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Bribery alleged in Kazakh oil deals
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Charges strain ties to key ally in war on terror
By Cam Simpson, Washington Bureau. Michael Kilian of the Tribune's
Washington Bureau contributed to this report
May 4, 2003
WASHINGTON -- A little-noticed prosecution in a New York courtroom
threatens to throw a harsh spotlight on a key U.S. partner in the war on
terrorism and provide an unflattering view of the multibillion-dollar
global oil industry.
The indictment last month of American businessman James Giffen alleges a
vast corporate bribery scheme in which millions of dollars used to secure
oil and gas rights in an authoritarian land were channeled through a maze
of shell companies, foundations and Swiss bank accounts.
The bribes--at least $78 million, according to prosecutors--went to two
top officials in Kazakhstan, a former Soviet republic brimming with
petroleum and a key ally in President Bush's war on terrorism, to secure
rights for four U.S. oil companies: Mobil, Amoco, Texaco and Phillips
Petroleum. The companies have since merged with others and their names
have changed.
This is the largest and most significant case alleging the bribery of
foreign officials by U.S. businessmen since the practice became a federal
crime 26 years ago, according to experts. It also is deeply embarrassing
to the strategically important Central Asian nation of Kazakhstan and has
strained diplomatic relations with the United States.
The prosecution opens a window on the practices of the U.S. oil industry,
which often does business in rough places thanks to the geographical and
geological accidents of fossil fuel deposits.
Giffen, a private banker paid as a middleman in the deals, is accused of
channeling bribes to the Kazakh leaders from his "success fees" or from
escrow accounts filled by the oil companies. None of the oil companies
has been charged; each has denied wrongdoing and said it is cooperating
with investigators.
Giffen, who is charged with money laundering and violating the Foreign
Corrupt Practices Act, has pleaded not guilty. He could not be reached
for comment, and numerous calls to his attorney were not returned.
James Comey, the U.S. attorney in Manhattan, said the investigation is
continuing. And Peter Neiman, the assistant U.S. attorney prosecuting the
case, said in court last month that Mobil was under scrutiny, according
to Marvin Smilon, a spokesman for the U.S. attorney's office in
Manhattan.
For the oil companies, the investigation at a minimum raises serious
questions about the oversight they exercise when big deals overseas are
on the line.
J. Bryan Williams, a former top Mobil executive who was the key
negotiator on the largest contract under investigation, was indicted in a
related case on charges he failed to pay taxes on a $2 million kickback
he allegedly received from Giffen. The kickback came from fees Mobil paid
Giffen after Williams secured rights for the company to tap a sprawling
Kazakh oil field, prosecutors say.
Williams has pleaded not guilty. ExxonMobil said in a statement that it
has "no knowledge of any illegal payments made to Kazakh officials by any
current or former Mobil employees. We also have no knowledge of any
illegal payments received by any current or former Mobil employees."
The biggest recipient of the bribes allegedly funneled by Giffen--at
least $51.7 million, including interest earned--is a man identified in
court papers only as "KO-2," or "Kazakh Official No. 2." But separate
court records in Switzerland show that the official is Kazakh President
Nursultan Nazarbayev, who has been praised frequently by the Bush
administration for his cooperation in the war on terrorism.
The other official, identified in the indictment as "KO-1," is Nurlan
Balgimbayev, the former prime minister of Kazakhstan who also headed the
state-run oil company, according to corporate records connected to the
case.
Although the bribes allegedly were paid from 1995 to 2000, the story
began before the breakup of the Soviet Union in December 1991, when
Kazakhstan, the largest Soviet republic after Russia, gained
independence.
Giffen, who according to records owns an expensive Bentley automobile and
two homes in New York's affluent Westchester County, knew the region
well. He was president and founder of the American Trade Consortium, a
group that scrambled to promote U.S. business opportunities in the dying
days of the Soviet Union.
"This is no market for the faint of heart," Giffen, the president of his
own merchant bank, Mercator, told the ABC News show "Business World" in a
1990 broadcast. "It takes time to develop it. You have to have patience,
you have to have perseverance, you have to have a strategic plan. And it
takes some money to penetrate the market effectively."
`Gatekeeper' for investors
According to the Center for Strategic and International Studies, a
Washington think tank, Giffen became an "indispensable adviser" to
Nazarbayev after independence, serving as a "gatekeeper" for potential
investors.
"There was a period in time when he was really able to create a position
for himself representing Kazakhstan to Western businessmen as a credible
intermediary," said Martha Brill Olcott, author of "Kazakhstan:
Unfulfilled Promise" and a senior associate at the Carnegie Endowment for
International Peace.
