strengthened in Kyrgyzstan. Even though SIA has high level support, implementing improvements is challenging. Progress with cases as well as a case study will be publicised.