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10 June

Analytical Report on the Results of the Internal Corruption Risk Analysis in Astana Venue Management LLP

By letter of the Anti-Corruption Agency of the Republic of Kazakhstan (Anti-Corruption Service) ref. No. 01-12/157 dated February 22, 2023, the Partnership was informed of the new Standard Rules for Conducting Internal Corruption Risk Analysis (hereinafter referred to as the Rules), approved by the Order of the Chairman of the Agency dated January 16, 2023, No. 21 (registered with the Ministry of Justice on January 18, 2023, No. 31713), and the Methodological Recommendations for Conducting Internal Corruption Risk Analysis, approved by the Order of the Chairman of the Agency dated December 30, 2022, No. 488.

At the same time, the First Deputy Chairman of the Anti-Corruption Agency of the Republic of Kazakhstan (Anti-Corruption Service) U.S. Sarkulov approved the Implementation Plan for the standard basic direction No. 4 “Prevention and Counteraction of Corruption” for 2024, according to which the partnership must conduct an internal corruption risk analysis.

According to the Schedule for conducting internal corruption risk analysis in quasi-public organizations of the city of Astana as part of the execution of projects of the fourth standard basic direction, approved by the Deputy Head of the Office of the Akim of Astana City Zh.K. Shaukentayev on March 29, 2024, the partnership is obliged to commence the internal corruption risk analysis on May 2, 2024.

To ensure high-quality and timely execution of the above work, the General Director of the partnership issued Order No. 01-04/113 dated April 22, 2024, “On Conducting an Internal Corruption Risk Analysis,” which approved the composition of the commission chaired by the partnership’s compliance officer D.A. Yakupov. The analysis period is from May 2 to May 30, 2024, covering the review period from May 26, 2023, to May 30, 2024.

On April 17, 2024, 10 working days prior to the start of the internal analysis, an announcement was published on the Partnership’s corporate portal regarding the commencement of the process, inviting proposals and/or applications to participate in the commission. As of the start of the internal analysis, no proposals or applications were received.

The internal corruption risk analysis was carried out in the following areas:

  1. identification of corruption risks in regulatory legal acts affecting the activities of divisions;

  2. identification of corruption risks in the organizational and managerial activities of divisions.

During the internal analysis, a study and summarization of materials on the partnership’s activities were conducted, alongside a review of documents and practices related to organizational and managerial activities (Charter, regulations, provisions, internal regulatory documents, employee job descriptions, departmental regulations, etc.) and regulatory legal acts governing the partnership’s operations.

IDENTIFICATION OF CORRUPTION RISKS IN THE ORGANIZATIONAL AND MANAGERIAL ACTIVITIES OF DIVISIONS

Corruption Risk 1 According to sub-clause 10) of paragraph 19, section 5 of the Charter, the General Director of the Partnership approves 29 internal documents regulating the partnership’s activities. At the time of the analysis, out of the 29 internal documents, 25 are available in the state language. The following documents are available only in Russian: Rules for the Collection, Processing, and Protection of Personal Data of the Partnership’s Employees, Internal Labor Regulations, Regulations on Commercial and Official Secrets of the Partnership, and the Accounting Policy of the Partnership. In accordance with Article 7 of the Constitution of the Republic of Kazakhstan and Article 4 of the Law of the Republic of Kazakhstan “On Languages in the Republic of Kazakhstan” (hereinafter referred to as the Law), the state language of the Republic of Kazakhstan is the Kazakh language. The state language is the language of state administration, legislation, judicial proceedings, and record-keeping, operating in all spheres of public relations throughout the entire territory of the state. The President of the Republic of Kazakhstan, K.K. Tokayev, in his Addresses to the People of Kazakhstan, has repeatedly raised the issue of increasing the prevalence and status of the state language in all spheres of life. The lack of internal documentation in the state language restricts access to information for native Kazakh speakers and may lead to a misunderstanding of internal rules, departmental regulations, and job descriptions. This creates conditions for the emergence of corruption risks, i.e., due to a lack of understanding of internal regulatory documents, employees could potentially make decisions at their own discretion.

