Oil, Cash and Corruption

ON a warm after­noon in late September, Nursultan A. Nazarbayev strode across the tar­mac at Andrews Air Force Base to board his pri­vate 767. Surrounded by an entourage of secu­ri­ty guards and polit­i­cal advis­ers, Mr. Nazarbayev, the pres­i­dent of Kazakhstan, was head­ing home after an event­ful vis­it that includ­ed a meet­ing with President Bush in the White House and a boat­ing jaunt in Maine with the president’s father, George H. W. Bush. He also attend­ed a swank fete at the Capital Hilton Hotel where his hosts, the busi­ness mogul Ted Turner and for­mer Senator Sam Nunn, praised him for clos­ing a major nuclear test site.

Warm wel­comes aside, human rights groups fre­quent­ly char­ac­ter­ize Mr. Nazarbayev as a dic­ta­tor who, dur­ing 15 years of rule, estab­lished a ham­mer­lock on his country’s oil rich­es and amassed a for­tune at the expense of an impov­er­ished cit­i­zen­ry. Supporters say he has wed­ded a dra­con­ian polit­i­cal order to clear-eyed eco­nom­ic poli­cies, mak­ing his coun­try hos­pitable to for­eign invest­ment. But his White House vis­it came at a ten­der moment. About a month ear­li­er, the Bush admin­is­tra­tion intro­duced its National Strategy to Internationalize Efforts Against Kleptocracy, an ini­tia­tive aimed at pre­vent­ing pub­lic graft world­wide by, among oth­er things, deny­ing cor­rupt lead­ers access to the United States finan­cial system.

Kleptocracy is an obsta­cle to demo­c­ra­t­ic progress, under­mines faith in gov­ern­ment insti­tu­tions and steals pros­per­i­ty from the peo­ple,” President Bush said. “Promoting trans­par­ent, account­able gov­er­nance is a crit­i­cal com­po­nent of our free­dom agenda.”

Mr. Nazarbayev’s vis­it, com­ing on the heels of those sen­ti­ments, sparked renewed crit­i­cism of his lead­er­ship and ques­tions about the White House’s ded­i­ca­tion to bat­tling cor­rup­tion over­seas — pos­si­bly explain­ing why the admin­is­tra­tion decid­ed against hold­ing a state din­ner in the Kazakh leader’s hon­or. But behind the scenes, a legal dra­ma has been play­ing out that ana­lysts say may more ful­ly explain why Mr. Nazarbayev and the White House are engaged in such an elab­o­rate form of polit­i­cal kabuki.

In February, the United States attorney’s office in Manhattan is sched­uled to go to tri­al in the largest for­eign bribery case brought against an American cit­i­zen. It involves a labyrinthine trail of inter­na­tion­al finan­cial trans­fers, sus­pect­ed mon­ey laun­der­ing and a dizzy­ing array of domes­tic and over­seas shell cor­po­ra­tions. The crim­i­nal case names Mr. Nazarbayev as an unin­dict­ed co-con­spir­a­tor. The defen­dant, James H. Giffen, a wealthy American mer­chant banker and a con­sul­tant to the Kazakh gov­ern­ment, is accused of chan­nel­ing more than $78 mil­lion in bribes to Mr. Nazarbayev and the head of the country’s oil min­istry. The mon­ey, doled out by American com­pa­nies seek­ing access to Kazakhstan’s vast oil reserves, went toward the Kazakh leadership’s per­son­al use, includ­ing the pur­chase of expen­sive jew­el­ry, speed­boats, snow­mo­biles and fur coats, fed­er­al pros­e­cu­tors say.


Beyond the large amounts of cash involved and the top-flight access such sums often secure, the case against Mr. Giffen has opened a win­dow onto the high-stakes, transcon­ti­nen­tal maneu­ver­ing that occurs when Big Oil and polit­i­cal access over­lap — a junc­ture marked by intense and expen­sive lob­by­ing, over­seas deal-mak­ing and the inter­sec­tion of mon­ey, busi­ness and geopol­i­tics. It is a shad­ow world of neb­u­lous bound­aries that peo­ple like Mr. Giffen estab­lish and define, often on the fly. The case also illus­trates the government’s strug­gle to rec­on­cile its short-term ener­gy inter­ests with its longer-term polit­i­cal goal of encour­ag­ing democ­ra­cy in coun­tries the inter­na­tion­al com­mu­ni­ty has deemed corrupt.

