A recent article by Seymour Hersh, published in The New Yorker magazine, profiled lobbyist James Giffen, helping to highlight the pervasive nature of corruption in Central Asia and the Caucasus. Giffen, who's under investigation for shepherding payments by ExxonMobil through Kazakhstan to Iran, appeared in the article as an embodiment of corruption in the region. If only it were that simple. Many observers say shady dealings of players like Giffen, who reportedly receive large sums for helping Western companies gain access to bureaucrats, are just a sideshow in the overall corruption picture.
The real danger to the Caucasus and Central Asia is that corruption is beyond the control of any single individual in the respective countries. "This isn't about some guy making off like a bandit," says Laurent Ruseckas, a director at Cambridge Energy Research Associates, and a specialist in Caspian Basin energy issues. "It's about the fact that corruption in the former Soviet Union is endemic and pervasive."
There are plenty of numbers to support Ruseckas' assertions. For instance, Kazakh official Kozykorpesh Karbuzov reported in April that 141 civil officials were convicted of corruption-related crimes in 2000. In Azerbaijan, 73 percent of experts in a recent poll called for a new system of government to fight corruption. Bribes and side payments occur throughout these economies. Their breadth threatens efforts to legitimately join the global oil trade.
Corruption sullies every former Soviet republic, and measures to thwart it seem feeble. When the International Monetary Fund pledged $100 million into Azerbaijan's oil fund last week, the Financial Times worried about the money disappearing. On July 19, Georgian President Eduard Shevardnazde announced new measures to fight corruption. Meanwhile, Tbilisi-based consultant Will James of PA Consulting asserted that a political associate of the president's runs the state oil company, and routinely conceals information about oil profits.
Corruption is prevalent in all sectors of regional economies. For example, the United Nations called on Turkmenistan this month to stop hauling sturgeon from the over-fished Caspian. Corrupt practices in the caviar trade helped bring about that crisis. Corruption has spread so far that in Armenia, where the state news agency proclaims corruption to be "relatively low," IPR Strategic Business Information estimates that 30 percent to 55 percent of the nation's GDP occurs in a "shadow economy."
If vivid tales like Giffen's experience in Kazakhstan, which is chronicled in the July 9 issue of The New Yorker, constitute a sideshow, pervasive corruption is beginning to look like a business problem. Ruseckas says that some Western companies, most visibly the United Kingdom's BP Amoco and the Netherlands' Royal Dutch/Shell, may soon make steps to reform or punish corrupt regimes. These firms compete for bright employees and discerning customers. So just as they want to look like good environmental stewards, Ruseckas says, they want to cultivate enlightened images on transparency and workers' rights. Already, supranational bodies such as the World Bank are imposing conditions on national oil projects in places like Chad. Working in concert, non-governmental organizations and huge companies could overwhelm states' power to set the pace and terms of reform. Events in the Caspian basin, specifically in Kazakhstan, could develop into a "test case" for the way multinationals can impinge on sovereignty, says Ruseckas.
Already the battle lines are forming. In mid July, OPEC's general secretariat reported that Kazakhstan could lead the world's oil production in 15 years. Meanwhile, Kazakhstani President Nursultan Nazarbayev has called on domestic industrialists to "consolidate" and seize the country's potentially rich oilfields. Nazarbayev declared Kazakhstan ready to move beyond "handing over major oil and gas fields to foreign companies." The call for domestic oil production sounds like a move to dilute Western influence.
But Kazakhstan and its neighbors depend on foreign investment for big chunks of their budgets. Chevron has invested, or plans to invest, roughly $7 billion in the state, according to Kazakh media. It won't be easy to break off ties with such generous investors. Those investors, in turn, figure to embolden Western groups like Transparency International to make louder calls for reform. Which means that for all his jingoism, Nazarbayev will have to treat corruption as a serious challenge.
Ultimately, bribery and other illicit activity will decline only if it becomes superfluous. "If a necessary condition for doing business is that you have to get somebody to put some money up front, you do it or you get out," says Joseph LaPalombara, a retired professor at the Yale School of Management.
In the region, officials frame the fight against corruption in terms of creating new systems. For instance, Kyrgyz President Askar Akayev recently announced the government would simply require fewer licenses. By subjecting fewer endeavors to licensing, he argued, the country could reduce the volume of corrupt payments made to procure those licenses. In his July 19 decree, Shevardnadze called on a newly created anti-corruption council to monitor implementation of a gradual overhaul of state structures that is designed to promote transparency.
Despite the rhetoric about changing state institutions, little structural reform has actually occurred. Indeed, regional leaders seem to prefer focusing on specific instances of corruption, in the hope than an occasional prosecution will deflect attention away from systemic problems. But hobbling would-be Giffens cannot adequately address larger dangers connected with long-term economic development. Those countries that do not act to contain corrupt practices risk inflicting long-term structural damage.
By urging his local industrialists to lay claim to the country's oil fields, Nazarbayev appears to want to hasten the development of the oil and gas industry. That's a dangerous gambit. Rapid development could foster even more corruption, and as corrupt interests become more entrenched, they will become harder to eliminate. The resulting pattern could create a framework in which decisions about how much to invest in oil become murkier and costlier than they need to be. In addition, as Ruseckas asserts, countries subject themselves to sudden depressions if they tie their economies too closely to oil.
Western companies and NGOs can have an impact with a swift and determined campaign to promote transparency. Such an effort could help put countries in the Caucasus and Central Asia on a more stable development path.