Recommendation 1 Ensure the maintenance of internal regulatory documentation in both the state and Russian languages (Rules for the Collection, Processing, and Protection of Personal Data of the Partnership’s Employees, Internal Labor Regulations, Regulations on Commercial and Official Secrets of the Partnership, Accounting Policy of the Partnership).

Corruption Risk 2 According to sub-clause 3, paragraph 4, Article 12 of the Law of the Republic of Kazakhstan “On Public Procurement”, in cases where a supplier has failed to fulfill or improperly fulfilled its obligations under an executed public procurement contract, the customer is obliged, no later than thirty calendar days from the day it became aware of the fact of a violation of the public procurement legislation of the Republic of Kazakhstan by the potential supplier or supplier, to file a lawsuit in court to declare such potential supplier or supplier an unscrupulous participant in public procurement. Failure to comply with this legislative requirement entails administrative liability in accordance with paragraph 10 of Article 207 of the Code of Administrative Offenses in the amount of 30 MCI (Monthly Calculation Index). The interaction procedure when carrying out public procurement is regulated by the Regulations on the Interaction of Structural Divisions and Employees in the Organization and Conduct of Procurement of Goods, Works, and Services of Astana Venue Management LLP, approved by Order No. 01-04/344 dated November 5, 2021. Thus, paragraph 23 of the Regulations establishes that the procurement initiator, upon establishing a fact of violation of the contract terms by the supplier, is obliged to notify the Legal Department and the Public Procurement Department via an internal memo within one day to take timely measures. Meanwhile, this requirement of the Regulations is not being properly fulfilled. In practice, the notification was carried out by the Public Procurement Department, whose duties do not include this work. The failure to provide information could potentially indicate both a lack of control and an intentional concealment of information.

Recommendation 2 Conduct additional training for employees of the departments initiating procurement regarding the requirements of the Regulations concerning the monitoring of contract execution.

IDENTIFICATION OF CORRUPTION RISKS IN REGULATORY LEGAL ACTS AFFECTING THE ACTIVITIES OF DIVISIONS

Corruption Risk 3 Astana Venue Management LLP (hereinafter referred to as the Partnership) is a 100% subject of the quasi-public sector. According to the resolution of the Akimat of Astana City dated September 22, 2020, No. 501-1987, the Palace of Peace and Reconciliation and the “Baiterek” Monument facilities (hereinafter referred to as the Facilities/Monuments) were transferred to the partnership for trust management. These, in turn, are historical and cultural monuments of local significance in Astana. Currently, the partnership needs to procure services for the technical inspection of the load-bearing structures of the facilities (monuments). Guided by Article 32 of the Law of the Republic of Kazakhstan “On the Protection and Use of Objects of Historical and Cultural Heritage,” scientific and restoration work on a historical and cultural monument includes:

  1. scientific research;

  2. conservation;

  3. restoration;

  4. reconstruction;

  5. repair;

  6. adaptation. At the same time, scientific research is a set of measures aimed at studying, evaluating the quality, the degree of preservation, and determining the scope of necessary work carried out to preserve a historical and cultural monument, including activities carried out during the development of scientific and design documentation. According to the Rules for Conducting a Technical Inspection of the Reliability and Stability of Buildings and Structures, approved by the Order of the Minister of National Economy of the Republic of Kazakhstan dated November 19, 2015, No. 702, the technical inspection of the reliability and stability of buildings and structures is used to detect defects and damage in critical (load-bearing) elements and connections that pose a risk of collapse, non-compliance with the quality indicators of the applied building materials, and in other cases not provided for by the Law of the Republic of Kazakhstan “On the Protection and Use of Objects of Historical and Cultural Heritage.” At the same time, when conducting a technical inspection of the reliability and stability of buildings and structures during a detailed instrumental inspection, an expert or organization involves an accredited specialized laboratory. There is a series of issues where it is unclear to the partnership how to act and what legislation to follow when conducting repairs at facilities that are historical and cultural monuments:

  7. Do the works on the technical inspection of the load-bearing structures of buildings and structures fall under scientific research works, or must this type of work be procured separately?

