In the mid-1990s, long before oil prices topped $60 a barrel, U.S. companies sought access to Kazakhstan, a Central Asian nation that the U.S. State Department says will be among the world's top 10 producers of crude by 2015.
First, they had to win approval from Jim Giffen, a New York investment banker who became an official in Kazakhstan's government and held sway over its energy deals.
``You couldn't go to a Kazakh minister, particularly if you were an American company, without going through Giffen,'' says Ed Chow, who managed external affairs at Chevron Overseas Petroleum Ltd., a unit of San Ramon, California-based Chevron Corp.
Chevron, the second-largest U.S. oil company, avoided Giffen by arriving in the country before he amassed power, says Chow, 55, who's now an oil and gas consultant in Leesburg, Virginia. Others couldn't.
Now, federal prosecutors say Giffen, 64, cemented his power by bribing Kazakh leaders with $84 million that Amoco Corp., Mobil Oil Co., Phillips Petroleum Co. and Texaco Inc. paid to win access to Kazakh fields. In January, Giffen goes on trial in federal district court in New York in one of the largest overseas criminal bribery cases ever.
The four companies, which have since merged with rivals, haven't been charged.
Giffen denies wrongdoing. His lawyers, Steven Cohen and William Schwartz, say in court papers that Giffen's actions were condoned by the Central Intelligence Agency, White House and State Department to curry favor with Kazakh President Nursultan Nazarbayev, 65.
`Fear About Meeting'
The country borders China and Russia and has 39.6 billion barrels of recoverable reserves, which ranks Kazakhstan eighth in the world, above Libya and below Russia, according to the annual BP Statistical Review of World Energy.
The republic says reserves, in and on the shore of the Caspian Sea, may reach 100 billion barrels. Total world reserves are 1.19 trillion barrels.
Giffen and his lawyers declined to comment, as did the prosecutor, Assistant U.S. Attorney Peter Neiman.
``I have never had another case where I had as many witnesses, or really any witnesses, express the kind of fear about meeting with us that we had in this case,'' Neiman said in court on June 3, 2004, when the defense unsuccessfully sought dismissal of the charges.
The case is a cautionary tale of the perils of doing commerce in developing nations. ``Jim's role has been played by others in the Middle East, Africa, Latin America,'' Chow says. If he's convicted, Giffen may spend the rest of his life in prison.
Mobil Executive's Guilty Plea
It would be a steep fall for a man who owns an $80,000 Bentley Brooklands and an 11-acre estate in Mamaroneck, a New York suburb. The investigation has ensnared others, too.
A Mobil executive who ran the company's oil efforts in Kazakhstan, Bryan Williams, 65, pleaded guilty in June 2003 to tax evasion stemming from the case.
A grand jury is probing whether Mobil participated in a scheme to bribe leaders of the world's ninth-biggest nation by geographical area, Neiman said in an April 4, 2003, court filing.
Giffen paid $20 million in bribes to Kazakh leaders after negotiating a $1.05 billion deal that awarded Mobil a share of a major Kazakh field, the indictment says. Mobil, now part of Irving, Texas-based Exxon Mobil Corp., the world's largest publicly traded oil company, denies wrongdoing.
``Exxon Mobil has no knowledge of any illegal payments made to Kazakh officials,'' Exxon Mobil spokesman Tom Cirigliano says.
Texaco's involvement in Kazakhstan has also come under scrutiny, according to a copy of a Justice Department subpoena from April 14, 2003.
After Texaco, now a unit of Chevron, won access to a field, Giffen paid $7.5 million in bribes to Kazakh officials, prosecutors say. ``All payments made by Texaco were properly made to the government of Kazakhstan into government accounts as instructed by the government,'' says Jeffrey Moore, a spokesman for Chevron.
Edward Blessing, managing director of Dallas-based Blessing Petroleum Group LLC, which finances exploration projects, says some oil companies are still asked to pay bribes. Blessing, who worked in Central Asia, says he has never paid a bribe.
``We forget sometimes that that's an accepted way of doing business in some countries,'' he says. ``I had a Russian businessman tell me that the difference between a good manager and a bad manager was that a good manager would ask for a facilitation payment, as he called it, and he would sprinkle it throughout his organization. A bad manager kept it all for himself.''