By the end of 1994, prosecutors say, Giffen won a deal from the Kazakh
government allowing him to coordinate "numerous oil and gas transactions
with foreign partners."
Giffen and Balgimbayev were eager to sell a piece of Kazakhstan's Tengiz
oil field and quickly identified Mobil as a potential buyer, according to
the indictment. Tengiz, along the shores of the Caspian Sea, holds an
estimated 6 billion barrels of oil, 1billion barrels of natural-gas
liquids and 14 trillion cubic feet of gas.
Williams, then a top Mobil executive, sealed the deal for Mobil on May 3,
1996, at a cost of $1.05 billion, records show.
Initially, Giffen's fees were to be paid out of the $1.05 billion owed to
Kazakhstan, but within two weeks Mobil agreed to make a separate $41
million payment to Giffen's company, according to prosecutors. It was
from that money that Giffen allegedly kicked back $2 million to Williams.
Giffen is accused of siphoning $22 million from the Tengiz deal alone and
channeling it through a maze of accounts to Balgimbayev and Nazarbayev.
Prosecutors say Giffen similarly used five more deals to pay off the two
leaders: the 1997 Amoco purchase of a share in a pipeline consortium,
Texaco's 1998 purchase of rights in another oil and gas field, Phillips'
1998 purchase of exploration rights in the Caspian, and two other Mobil
deals.
Balgimbayev allegedly used some of his bribe money to buy $180,000 in
diamond jewelry and make a $20,000 down payment on a one-week stay for
his family at an exclusive Swiss spa. Giffen also had his company pay the
expenses, including property taxes, on a nearly $1 million house in
Newton, Mass., where Balgimbayev's wife lived with two children while
they attended a nearby school, prosecutors say.
For Nazarbayev, bribe money allegedly financed the $45,000-per-year
tuition for his daughter at an elite Swiss prep school. When she started
attending George Washington University in Washington, Giffen allegedly
paid that tab too.
Giffen also allegedly bought fur coats costing about $30,000 for
Nazarbayev's wife and daughter, and in 1999 allegedly provided Nazarbayev
with an $80,000 Donzi speedboat.
Still, Nazarbayev faces little possibility of being charged. The Foreign
Corrupt Practices Act allows the U.S. to indict only those paying bribes,
not foreign officials receiving them, said Lisa Landmeier, a Washington
lawyer who is an expert on the statute.
In his country, Nazarbayev got a law passed granting himself and his
family lifetime immunity from prosecution.
Nazarbayev's government also waged a bitter battle in Swiss courts to
keep the U.S. from gaining access to records for many of the bank
accounts in question, records show. The Swiss provided some, but not all,
of the data in 2001. Prosecutors successfully subpoenaed the rest from
Mercator's New York law firm, which had gathered the records for Giffen's
defense, according to court documents.
Justice Department warned
Sources familiar with the 3-year-old investigation say a prominent lawyer
representing Kazakhstan, Reid Weingarten, sent a blunt letter to a top
Justice Department official warning of the potential harm that
prosecution could cause U.S.-Kazakh relations during the war on
terrorism. Justice Department spokesman Bryan Sierra declined to discuss
the letter, and Weingarten did not return numerous calls.
Although it is not as crucial as some of its Central Asian neighbors,
there is little doubt that Nazarbayev's government has become more
important to the U.S. since the Sept. 11, 2001, terrorist attacks and the
U.S.-led assault on nearby Afghanistan.
Nazarbayev allowed one of his airports to be used as an alternative
airfield for U.S. forces in Afghanistan and approved more than 800
overflights during the war.
"President Nazarbayev and senior government officials have consistently
spoken out against terrorism and have taken concrete action to support
the international coalition against terrorism," the State Department said
last week. U.S. aid to Kazakhstan jumped from $75.5 million before the
attacks to $90 million in 2002, including $41.6 million for "security and
law enforcement," according to the State Department.
Olcott, the Kazakhstan scholar, said Nazarbayev's diplomats have
constantly pressed the U.S. to back off its investigation and likely
believed the "war on terror would make him more immune" from embarrassing
disclosures in the case.
At home, the alleged efforts of Nazarbayev's supporters to quell the
embarrassment apparently have been more blunt.
According to Human Rights Watch, independent journalists in Kazakhstan
writing about corruption have been "attacked and beaten, threatened with
death and jailed." One newspaper leading the way in covering Kazakh
corruption--including stories detailing Nazarbayev's Swiss bank
accounts--saw its offices destroyed in a firebombing.
Copyright (c) 2003, Chicago Tribune
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