  8. In cases where the technical inspection must be procured separately from scientific research, is it necessary to require potential suppliers to hold a license for scientific and restoration work, given that the technical inspection will be conducted in a building that is a monument?

  9. In cases where scientific research must be conducted instead of a technical inspection, which companies can conduct the aforementioned research involving a specialized laboratory? Which companies hold accreditation to conduct a technical inspection of the load-bearing structures of buildings and structures, as well as a license to conduct scientific and restoration work?

  10. When conducting current repairs in monuments, is the conduct of scientific research required?

  11. When conducting public procurement, in order to identify the procurement object and describe it on the public procurement portal goszakup.gov.kz, there is no suitable code in the classifier of goods, works, and services (TRU classifier) for “works on the development of scientific and design documentation.” In this regard, the Partnership submitted a letter to the State Institution “Committee of Culture of the Ministry of Culture and Information of the Republic of Kazakhstan,” as well as to the Republican State Institution “Committee for Construction and Housing and Communal Services of the Ministry of Industry and Construction of the Republic of Kazakhstan” to obtain clarifications on the existing issues. At the time of conducting the internal corruption risk analysis, no response had been received. The unresolved nature of these issues may lead to a violation of current legislation, infringement of the rights of potential participants in public procurement tenders, or the execution of an incomplete scope of technical inspections.

Recommendation 3 Submit proposals to the state administrative body regarding the regulation of the procedure for the technical inspection of historical and cultural monuments.

Corruption Risk 4 According to paragraph 47 of the Rules for Compiling and Submitting a Budget Request, when planning expenses for the acquisition of inventory and fixed assets, at least three price lists for each type of inventory or fixed assets must be attached to the calculation, and the calculations must be provided with justifications and mandatory itemization for each type of expense. In accordance with the above Rules, Customers, at the time of budget formation, are forced to contact potential suppliers with a request for commercial proposals, which may be outdated at the time of the public procurement, both due to price increases and due to artificially inflated prices. At the same time, situations are potentially possible where customers, in order to artificially inflate the procurement budget, will approach familiar entrepreneurs to obtain three commercial proposals with “inflated” prices for goods, works, and services. As is known, the intent to embezzle budget funds is often formed at the budget planning stage, and implemented at the procurement stages by lobbying for “their own” supplier and at the acceptance stage. In this regard, the ability to plan the budget based on reliable, indisputable sources independent of the customer acquires particular importance. Meanwhile, according to sub-clause 29) of Article 2 of the Law “On Public Procurement,” the database of prices for goods, works, and services is an information subsystem that is part of the public procurement web portal, containing information on the established minimum, average, and maximum prices for goods, works, and services based on the results of public procurement (hereinafter referred to as the Price Database). That is, the legal foundation for the database exists, but it has not been implemented in practice, which places all public procurement subjects at risk of being accused of artificially inflating procurement prices with the intent to embezzle budget funds. Based on the results of the internal analysis conducted in the partnership in 2023, information about the risk and proposals for its prevention were sent by letter ref. No. 01-13/424 dated September 28, 2023, to the Department of Assets and Public Procurement of Astana City, and by letter ref. No. 01-13/472 dated October 17, 2023, to the Ministry of Finance of the Republic of Kazakhstan. By letter ref. No. KK-05-KK/496-I dated February 14, 2024, the Ministry of Finance provided an interim response. Due to the fact that the final response has not been received by the partnership, and the corruption risk has not been prevented, it is necessary to initiate the consideration of this issue by the Anti-Corruption Service.

Recommendation 4 Send a letter to the Department of the Anti-Corruption Agency of the Republic of Kazakhstan (Anti-Corruption Service) for the city of Astana regarding the need to develop and implement the information subsystem “database of prices for goods, works, and services” stipulated by sub-clause 29) of Article 2 of the Law “On Public Procurement.”