`Play by the Rules'
Unnamed senior officials in Kazakhstan have urged the U.S. to drop the case, U.S. District Court Judge Denny Chin said in a ruling in 2002.
By pressing ahead, the Justice Department is signaling the importance of U.S. laws outlawing bribery overseas, says Stanley Marcuss, a Washington-based lawyer at Bryan Cave LLP who helped draft the Foreign Corrupt Practices Act.
The 1977 statute bars Americans from bribing officials in other countries to win contracts. ``It is based on an assumption that goods or services are sold on the basis of price, quality, timeliness and other commercial considerations,'' Marcuss says.
``And if they are sold on other-than-normal commercial considerations, those who play by the rules are denied an equal opportunity to participate,'' he says.
The U.S. Congress enacted the law, which also empowers the U.S. Securities and Exchange Commission to file civil suits, after more than 300 companies said they'd made at least $300 million in suspicious payments to officials outside the U.S.
`Bolts from Heaven'
Donald Zarin, a Washington-based lawyer at Dechert LLP and author of a textbook on the law, said the payments in Giffen's case are among the highest ever in an overseas bribery prosecution.
By the time Giffen was indicted in 2003, he'd spent half his life working in Central Asia. The son of a Stockton, California, clothier, Giffen challenged Cold War orthodoxy and began advocating trade with the Soviet Union soon after leaving the University of California, Los Angeles, with a law degree in 1965.
``It really was one of these bolts from heaven,'' says his ex-wife, June Hopkins, of his interest in the USSR. Before Giffen turned 30, he testified before Congress and wrote a textbook on trade with the USSR, with an introduction by then U.S. Senator Walter Mondale.
He joined Pittsburgh-based steelmaker Armco Inc. in 1973 and helped devise a plan to swap drilling equipment for Russian oil. ``He has a very sort-of brusque, tough, aggressive exterior manner,'' says Mark Siegel, 58, a Washington lobbyist who worked for Giffen years later in Kazakhstan.
Hopkins's grandfather was Harry Hopkins, a confidant of President Franklin Delano Roosevelt and an architect of the New Deal, and Giffen often talked politics with his wife's father, an advertising executive, she says.
``He has a great sense of the United States, the uniqueness of America, and feels very loyal,'' Hopkins, 64, says of her ex- husband, from whom she got divorced in 1984. ``He felt very strongly about the duties that people have to their government.''
In 1984, Giffen launched New York-based investment bank Mercator Corp. while also leading a nonprofit group representing 300 companies that sought trade with the Soviets.
Though he speaks little Russian, Giffen by then had made 150 trips to the USSR, sometimes meeting with Mikhail Gorbachev, who became the leader of the Soviet Union the next year, he said in a 1984 television interview.
`No Such Thing as Can't'
``He had a wonderful way of perceiving what could be done,'' says Hopkins, who now teaches history at Armstrong Atlantic State University in Savannah, Georgia. ``There was no such thing as can't. He worked damn hard.''
In 1988, Giffen assumed control of another organization, the New York-based American Trade Consortium, which sought Soviet contracts for seven U.S. companies, including Decatur, Illinois-based Archer Daniels Midland Co.; New Brunswick, New Jersey-based Johnson & Johnson; and Chevron.
He mingled with Soviet apparatchiks, such as then Kazakh Communist Party leader Nazarbayev, and U.S. executives including Archer Daniels Chairman Dwayne Andreas. Giffen also intervened in politics, urging Gorbachev to allow Russian Jews to emigrate.
``He and Dwayne Andreas both were dealing very closely with Gorbachev at that point and linking better trade relations and better political relations with opening up the borders,'' says Siegel, who learned of their work as a member of the World Jewish Congress.
Archer Daniels spokeswoman Karla Miller says Andreas, 87, now chairman emeritus, declined to comment.
One of the World's Largest
At the time, Chevron was considering Soviet oil fields, though it hadn't targeted a specific region, former Vice Chairman Richard Matzke says.
Chevron scoured the region before seeking drilling rights in the barren salt flats along the Caspian's shore, he says. Today, Kazakhstan's Tengiz field is one of the world's largest, with as much as 9 billion barrels, according to the U.S. Energy Information Administration.