To be sure, many an American pres­i­dent has enter­tained a for­eign leader under a cloud of sus­pi­cion, but Mr. Nazarbayev’s role in a fed­er­al crim­i­nal inves­ti­ga­tion makes him an unusu­al entry into that com­pa­ny. Bush admin­is­tra­tion offi­cials have acknowl­edged that the Kazakh gov­ern­ment falls short in its democ­ra­cy-build­ing efforts. But some for­eign pol­i­cy spe­cial­ists see Kazakhstan as an impor­tant ally in the administration’s cam­paign against ter­ror­ism and a boun­ti­ful alter­na­tive to oil reserves in the volatile Persian Gulf — all of which promise to make the open­ing of the Giffen tri­al more than just hit-and-run bribery fare.

The admin­is­tra­tion is nat­u­ral­ly ret­i­cent about Giffen’s case,” said Raymond W. Baker, an ener­gy pol­i­cy ana­lyst on loan to the Brookings Institution, a lib­er­al research group. “It would prob­a­bly be a lot eas­i­er on every­one if he had got­ten away with it.”

IN a world long accus­tomed to out­size pub­lic cor­rup­tion, some ana­lysts say Mr. Nazarbayev is in a class by him­self. “I can’t think of a leader in the free world as noto­ri­ous­ly cor­rupt as Nazarbayev,” said Jonathan Winer, a for­mer deputy assis­tant sec­re­tary of state dur­ing the Clinton admin­is­tra­tion. “We’ve known about his cor­rup­tion for at least 15 years because our own intel­li­gence agen­cies have told us.”

Mr. Nazarbayev is cer­tain­ly a mixed bag of goods, oth­ers said, but that is the way the world works. As Jerry Taylor, a senior fel­low at the Cato Institute, a lib­er­tar­i­an research group, put it, “Kazakhstan’s human rights record may be check­ered, but if the United States were to dis­en­gage from those coun­tries with check­ered human rights and oth­er bad actors, we’d be history.”

The Clinton admin­is­tra­tion itself embraced Kazakhstan in the 1990s and praised Mr. Nazarbayev for lead­ing his coun­try toward eco­nom­ic and demo­c­ra­t­ic reform. Administration offi­cials, includ­ing the for­mer Secretary of State Madeleine K. Albright, also met with Mr. Nazarbayev in Kazakhstan.

The Clinton admin­is­tra­tion cer­tain­ly had enough infor­ma­tion about Nazarbayev’s cor­rup­tion,” Mr. Winer said. “The infor­ma­tion on him was open, noto­ri­ous and present.”

The work of defend­ing the curi­ous finan­cial and diplo­mat­ic port­fo­lio of Mr. Giffen is the job of William J. Schwartz and Steven M. Cohen, of Cooley Godward Kronish in Manhattan. The firm’s 48th-floor con­fer­ence room offers some of the stan­dard accou­trements of the white-col­lar defense bar — hand­some wood pan­el­ing, a flat-screen tele­vi­sion, a sky­line view fac­ing south toward Wall Street and a long oval table sur­round­ed by leather chairs and punc­tu­at­ed at its cen­ter by a bou­quet of sharp­ened white pencils.

In the spring of 2003, fed­er­al agents arrest­ed Mr. Giffen as he and Mr. Schwartz pre­pared to board a flight from New York to Paris. Prosecutors accused him of over­see­ing a tan­gled bribery net­work in the 1990s designed to buy access and influ­ence in Kazakhstan for oil giants like Exxon Mobil, BP Amoco (now BP) and Phillips Petroleum (now ConocoPhillips). The pay­ments, pros­e­cu­tors said, vio­lat­ed the Foreign Corrupt Practices Act, which for­bids American cit­i­zens or cor­po­ra­tions from pay­ing bribes to for­eign offi­cials to obtain busi­ness. None of the oil com­pa­nies have been accused of any wrongdoing.

While Mr. Giffen’s lawyers have con­ced­ed that their client shuf­fled mon­ey from one secret bank account to anoth­er, they have main­tained that he did not act alone. “Mr. Giffen was work­ing with the knowl­edge of our gov­ern­ment,” Mr. Schwartz said. “Jim’s access in Kazakhstan was a func­tion of a bizarre his­tor­i­cal time.”