Corruption Risk 5 By virtue of its core activity, municipal real estate facilities are transferred to the partnership for trust management by decision of the authorized body to ensure the functioning of the facilities, including through the procurement of goods, works, and services. However, upon the transfer of a facility, a situation arises where the facility is accepted onto the balance sheet, yet all contracts related to the procurement of utilities, electricity, security, cleaning, maintenance of technological equipment, and others cannot be concluded until the tender results are finalized. Conducting a tender can take 1.5-2 months, or even longer in the case of a repeated tender or an appeal of the tender results. Therefore, when the authorized body makes a decision to transfer the facility to the Customer, measures are taken to immediately ensure its operations for continuous functioning, and the Customer is forced to conclude a public procurement contract under sub-clause 50, Article 39 of the Law prior to the finalization of the tender results at the time the new facility is transferred. However, concluding a contract on this basis is permitted only in January, and the application of this basis in other months of the year is a violation resulting in an administrative fine for the chief executive. A situation is potentially possible where the manager, taking responsibility for the functioning of the facility, concludes all necessary contracts for the period until the tender results are finalized, and as a result, several fines of 100 MCI each will be imposed on them. Considering that the total value of the fines may equal several monthly salaries of the manager, a situation is potentially possible where the manager will be forced to seek alternative sources to pay the fines. Based on the results of the internal analysis conducted in the partnership in 2023, information about the risk and proposals for its prevention were sent by letter ref. No. 01-13/424 dated September 28, 2023, to the Department of Assets and Public Procurement of Astana City, and by letter ref. No. 01-13/472 dated October 17, 2023, to the Ministry of Finance of the Republic of Kazakhstan. By letter ref. No. KK-05-KK/496-I dated February 14, 2024, the Ministry of Finance provided an interim response. Due to the fact that the final response has not been received by the partnership, and the corruption risk has not been prevented, it is necessary to initiate the consideration of this issue by the Anti-Corruption Service.

Recommendation 5 Send a letter to the Department of the Anti-Corruption Agency of the Republic of Kazakhstan (Anti-Corruption Service) for the city of Astana with a proposal to make the following addition to sub-clause 50, paragraph 3, Article 39 of the Law “On Public Procurement”: after the words “if such public procurement is carried out during the first month of the year,” add the words “in the event of the transfer of the facility to the Customer during the year”.

Corruption Risk 6 According to paragraph 1, Article 64-1 of Law No. 252 dated July 16, 2001, “On Architectural, Town-Planning, and Construction Activities in the Republic of Kazakhstan,” comprehensive non-departmental expertise of projects is conducted by expert organizations and carried out by experts certified in the relevant sections (parts) of feasibility studies or design and estimate documentation. According to paragraph 5 of the Rules for Accreditation of Expert Organizations, the accreditation of the service recipient is conducted by the authorized body and is confirmed by an accreditation certificate granting the right to carry out a mandatory comprehensive non-departmental expertise of projects (feasibility studies and design and estimate documentation) intended for construction, with the exception of projects classified as a state monopoly. However, the aforementioned certificate is absent from the list of permits of the first and second categories according to Appendices 1 and 2 to the Law “On Permits and Notifications,” and on the Public Procurement Portal (hereinafter referred to as the Portal), automatic filling of permitting documents is possible only from the list according to the Law “On Permits and Notifications.” Consequently, permitting documents not stipulated by the Law “On Permits and Notifications” cannot be selected, which causes incomplete qualification requirements to be set by the customer, and subsequently serves as grounds for complaints from Suppliers. Therefore, the inability to fill out a permitting document that is not provided for in the list of the Law “On Permits and Notifications” allows the participation of other potential suppliers who do not have the right to carry out this activity. A situation is potentially possible where a procurer, interested in the victory of a company lacking the appropriate accreditation certificate, using this gap in the portal’s operation, will announce a tender without demanding the certificate, which could subsequently damage the interests of the state. Integrating the public procurement system with elicense.kz will allow Customers and Suppliers to correctly and effectively utilize the licensing system when generating the annex to the tender documentation regarding qualification requirements on the Portal. Based on the results of the internal analysis conducted in the partnership in 2023, information about the risk and proposals for its prevention were sent by letter ref. No. 01-13/424 dated September 28, 2023, to the Department of Assets and Public Procurement of Astana City, and by letter ref. No. 01-13/472 dated October 17, 2023, to the Ministry of Finance of the Republic of Kazakhstan. By letter ref. No. KK-05-KK/496-I dated February 14, 2024, the Ministry of Finance provided an interim response. Due to the fact that the final response has not been received by the partnership, and the corruption risk has not been prevented, it is necessary to initiate the consideration of this issue by the Anti-Corruption Service.