Giffen, with his contacts in Moscow, worked first as an adviser to Chevron. After the Soviet Union's 1991 collapse, he was a consultant to the republic, former U.S. Ambassador to Kazakhstan William Courtney says.
In April 1993, after four years of negotiations, Chevron agreed to pay about $800 million for a 50 percent stake in Tengiz, says Matzke, who led the talks. The deal spurred rivals to follow, and soon Mobil and others sought access to a former Soviet republic that had won independence 16 months earlier.
`Promising to Open Doors'
Almaty, covered in smog and ringed by the Tian Shan Mountains, was a city of fixers as well as Kazakhstan's capital when Giffen arrived.
``There were so many people around in those years who were promising to open doors,'' says Martha Olcott, 55, a senior associate at the Washington-based Carnegie Endowment for International Peace and author of ``Kazakhstan: Unfulfilled Promise'' (Carnegie Endowment, 2001).
Mining companies desired Kazakhstan's mineral wealth, telecommunications firms wanted control of its communications network, and oil and gas companies sought a piece of its energy resources, she says.
As Nazarbayev's government sought to revive a stagnant economy by selling parts of industries recently dominated by the Soviets, Giffen, who had squired Nazarbayev around Washington on a 1992 visit, convinced the Kazakhs he knew how Wall Street worked and the Americans he knew how Kazakhstan functioned.
``It's hard to recapture the degree of ignorance of the people at that point in time, on both sides,'' Olcott says. ``The Kazakhs knew nothing about the outside world, and the Americans knew nothing about Kazakhstan, and they were really, really desperate to get in there.''
Caspian oil was beckoning. The Kashagan field, then undeveloped, is now the world's second-largest after Saudi Arabia's Ghawar, with recoverable reserves of as much as 10 billion barrels.
Giffen persuaded Nazarbayev, or ``the boss,'' as he called the president, to enlist his bank in the efforts to sell assets. Mercator, which would eventually employ 100 staffers and consultants, was hired to advise Kazakhstan on Dec. 31, 1994, court records say.
Giffen was appointed Nazarbayev's counselor eight months later, they say.
Broad-shouldered and nattily dressed in a blue blazer or tailored suit, Giffen found himself in the center of some of the world's largest oil deals. He traveled on a Kazakh passport and kept an office for his bank on Almaty's main street, court records say.
`Nothing Intimidated Him'
As visiting U.S. oil executives made the rounds through Kazakh ministries, an acquaintance recalls Giffen's wagging his finger and telling them, ``You've got to come through me.''
``Nothing intimidated him,'' says former Mercator board member Robert Knight, 86, a retired lawyer at Shearman & Sterling LLP, the 13th-largest U.S. law firm. ``He had the ability to negotiate very well. He knew what he was talking about.''
From 1995 to 2000, Mercator earned about $67 million in fees, counseling the Kazakh Oil Ministry on at least six deals, prosecutors say.
Among them was Mobil's $1.05 billion purchase of a 25 percent share in Tengiz in 1996; Amoco's 1997 acquisition of usage rights for a Caspian pipeline for $150 million; Texaco's 1998 deal for an interest in the Karachaganak oil and gas field; and Phillips Petroleum's acquisition of Caspian rights for $271 million in 1997.
Diverted $84 Million
Prosecutors say the deals enabled Giffen to solidify his power in Kazakhstan. Out of the companies' payments to Kazakhstan or Mercator, he diverted $84 million to accounts secretly owned by Nazarbayev, Oil Minister Nurlan Balgimbaev and a third Kazakh official, prosecutors say.
Nazarbayev got about $60 million; Balgimbaev, about $18 million; and the third official, $6 million, prosecutors say.
Giffen lavished gifts on the Kazakhs, prosecutors say: Nazarbayev got two snowmobiles, an $80,000 Donzi speedboat and his daughter's tuition at George Washington University in Washington, then $22,625 a year.
Giffen paid $36,000 in expenses for a house Balgimbaev kept in Newton, Massachusetts, near where the minister's children attended college.
``He understood the psychology of Soviet bureaucrats,'' says Zharmakhan Tuyakbay, 58, former speaker of Kazakhstan's lower house of Parliament and a challenger to Nazarbayev in elections anticipated for late 2005 or 2006. ``He probably knew exactly what to offer.''