James H. Giffen is accused of chan­nel­ing more than $78 mil­lion in bribes to two offi­cials of Kazakhstan. He is sched­uled to stand tri­al in February. CreditNicole Bengiveno/The New York Times

At the heart of Mr. Giffen’s defense is a motion filed by his lawyers in June 2004 to Judge William H. Pauley III of Federal District Court in Manhattan, seek­ing access to clas­si­fied gov­ern­ment doc­u­ments for his defense.

For now, each of the names, titles, and gov­ern­ment affil­i­a­tions of indi­vid­u­als men­tioned in the doc­u­ment are blacked out on vir­tu­al­ly every page. Mr. Giffen’s lawyers have argued that much of the evi­dence nec­es­sary to prove his inno­cence rests with var­i­ous offi­cials and agen­cies that helped him con­duct busi­ness in Kazakhstan. Without such wit­ness­es, the lawyers say, it will be dif­fi­cult for them to prove their client was per­form­ing his duties as an American. Court fil­ings by Mr. Giffen’s lawyers sug­gest that senior offi­cials at the Central Intelligence Agency, State Department and White House encour­aged him to use his close ties with Kazakh lead­ers to fer­ry valu­able intel­li­gence back to the United States. Judge Pauley has writ­ten an opin­ion sup­port­ing the motion, but the United States attorney’s office has appealed it.

Before this is over, Giffen’s lawyers will file a vari­ety of motions to get at the clas­si­fied stuff, but the his­to­ry of that isn’t ter­ri­bly ter­rif­ic,” said Jack Blum, a for­mer inves­ti­ga­tor for the Senate Foreign Relations Subcommittee. “Senior offi­cials can very con­ve­nient­ly avoid gov­ern­men­tal embar­rass­ment by keep­ing every­thing clas­si­fied.” Mr. Blum added, “When you have a kind of blink-and-nod, clan­des­tine waiv­er of the law with the gov­ern­ment, once the prob­lem blows up, you’re going to get hung out to dry.”

Spokeswomen from the C.I.A. and the White House declined to comment.

Congress passed the Foreign Corrupt Practices Act in 1977 after con­clud­ing that bribery abroad had become an impor­tant for­eign pol­i­cy issue that “embar­rass­es friend­ly gov­ern­ments, caus­es a decline in for­eign esteem for the United States and casts sus­pi­cion on the activ­i­ties of our enter­pris­es, giv­ing cre­dence to our for­eign opponents.”

Mr. Giffen’s lawyers say he can­not be found guilty of brib­ing a for­eign gov­ern­ment because his activ­i­ties were part of his offi­cial duties as an advis­er to the Kazakh gov­ern­ment and they received the bless­ing of senior American offi­cials who reg­u­lar­ly debriefed him on his activities.

That con­tention has prompt­ed a bliz­zard of motions, mem­o­ran­dums and fil­ings between the fed­er­al gov­ern­ment and Mr. Giffen’s lawyers. Federal pros­e­cu­tors have sought to block Mr. Giffen’s access to doc­u­ments on the grounds that dis­clos­ing them could breach nation­al secu­ri­ty interests.

It was not only indi­vid­u­als in Kazakhstan who received some of their client’s boun­teous fees, for­mer asso­ciates of Mr. Giffen said. In 1998, two years before fed­er­al inves­ti­ga­tors began look­ing into Mr. Giffen’s activ­i­ties in Kazakhstan, he invit­ed Mark Siegel, a Washington polit­i­cal con­sul­tant, to join a group of pol­i­cy experts to devel­op a blue­print for reform­ing Kazakhstan’s econ­o­my and gov­ern­ment. It was an ambi­tious task, Mr. Giffen con­ced­ed, but its par­tic­i­pants would be well com­pen­sat­ed. Mr. Siegel, a for­mer exec­u­tive direc­tor of the Democratic National Committee, agreed to a month­ly retain­er of $30,000 for his firm and soon found him­self on a flight to Almaty, Kazakhstan’s for­mer capital.