Recommendation 6 Send the following proposals for improving legislation to the Department of the Anti-Corruption Agency of the Republic of Kazakhstan (Anti-Corruption Service) for the city of Astana: “integrate the public procurement system with elicense.kz to enable the selection on the portal of an accreditation certificate for the right to carry out mandatory comprehensive non-departmental expertise of projects (feasibility studies and design and estimate documentation) intended for construction, with the exception of projects classified as a state monopoly”.

Corruption Risk 7 Tender participants often submit bids without a complete set of documents and do not bring the bid into compliance, which indicates an ill-considered intention to participate in the tender. Such cases lead to a disruption in the deadlines for the delivery of goods, performance of works, or provision of services. For example, regarding the Baiterek Monument facility, which is one of the iconic sites of the capital with an attendance of over 2,000 people a day in the summer and 800 people in the winter, and which is a facility vulnerable to terrorism, a tender for the facility’s security services was held 4 times over the course of 2021. The duration of the tender procedures from the moment of the first acceptance of bids to the conclusion of the contract was 7 months, considering that the tender was first published on December 23, 2020. Two companies consistently participated in every announced tender. In each of the tenders, one of the companies was alternately deemed compliant with the tender documentation requirements, while the second company did not supplement its bid with the missing documents, which led to the failure of the tenders due to a lack of a competitive environment (2 or more admitted participants). Only on July 30, 2021, due to the submission of fewer than two bids, a single-source contract based on failed procurement was concluded with the sole participant. This stance by the suppliers indicates bad faith, creating barriers for the Customer to summarize the tender results in a timely manner and conclude a public procurement contract with the winner, which causes damage to the customer. Therefore, in order to eliminate bad faith and increase the levels of responsibility and awareness of potential suppliers when participating in public procurement, effective measures are needed to exclude the endless, futile conduct of tenders. Based on the results of the internal analysis conducted in the partnership in 2023, information about the risk and proposals for its prevention were sent by letter ref. No. 01-13/424 dated September 28, 2023, to the Department of Assets and Public Procurement of Astana City, and by letter ref. No. 01-13/472 dated October 17, 2023, to the Ministry of Finance of the Republic of Kazakhstan. By letter ref. No. KK-05-KK/496-I dated February 14, 2024, the Ministry of Finance provided an interim response. Due to the fact that the final response has not been received by the partnership, and the corruption risk has not been prevented, it is necessary to initiate the consideration of this issue by the Anti-Corruption Service.

Recommendation 7 Send the following proposals for improving legislation to the Department of the Anti-Corruption Agency of the Republic of Kazakhstan (Anti-Corruption Service) for the city of Astana:

  1. It is proposed to withhold the bid security in cases where an incomplete set of documents is provided, including after the opportunity to supplement bids.

  2. It is proposed to supplement paragraph 3 of Article 29 of the Law “On Public Procurement” with sub-clause 3) stating the following: “3) if one potential supplier is admitted to participate in the tender. In this case, an invitation to participate in single-source public procurement is sent to the potential supplier who submitted a bid to participate in the tender. The price of the concluded public procurement contract must not exceed the competitive price offer of the potential supplier specified in the tender bid.”