`An Internal Matter'
The Kazakh government, which Transparency International ranked 122nd out of the 146 nations in its 2004 Corruption Perceptions Index, denies the allegations.
The government says that Nazarbayev, who hasn't been charged, instructed his ministers in 1996 to route funds to Switzerland as a safeguard in the event of an economic collapse. Asked about the case, Nazarbayev's chief policy adviser, Karim Massimov, says, ``This is an internal matter of the United States.''
At the trial, prosecutors say, they'll show how Mobil's $1.05 billion deal for Tengiz hinged on bribes to Kazakh ministers and illegal payments to a Mobil official.
According to court papers, Mobil in mid-1995 entered negotiations for a portion of the Tengiz field. In April 1996, the talks neared collapse when Mobil Chief Executive Officer Lucio Noto dispatched Mobil's Williams, who headed oil trading in the region, to revive the deal, prosecutors say.
Wired to Switzerland
After two days of meetings, Giffen, Williams and Kazakh ministers hammered out the $1.05 billion pact that awarded Mobil a 25 percent stake in Tengiz, court papers say. The sale closed a month later.
As part of the deal, Mobil agreed to pay an extra $41 million in fees to Giffen's bank, prosecutors say. From the $41 million, Giffen routed $2 million into an account, in the name of Alqi Holdings Ltd., which was established for Williams, prosecutors say.
Giffen later wired an additional $20.5 million to an account in Switzerland that prosecutors say is owned by Nazarbayev.
Balgimbaev also profited, according to prosecutors. In an effort to close the deal, Mobil agreed to make unsecured loans to a shell company that was supposed to help Kazakhstan sell gas condensate, they say.
From 1995 to early 1997, Mobil loaned the company, Vaeko Europe Ltd., more than $78 million, of which $30 million was never repaid to Mobil, they say.
About $1 million wound up in a Bahamas-based company owned by Balgimbaev, who used the funds to buy diamond jewelry and pay for his family's stay at a Swiss spa resort, they say.
``You can't work in Kazakhstan without paying bribes,'' says former CIA officer Robert Baer, who was stationed in Central Asia in the mid-1990s. ``It's that kind of Wild West. Everyone was doing it.''
On June 12, 2003, Williams, a lawyer and Vietnam veteran, became the first casualty of the Justice Department's probe. He pleaded guilty to tax evasion on money he secretly received from people with whom he negotiated on Mobil's behalf.
In his plea, Williams also explicitly exonerated Mobil. He said his former employer hadn't known of the payments. Williams, who's now serving a 46-month sentence at a Maryland prison camp, declined a request for an interview.
Noto, 67, who's now managing partner of New York-based investment firm Midstream Partners LLC, says he's not under investigation and declined further comment.
By the time of Mobil's Tengiz deal, Giffen, a whiskey drinker, was living large. The Chevron transaction paid him 7.5 cents on every barrel, earning him millions of dollars, people familiar with the contract say. Giffen lavished gifts on girlfriends and spent $500,000 in a Geneva jewelry shop in late 1998, according to the indictment.
Giffen didn't hide his relationship with Nazarbayev. ``He has this Christmas party every year in New York,'' lobbyist Siegel says of Giffen.
``One year, President Nazarbayev was at the Christmas party, and in his toast, he talked about Nazarbayev as a forward-looking leader, as someone who's going to bring democracy to Kazakhstan,'' Siegel says. ``And there were tears in his eyes. He's a true believer.''
Under Nazarbayev, Kazakhstan's debt has won an investment- grade rating of Baa3 from Moody's Investors Service. The State Department has criticized Kazakhstan for flawed elections, human rights abuses, arbitrary enforcement of laws and a restricted press.
More Than Oil
Giffen's job included more than securing oil contracts. Elizabeth Jones, 57, who was U.S. ambassador to Kazakhstan from 1995 to 1998, says Giffen told her he spearheaded a restructuring of the Kazakh government.
Mercator's staff, including Giffen's son David, 42, who's also an independent music producer, helped open doors for a group, the International Center for Not-for-Profit Law.