As it turned out, Mr. Siegel was in high-pow­ered com­pa­ny. Mr. Giffen had har­nessed promi­nent busi­ness­men, pol­i­cy experts, lob­by­ists and for­mer gov­ern­ment offi­cials to serve on the com­mit­tee. Among those includ­ed in the group were Robert Blackwill, a for­mer ambas­sador dur­ing the first Bush pres­i­den­cy, and Philip D. Zelikow, now a coun­selor to Secretary of State Condoleezza Rice, Mr. Siegel recalled in an inter­view. Neither Mr. Blackwill nor Mr. Zelikow respond­ed to inter­view requests.

We were a kind of a Great White Hope,” Mr. Siegel said. The com­mit­tee was divid­ed into a “P Group” and an “E Group” to dis­tin­guish polit­i­cal and eco­nom­ic experts in the group. Mr. Nazarbayev “came across as a reformer open to free mar­kets and fair elections.”

According to his lawyers, Mr. Giffen, at Mr. Nazarbayev’s direc­tion, paid sev­er­al mil­lion dol­lars in fees from Swiss accounts — many of the same accounts named in Mr. Giffen’s indict­ment — to com­mit­tee mem­bers for their exper­tise on a range of pol­i­cy issues involv­ing Kazakhstan.

The group’s rec­om­men­da­tions can be found in two spi­ral-bound doc­u­ments that came to be known sim­ply as the Red Books. Mr. Giffen’s lawyers, as well as Mr. Siegel, said the cre­ation of the com­mit­tee reflect­ed Mr. Giffen’s inter­est in help­ing Mr. Nazarbayev move his coun­try away from an author­i­tar­i­an gov­ern­ment to a more demo­c­ra­t­ic mod­el. While the Red Books lists an impres­sive array of financiers and pol­i­cy mak­ers in its mem­ber­ship ranks, some of those named in the doc­u­ment said they nev­er worked with Mr. Giffen. One of those peo­ple, John C. Whitehead, the for­mer chair­man of the invest­ment bank­ing giant Goldman Sachs, acknowl­edged being an acquain­tance of Mr. Giffen but said he was nev­er part of the group. “I’ve nev­er been to Kazakhstan,” Mr. Whitehead said, “and I’ve cer­tain­ly not had that kind of for­mal rela­tion­ship with Jim Giffen.”

Mr. Giffen’s lawyers declined to dis­cuss any oth­er aspects of his work with the com­mit­tee, but said that the committee’s exis­tence proved that the scope of his influ­ence with pol­i­cy mak­ers far tran­scend­ed ener­gy matters.

SUPPORTED or not by the fed­er­al gov­ern­ment, Mr. Giffen report­ed­ly man­aged to orches­trate what the gov­ern­ment describes in its indict­ment as an elab­o­rate mon­ey laun­der­ing and tax fraud scheme car­ried out in six sep­a­rate oil trans­ac­tions from 1995 to 1999, all of which involved defraud­ing the gov­ern­ment of Kazakhstan. Mr. Giffen is accused of hid­ing some of the pro­ceeds in each of the deals through a series of wire trans­fers that ulti­mate­ly land­ed in Swiss bank accounts. One deal Mr. Giffen’s indict­ment details involved Mobil Oil’s 1996 pur­chase of a 25 per­cent inter­est in Kazakhstan’s Tengiz oil field. Located in the min­er­al-rich Caspian region, Tengiz is the sixth-largest oil field in the world, pro­duc­ing 285,000 bar­rels a day, or about a third of the country’s dai­ly production.

The indict­ment states that after Mobil paid Mr. Giffen a $51 mil­lion fee for nego­ti­at­ing the deal, he trans­ferred half of the mon­ey to a Swiss account and then sent the mon­ey on a cir­cuitous path through a num­ber of oth­er accounts, includ­ing one reg­is­tered to a British Virgin Islands com­pa­ny. Exxon and Mobil merged in late 1999 to form Exxon Mobil, the world’s largest oil com­pa­ny. Russ Roberts, an Exxon spokesman, said Mobil was not the source of any pay­ments to Mr. Giffen.

Exxon Mobil has no knowl­edge of any ille­gal pay­ments made to Kazakh offi­cials by any cur­rent or for­mer Mobil employ­ees,” Mr. Roberts wrote in an e‑mail response to an inter­view request. “We also have no knowl­edge of any ille­gal pay­ments received by any cur­rent or for­mer Mobil employ­ees.” Mr. Roberts said nei­ther Mr. Giffen nor his com­pa­ny, Mercator, had rep­re­sent­ed Mobil or Exxon Mobil.