Corruption Risk 8 According to the public procurement plan, the partnership has about 650 plan items, of which more than 500 items are planned using the request for price proposals method. Given the large number of plan items, it is not excluded that technical errors may occur when announcing a procurement using the request for price proposals method, due to unintentional erroneous actions by the Customer. However, the public procurement portal does not provide for the withdrawal or editing of an announcement, except in cases of budget adjustment or impracticality and exclusion from the budget. Correcting an error is possible by the customer independently canceling the procurement and re-announcing it. However, this action also entails a fine comparable to a specialist’s monthly salary and could potentially push them to seek illegal ways to either evade the fine or pay the fine. Based on the results of the internal analysis conducted in the partnership in 2023, information about the risk and proposals for its prevention were sent by letter ref. No. 01-13/424 dated September 28, 2023, to the Department of Assets and Public Procurement of Astana City, and by letter ref. No. 01-13/472 dated October 17, 2023, to the Ministry of Finance of the Republic of Kazakhstan. By letter ref. No. KK-05-KK/496-I dated February 14, 2024, the Ministry of Finance provided an interim response. Due to the fact that the final response has not been received by the partnership, and the corruption risk has not been prevented, it is necessary to initiate the consideration of this issue by the Anti-Corruption Service.

Recommendation 8 Send the following proposals for improving legislation to the Department of the Anti-Corruption Agency of the Republic of Kazakhstan (Anti-Corruption Service) for the city of Astana: upon self-identification of an error before the bid acceptance deadline, provide the opportunity to withdraw or edit the published procurement.

Corruption Risk 9 As a result of public procurement conducted by the partnership in 2023, a single winning company was determined across three procurements. At the time the contract was sent for approval, the Supplier had restrictions related to participation in public procurement in accordance with Article 6 of the Law “On Public Procurement” (hereinafter referred to as the Law). Upon checking the counterparty, it was discovered that the head of this organization is also simultaneously the head of another company, which, in accordance with sub-clause 2, paragraph 4, Article 12 of the Law, has been listed in the register of unscrupulous participants since March 28, 2023. According to Article 12 of the Law, potential suppliers included in the register of unscrupulous participants of public procurement on the grounds stipulated by sub-clause 2) of part one of paragraph 4 of this article are not allowed to participate in public procurement for twenty-four months from the date the authorized body decides to recognize them as unscrupulous public procurement participants. According to sub-clause 3, paragraph 1, Article 6 of the Law, a potential supplier is not entitled to participate in ongoing public procurement if the head of the potential supplier bidding for participation in the public procurement is associated with the management, establishment, or participation in the authorized capital of legal entities listed in the register of unscrupulous participants of public procurement. As of today, the Supplier is also participating in other announcements and has more than 200 contracts with the status “Not concluded.” According to the contract register on the public procurement portal, the Supplier does not have a single executed or active contract. In the event that the first winner has restrictions related to participation in public procurement, then, according to Article 6 of the Law, the contract is unilaterally terminated and the contract status changes to “Not concluded.” The contract is then forwarded to the second winner based on paragraph 494 of the Rules for Conducting Public Procurement. In the aforementioned announcements, the second winner is the exact same potential supplier. After the contract was sent for approval to the second winner, the supplier contacted the partnership to offer goods of a quality lower than the stated specification, or to replace them with a similar inexpensive product, or to sign a supplementary agreement to the contract to increase the amount. And if the Customer agrees to their terms, they will sign the contract. In accordance with sub-clause 2, paragraph 4, Article 12 of the Law, the register of unscrupulous participants of public procurement represents a list of potential suppliers determined as winners who evaded concluding a public procurement contract. The penalty for an unconcluded contract is stipulated only for the winner. If the second winner does not sign the contract, this supplier does not end up in the register of unscrupulous participants of public procurement. In 2023 – 2024, such instances were repeated multiple times. As a result, the partnership failed to acquire a number of goods on time, such as a centrifugal pump, a sewage station, a high-pressure centrifugal pump, and a server with a card.

Recommendation 9 Send a letter to the state administrative body regarding the need for legislative elimination of the ability to manipulate customers by exploiting the lack of liability for the second winner of public procurement.