The Washington-based center wanted to reform Kazakh policy on nongovernmental organizations, ex-Regional Director Richard Remias says.
Siegel says he watched Giffen press Nazarbayev for laws supporting fair elections and robust political debate. ``The president didn't always listen to the advice of his consultants,'' Siegel says. ``But we kept trying, and Giffen kept urging us to keep trying.''
Baer, the former CIA officer who's author of ``See No Evil: The True Story of a Ground Soldier in the CIA's War on Terrorism'' (Crown Publishing, 2002), says Giffen also injected himself into U.S.-Kazakh relations.
`He Was the Channel'
Baer, whose book criticizes CIA anti-terrorism efforts, says the State Department turned to Giffen when it wanted to stop Nazarbayev from selling surface-to-air missiles and other arms to North Korea and Iran.
He says Giffen reviewed a secret CIA report on government corruption in Kazakhstan. ``They went to Jim Giffen to make problems go away,'' Baer says. ``He was the channel.''
Defense attorneys Cohen and Schwartz say in court papers they'll point to such contacts as proof that the U.S. condoned Giffen's payments to build ties with an oil-rich nation in a strategic region.
They've demanded records of Giffen's communications with 15 former U.S. officials, including Secretary of State James Baker, National Security Adviser Brent Scowcroft and CIA Director Robert Gates.
Reported to CIA
The lawyers also say Giffen, as a Kazakh official, acted lawfully by heeding orders from Kazakh superiors to transfer funds to Switzerland. ``Mr. Giffen routinely reported to the CIA upon his return from his numerous trips,'' Schwartz said in court last year.
``When the government of the United States needed something to be done in Kazakhstan, Mr. Giffen was asked to do it,'' Schwartz said.''
Prosecutors deny Giffen played a special role. Ex-Ambassador Jones, who has left the government and is now a principal at consulting firm AEJones in Arlington, Virginia, says claims that Giffen thwarted a Kazakh missile deal are untrue.
CIA spokeswoman Michelle Ness declined to comment, citing pending litigation. White House spokeswoman Erin Healy referred questions to prosecutors.
What probably happened, Jones says, is that after U.S. officials met with Giffen in Washington -- as they routinely meet with U.S. executives working overseas -- Giffen returned to Kazakhstan and exaggerated his importance.
``He did the classic middleman thing,'' Chevron's Chow says. ``This happens everywhere. The guy flies in from Kazakhstan, comes to Washington and says, `I have a message from Nazarbayev.' So if you're the U.S. government, do you talk to him? Then he goes back to Almaty and says to Nazarbayev, `I have a message from Washington.'''
Kazakhstan, which supplied 29 troops for the Iraq war and landing rights for the U.S. in the Afghanistan campaign, may retaliate for the case by redirecting oil supplies toward China, says James Wertsch, director of International and Area Studies at Washington University in St. Louis.
Kazakhstan plans to develop a 3,000-kilometer (1,864-mile) pipeline with China. Others doubt Kazakhstan will punish the U.S. or its oil companies.
President George W. Bush said in a July letter to Nazarbayev that the countries are strategic partners, says Roman Vassilenko, first secretary in the Kazakh Embassy in Washington. National Security Council spokesman Frederick Jones declined to comment.
``Kazakhstan needs foreign investment,'' says Lorrie Olivier, CEO of Houston-based TransMeridian Exploration Inc., a company that's drilling in Kazakhstan. ``The country has welcomed us with open arms.''
In Kazakhstan, where Nazarbayev watched a popular revolt in March unseat rulers in neighboring Kyrgyzstan, opposition leaders plan to publicize the trial as evidence of government corruption.
``The ongoing `Kazakhgate' trial in New York will have a most serious effect,'' says former Prime Minister Akezhan Kazhegeldin, who was ousted in a 1997 power struggle with Nazarbayev and is in exile in Europe after being convicted in absentia of tax fraud and accepting bribes.
The Vienna-based Organization for Security and Cooperation in Europe questions the fairness of Kazhegeldin's trial.
The Giffen case, with its tales of renegade oil traders, Kazakh missile deals, Swiss bank accounts and high-level corruption, may make waves from Caspian oil fields to U.S. boardrooms.
Depending upon the evidence, directors of Mobil and Texaco might not like what washes up.
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