President Nursultan A. Nazarbayev of Kazakhstan vis­it­ed for­mer President George H. W. Bush in Kennebunkport, Me., in late September. CreditLarry Dowling/Reuters

In 2003, a for­mer Mobil man­ag­er plead­ed guilty to evad­ing tax­es on $7 mil­lion he received from Mr. Giffen start­ing in 1993. Mr. Roberts not­ed that Mr. Giffen’s pay­ments to the man­ag­er had begun sev­er­al years before any Mobil acqui­si­tion in Kazakhstan and that Mobil had not been the source of the pay­ments. Although pros­e­cu­tors described the pay­ments to the man­ag­er as “kick­backs” for work done on Mobil’s behalf, the man­ag­er, Mr. Roberts said, repu­di­at­ed that accu­sa­tion. Mr. Roberts declined to fur­ther dis­cuss the matter.

But accord­ing to the indict­ment, Mr. Giffen wired anoth­er chunk of what court papers describe as a Mobil fee, about $20 mil­lion, into anoth­er pair of Swiss accounts. Nurlan Balgimbaev, the for­mer prime min­is­ter and oil min­is­ter of Kazakhstan, con­trolled one of the accounts, accord­ing to the indict­ment. A Liechtenstein trust, of which Mr. Nazarbayev and his fam­i­ly were ben­e­fi­cia­ries, con­trolled the oth­er account, the indict­ment asserts.

In the process, the gov­ern­ment asserts, Mr. Giffen paid $36,000 of Mr. Balgimbaev’s per­son­al bills for the upkeep of a house in Newtown, Mass., spent $30,000 to buy fur coats for Mr. Nazarbayev’s wife and daugh­ter and bought a Donzi speed­boat as a gift from Mr. Nazarbayev to Mr. Balgimbaev.

ConocoPhillips and BP, two of the oth­er oil com­pa­nies which the indict­ment says paid Mr. Giffen, declined to com­ment. A lawyer and for­mer fed­er­al pros­e­cu­tor who rep­re­sents the Republic of Kazakhstan, Reid H. Weingarten, declined to dis­cuss the case. But few involved on either side of Mr. Giffen’s case have denied that his ties to Mr. Nazarbayev were sub­stan­tial, long­stand­ing and gilded.

Everyone agrees on one thing, which is that Nazarbayev took bribes,” said Rinat Akhmetshin, direc­tor of the International Eurasian Institute, a Washington research group that sup­ports Mr. Nazarbayev’s polit­i­cal oppo­nents. Mr. Akhmetshin said the case was being close­ly fol­lowed in Kazakhstan and that Mr. Nazarbayev’s polit­i­cal future could turn on the trial’s out­come. “The moment Giffen goes to jail, Nazarbayev is fin­ished as a politi­cian,” he said.

JAMES GIFFEN’S finan­cial ascent — from a young banker on the make into a well-heeled polit­i­cal insid­er with a body­guard, a chauf­feur-dri­ven Mercedes-Benz and a Kazakh diplo­mat­ic pass­port — was a serendip­i­tous blend of lucra­tive finan­cial oppor­tu­ni­ties in Eastern Europe and Central Asia and old-fash­ioned elbow grease.

The son of a cloth­ier in Stockton, Calif., Mr. Giffen, who is now 65, had ties to the Soviet Union dat­ing back to the ear­ly 1970s. After grad­u­at­ing from the University of California, Berkeley and the School of Law at U.C.L.A., he start­ed his career at a min­er­als trad­ing firm before join­ing a sub­sidiary of the Armco Steel Corporation (lat­er acquired by AK Steel). Armco was led by C. William Verity Jr., a cham­pi­on of increased trade with the Soviet Union who would lat­er serve as com­merce sec­re­tary in the Reagan admin­is­tra­tion. Mr. Giffen became a vice pres­i­dent at the Armco sub­sidiary, which sold drilling equip­ment to the Soviet Union.

