The Texas-based oil-services company Baker Hughes pled guilty on April 26 in a U.S. federal court to violating U.S. antibribery provisions, and agreed to pay a fine of $44 million.
One-quarter of the fine covers Baker Hughes' activities developing the huge Karachaganak natural-gas field in northern Kazakhstan.
In the criminal complaint, the Houston federal court alleged that officials of a Baker Hughes subsidiary in Kazakhstan paid $4.1 million in bribes from 2001-03 to an intermediary, who in turn transferred money to a high-level executive of KazakhOil, the state oil company at the time.
Additionally, the complaint says, in the period of 1998-99, kickbacks of more than $1 million were paid to a KazTransOil executive. The U.S. agency that regulates financial markets, the Securities and Exchange Commission (SEC), said that in addition to Kazakhstan, Baker Hughes admitted to bribing officials in oil-related industries in Russia, Uzbekistan, Angola, Indonesia, and Nigeria.
SEC Reveals Charges
It has been known since 2004 that the SEC was conducting an investigation related to Baker Hughes' operations on the Karachaganak project. But until last week, the magnitude of the charges was unknown.
Christopher Conte, the associate director of the SEC's division of enforcement, said that the commission is trying to keep ongoing investigations as confidential as possible. He says only the charges related to Baker Hughes' Kazakhstan activities were filed as criminal charges, all others were filed as civil charges.
The Kazakh state officials involved in the alleged bribery schemes were not named in the complaint.
"The [U.S.] Department of Justice made the decision to charge certain conduct as criminal after they pursued their investigation," Conte said. "The [SEC] can only bring civil charges. Any criminal charges that are brought are basically the complete decision of the Department of Justice."
The Kazakh state officials involved in the alleged bribery schemes were not named in the complaint. The investigation indicates that the bribes were wired to two separate individual bank accounts -- one in Zurich and the other in London. Swiss and British authorities assisted in the investigation, the complaint says.
The SEC also accused Roy Fearnley, a former Baker Hughes manager in Kazakhstan, of being the main facilitator of the bribery schemes. According to the complaint, Fearnley told his supervisors that unless a specific agent for KazakhOil was retained as a consultant, Baker Hughes could "say good-bye to this and future business" in Kazakhstan.
After bribes were paid, Baker Hughes was awarded an oil-services contract in a Karachaganak field that generated $219 million in revenues from 2001 to 2006.
No Kazakh Officials Named
The SEC's Conte said that the names of individuals that may be implicated in an investigation are only disclosed if those people are named as defendants. The Kazakh officials involved in this investigation are only considered accomplices and their anonymity is protected.
"We don't, as a matter of general practice, include the names of other individuals who may be part of the story. So, there was no deal, there was no arrangement, there was no anything like that," Conte noted.
The SEC "as a matter of practice includes the names of those individuals who are the defendants and otherwise doesn't typically disclose the names of other individuals," he adds.
Roman Vassilenko, who is the press attache at the Kazakh Embassy in Washington, said that he is not familiar with the case and cannot comment on the credibility of the charges involving Kazakh officials.
He said, however, that there is an anticorruption law in Kazakhstan and that several high-level Kazakh officials have been prosecuted under this law.
Donald Zarin, a Washington-based lawyer who wrote a book on the U.S. Foreign Corrupt Practices Act (FCPA), under which Baker Hughes was prosecuted, said that the U.S. government views bribing foreign officials as a serious criminal offense.
One of the reasons for that, he said, is that bribing foreign officials stifles the competition in the country and thus negatively affects its economic development.
"Fundamentally it's a bribery law. And it prohibits U.S. companies and U.S. citizens from paying or authorizing the payment of any monies or anything of value to foreign officials to obtain or retain business," Zarin said.
The FCPA "essentially says that U.S. companies cannot bribe foreign officials. It also says that U.S. companies cannot give any money to intermediaries, like consultants, if they have knowledge that the purpose of that, [is for the] consultant [to attempt] to pay foreign officials to obtain or retain business," he added.
Baker Hughes Chairman Chad Deaton said on April 26 that the employees and agents believed to be involved in the Karachaganak bribery scheme have been fired. The SEC complaint acknowledges that the company has been cooperating with the investigation.
The news about the settlement was perceived as a positive development by investors, who pushed the Baker Hughes stock price up on April 26-27, where it closed at $81. The company is rated a "10 of 10" by some stock-rating agencies, the highest-quality stock grade.
Similarities To 'Kazakhgate'
Baker Hughes' settlement resembles the so-called "Kazakhgate" case, another bribery case in the United States involving Kazakh officials, which continues to move at a snail's pace in the federal courts of New York.
The Kazakhgate complaint alleges that U.S. businessman James Giffen funneled tens of millions of dollars in the 1990s to Kazakh President Nursultan Nazarbaev and former Prime Minister Nurlan Balgimbaev in exchange for lucrative licenses for Western oil-companies.
When Kazakhgate was initially disclosed in 1999, it caused a huge embarrassment to the Kazakh government and hundreds of thousands of dollars were spent in the West on a public-relations campaign to counter the allegations.
But after a string of successful legal moves by Giffen's defense team and the five consecutive postponements of the beginning of the trial, the interest in Kazakhgate seems to be waning.
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