The criminal complaint against merchant banker James Giffen, accused of diverting oil company fees to bank accounts controlled by Kazakhstani officials, is narrow in scope. As such, the case may have a limited impact on domestic political developments in the Central Asian country. However, that could change if US prosecutors try to make a plea arrangement with Giffen in return for testimony against others involved in the case.
Giffen, 62, is now out of jail after putting up $250,000 in cash and two homes in suburban New York as bail. He also surrendered his passport and pledged not to leave the New York City vicinity. He was arrested March 30 and charged with two counts of violating the Foreign Corrupt Practices Act (FCPA). [For background see the Eurasia Insight archives].
The complaint against Giffen is based heavily on a deposition by Federal Bureau of Investigation Special Agent Kevin Irwin. He charges Giffen and an unnamed co-conspirator of conspiring to send millions of dollars "gleaned from oil company deals" to Kazakhstani government leaders, who had decision-making authority over those deals. It goes on in great detail to trace the sequence in which money was wired from a US bank to numerous Swiss accounts and companies chartered in the British Virgin Islands. [For additional information see the Eurasia Insight archives].
Mercator Corp., Giffen's boutique investment bank, served as an intermediary for the Kazakhstani government in the negotiation of deals to develop the country's substantial oil and gas revenues, according to the complaint. The prosecutors' case focuses on transactions between Mercator and Mobil Oil Corp., which is know part of ExxonMobil. In May 1996, Mobil paid Mercator $41 million in fees, the complaint says. Mercator then, in a complex set of transactions, shifted $20.5 million of those fees into accounts under the control of a top Kazakhstani official, identified in the complaint only as "KO-2." Other transfers, according to the complaint, went to another official described as "KO-1," who signed a sale agreement with Mobil on Kazakhstan's behalf.
The charges against Giffen are the result of an over two-year grand jury investigation. [For additional information see the Eurasia Insight archives]. Conviction on charges of violating the FCPA could result in a prison sentence of up to 5 years and heavy fines.
Giffen now faces a hearing date on April 30. He could opt for a trial by jury, which would probably be held no sooner than the very end of 2003. In preparing for a possible trial, he could explore a deal with prosecutors, rather than running the risk of conviction and a prison term.
"I don't think there's any doubt that [plea bargaining] will be part of the game plan," says an expert who has closely monitored the case since the beginning of the grand jury investigation. The expert, along with other observers, say that a central element to any US government deal with Giffen would probably be the identification of his co-conspirator(s).
"When a person is cornered, if he feels that this is it, he might be willing to sit down with the prosecution and name names," says Robert Ebel, director of the Energy Program at the Center for Strategic and International Studies in Washington.
According to an April 1 report in the New York Times, Swiss official documents say one of the accounts to which Mercator transferred money has Kazakhstani President Nursultan Nazarbayev as a beneficiary. Giffen has served in the official capacity as counselor to the Kazakhstani president.
Nazarbayev has spent the past year parrying accusations of corruption leveled at him by his political opponents. [For background see the Eurasia insight archives]. During that period he has cracked down on freedom of expression. [For additional information see the Eurasia Insight archive].
Among the many consultants who broker deals between private companies and government ministries, Giffen apparently earned special prominence. Prospective investors reportedly called him "Mr. Seven-and-a-Half Cents." He reportedly negotiated a production deal with a global oil giant, in which he secured a commission of 7.5 cents on every barrel of oil the company pumped out of Kazakhstan.
Legal observers say it is unlikely that Western oil conglomerates will find themselves accused of wrongdoing in connection with the Giffen case. Oil consultants, according to Ebel, often buy access to key officials while shielding corporations from direct liability for illicit practices. "From my days on the oil circuit, corporate lawyers would lecture you on a fairly regular basis about what you could and could not do," says Ebel.
With consultants often shouldering the burden of questionable practices, companies can always say as ExxonMobil consistently has in this case that they cannot control what others do with their payments, which conform to US law. Tom Cirigliano, an ExxonMobil spokesman in Texas, stresses that the company conducted itself ethically and legally in its dealings with the Kazakhstani government. "We certainly worked through Mercator because they were representing the republic," he says. But he adds that "all payments were made in full compliance with agreements negotiated with Kazakhstan."
According to published reports, Kazakhstani leaders repeatedly lobbied top Bush administration officials, including Vice President Dick Cheney, to either contain the criminal probe, or get it dismissed altogether. US officials reportedly rejected the Kazakhstani appeals.
Given that the identities of Giffen's co-conspirators have not yet been publicly revealed, the case may have only a marginal impact on domestic politics in Kazakhstan, some observers say. At the same time, there could be fallout for US-Kazakhstani economic relations, observers add. However, some point out that the US investor outlook for Kazakhstan has already been souring.
"I wouldn't be surprised in the wake of an indictment if US companies were disadvantaged in negotiations for new offshore blocks," one oil industry analyst said. "But I am not sure there are any US companies are dying to get into the offshore under difficult terms and weakened investment laws in any case."
Alec Appelbaum is a contributing editor to EurasiaNet.