Although Mr. Giffen did not speak Russian, and the Soviets showed lit­tle inter­est at the time in trad­ing with the West, he per­sis­tent­ly court­ed Russia’s lead­ers. Nattily dressed and with a cig­a­rette con­stant­ly in hand, Mr. Giffen exud­ed an affect­ing blus­ter and self-assur­ance — many who know him call it brava­do — that even­tu­al­ly gained him the ears of high-rank­ing Soviet lead­ers. By the mid-1980s, Mr. Giffen had left Armco and found­ed his own com­pa­ny, Mercator, a bou­tique mer­chant bank head­quar­tered in New York. He began the com­pa­ny with a five-year con­tract from Armco and a board of direc­tors that includ­ed Mr. Verity and two for­mer gov­ern­ment officials.

Over the next decade, his lawyers have said, Mr. Giffen came to count Mikhail Gorbachev in his net­work of pow­er­ful friends with­in the Soviet gov­ern­ment, the Communist Party and the K.G.B. In the late 1980s, Mr. Giffen con­vinced Chevron, Eastman Kodak, Ford Motor and RJR Nabisco to form a coali­tion aimed at pen­e­trat­ing the Soviet mar­ket through joint ven­tures — deals that Mercator would handle.

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Although that ini­tia­tive col­lapsed with the Soviet Union in 1991, Mr. Giffen had appar­ent­ly become a con­duit for infor­ma­tion involv­ing United States-Soviet affairs. On one occa­sion, the White House asked him to describe a meet­ing he had had with Mr. Gorbachev and to sug­gest trade issues that the first President Bush should raise with Mr. Gorbachev, accord­ing to fil­ings in the fed­er­al court case. A memo, which an American offi­cial appar­ent­ly pre­pared for the first President Bush, recounts Mr. Giffen as stat­ing the pres­i­dent had “hit pay­dirt” with Mr. Gorbachev and that “what­ev­er President Bush wants to do, Gorbachev will try to do.”

When 15 inde­pen­dent states emerged from the col­lapse of the Soviet Union, Mr. Nazarbayev con­tact­ed Mr. Giffen, his lawyers say. Mr. Nazarbayev, head of Kazakhstan’s Communist Party, and Mr. Giffen, who was pres­i­dent of the U.S.-U.S.S.R. Trade and Economic Council, had become close friends by that time, said Mr. Schwartz, the lawyer.

DURING Chevron’s dis­cus­sions to acquire an inter­est in the Tengiz oil field, the com­pa­ny became one of Mr. Giffen’s clients. The com­pa­ny says the rela­tion­ship was short-lived. “In the ear­ly 1990s, Chevron obtained the ser­vices of Mr. Giffen with respect to busi­ness oppor­tu­ni­ties with Russia and the indi­vid­ual republics,” the com­pa­ny said in an e‑mail response to an inter­view request. “Chevron ter­mi­nat­ed that rela­tion­ship in 1992.”

Mr. Nazarbayev asked Mr. Giffen to play an advi­so­ry role with­in the new­ly sov­er­eign nation of Kazakhstan, accord­ing to Mr. Giffen’s lawyers.

As the country’s first pres­i­dent, Mr. Nazarbayev was deter­mined to attract the involve­ment of multi­na­tion­al oil com­pa­nies in devel­op­ing his country’s boun­ti­ful oil fields, accord­ing to polit­i­cal and eco­nom­ic ana­lysts. To that end, Mr. Nazarbayev hired Mr. Giffen to serve dual roles. As a spe­cial advis­er to Kazakhstan, Mr. Giffen over­saw the country’s efforts to attract invest­ment from the United States, while his com­pa­ny, Mercator, advised the Kazakh gov­ern­ment on oil and gas transactions.

Giffen was able to cast him­self as a big­ger-than-life fig­ure who real­ly knew how to work the West,” said Martha Brill Olcott, a spe­cial­ist on Central Asian and Caspian affairs with the Carnegie Endowment for International Peace. “Nazarbayev liked that and they cre­at­ed a rela­tion­ship of great per­son­al trust.”

President Nursultan A. Nazarbayev of Kazakhstan and President Bush at the White House in September. Allegations of bribery in Kazakhstan are a prob­lem for Mr. Bush, who seeks an alliance but oppos­es cor­rup­tion. CreditRobert F. Bukaty/Associated Press

Mr. Giffen’s and Mr. Nazarbayev’s close rela­tion­ship sparked resent­ment among some senior Kazakh offi­cials. “The biggest prob­lem with Giffen was that he was try­ing to cre­ate an instru­ment of gov­ern­ment that would keep him­self and the pres­i­dent in pow­er,” said the for­mer prime min­is­ter of Kazakhstan, Akezhan Kazhegeldin. “He nev­er dreamed he’d be so close to power.”

