Fighting pyramid schemes in Kyrgyzstan

The government in Biškek has launched a crackdown on cooperatives, a Soviet legacy that is still very active in the construction industry but until now with few guarantees for members. A new law requires transparency and the registration of money transfers on a special site. Meanwhile, investigations are proceeding into fraudulent cases that have led to losses worth millions of euros.

Bishkek (AsiaNews) - After the recent approval of new laws for the regulation of the financial market, the investigative committee of the Ministry of the Interior in Bishkek presented the results of the investigation into the affair of the Ikhsan Grupp Ltd housing cooperative, which caused a loss of 701 million som (just over 7 million euros), a case opened in 2021, with two managers arrested and one still at large.

Ikhsan is not the only "non-commercial" cooperative that the police have been interested in recently, and many other cases are currently underway, with several arrests made, the latest being that of the founder of the "Financial Cooperative Islamic". The deputy justice minister of Kyrgyzstan, Orozbek Sydykov, made some statements in this regard to Azattyk journalists.

The law “On Cooperatives” – prepared in 2023 by the government, approved in October by the Žogorku Keneš, the Bishkek parliament, and signed in December by President Sadyr Žaparov – aims to defend people's rights in purchasing real estate from these cooperatives, multiplied in recent years.

However, scams in this sector show no signs of decreasing, and the minister clarifies that "this is a long and complicated job: we have been dealing with it for some time, listening to the many people who have suffered losses".

Cooperatives are still a Soviet legacy, and there are currently around 6,500 of them in Kyrgyzstan. Most are agricultural and commercial cooperatives, a thousand are non-commercial ones, of which 162 deal with housing, attracting people looking for a home to become members of the cooperative, with the promise of obtaining a home. As Sydykov points out, "the mistake is not necessarily that of wanting to organize cheating, but of working only on the basis of agreements between members, without taking into account the rules established by law." Membership cards are issued without the necessary guarantees, and if it is a non-profit association, it is the members themselves who risk their money, creating a situation that easily slips into illegality.

The changes to the law now require greater transparency in economic transactions, to limit the abuses of those responsible, recording everything on the appropriate electronic site and compiling a special register.

Each transfer of money must be justified and respectful of the necessary timescales, and not simply decided by the cooperative board, in which members no longer have the right to delegate their vote to others. The checks on these new measures have just begun and "there are at least 1300 warning notices which need to be followed up by an adequate investigation", assures the deputy minister.

The checks also concern the activities prior to the approval of the new rules, as in the cases of Ikhsan and the Islamic Cooperative, which claimed to comply with the principles of Islamic finance even in internal procedures, while they can only be applied by financial institutions of credit.

Furthermore, according to Kyrgyz law, no religious denomination can be included in commercial activities. Since the crackdown was decided, Sydykov informs, the registration of building cooperatives has dropped dramatically: in all of last year there were only six.

The deputy minister is convinced that "the plague of fraudulent cooperatives has now been resolved", leaving no further room for possible distortions of the law. The members of the cooperatives can be from a minimum of 7 to a maximum of 1000 people, while in some cases they exceeded 10 thousand, effectively preventing any control: "Up to 1000 is considered a cooperative, beyond that it is a financial pyramid, if not a criminal association."

Sydykov, however, states that he does not want to "completely exclude the system of cooperatives, which deal with many situations, not just housing", in sectors where citizens' initiative must still be encouraged, hoping not to trample on the laws too much and to don't just serve the interests of a few.

• Kyrgyzstan
• Biškek
• cooperatives
• fraud
• finance
• Islam