In a tele­phone inter­view, Mr. Kazhegeldin declined to dis­cuss Mr. Giffen’s indict­ment but said that he and Mr. Giffen had clashed on sev­er­al occa­sions. Within Kazakhstan’s senior ranks, Mr. Kazhegeldin had gained a rep­u­ta­tion as a cham­pi­on of free enter­prise eco­nom­ics and some­one favored among Western lead­ers, Ms. Olcott said. Mr. Kazhegeldin him­self assert­ed that his pen­chant for eco­nom­ic reform and his calls to reform his country’s auto­crat­ic gov­ern­ment ulti­mate­ly alien­at­ed both Mr. Giffen and Mr. Nazarbayev.

Now liv­ing in Italy and London, Mr. Kazhegeldin said he had spent mil­lions of dol­lars on lob­by­ists and pub­lic affairs spe­cial­ists in the hope of defeat­ing Mr. Nazarbayev in Kazakhstan’s next elec­tion, sched­uled for 2011. “There is a small group of peo­ple get­ting rich — and I mean real­ly rich — in Kazakhstan while the rest of soci­ety remains real­ly poor,” Mr. Kazhegeldin said. “The lead­er­ship is not inter­est­ed in push­ing a mar­ket econ­o­my. They keep two sets of books, one for them­selves and anoth­er for every­one else.”

Mr. Kazhegeldin, how­ev­er, is a vet­er­an of the pell-mell eco­nom­ic scram­ble of the post-Soviet years. He amassed his wealth as a rogue sales­man in the wan­ing years before the Soviet Union’s dis­so­lu­tion, sell­ing scrap met­al on the black mar­ket while study­ing inter­na­tion­al busi­ness at Moscow’s K.G.B. Academy, accord­ing to a résumé fur­nished by a close asso­ciate who asked not to be iden­ti­fied because of the nature of the work he does for Mr. Kazhegeldin. After the spy school kicked him out in 1989 for his moon­light­ing activ­i­ties, Mr. Kazhegeldin went on to make his mil­lions export­ing chem­i­cal fer­til­iz­er, the asso­ciate said.

Mr. Nazarbayev began his own inves­ti­ga­tion of Mr. Kazhegeldin’s finances in the fall of 1998 — to score polit­i­cal points, Mr. Kazhegeldin’s sup­port­ers said — which snow­balled into an inter­na­tion­al scan­dal when it led the United States gov­ern­ment to exam­ine Mr. Giffen’s activ­i­ties more closely.

In fall 1999, the Kazakh gov­ern­ment accused Mr. Kazhegeldin of embez­zling sev­er­al mil­lion dol­lars into an off­shore account that he con­trolled. Mr. Kazhegeldin denied any wrong­do­ing and said nei­ther he nor any fam­i­ly mem­bers had access to the account.

Mr. Kazhegeldin accused Mr. Nazarbayev of arrang­ing the deposit and leak­ing infor­ma­tion about it to the news media to secure vic­to­ry in a 1999 pres­i­den­tial elec­tion. A 1999 State Department exam­i­na­tion of the Kazakh inves­ti­ga­tion into the accounts report­ed­ly linked to Mr. Kazhegeldin con­clud­ed that the inves­ti­ga­tion, “while pos­si­bly ground­ed in facts, appeared moti­vat­ed politically.”

After Kazakh offi­cials con­tact­ed Belgian and Swiss author­i­ties to exam­ine Mr. Kazhegeldin’s pos­si­ble role in the loot­ing of gov­ern­ment funds, the Swiss con­tact­ed the Justice Department to dis­cuss what appeared to be a pat­tern of ques­tion­able trans­ac­tions between Kazakhstan and American and European oil companies.

As fed­er­al inves­ti­ga­tors reviewed the trans­ac­tions in 2000, they noticed that Mr. Giffen was par­ty to many of them, accord­ing to his lawyers. Over the next two years, inves­ti­ga­tors focused more close­ly on Mr. Giffen and sub­poe­naed records from Mercator. A treaty between the United States and Switzerland per­mit­ted inves­ti­ga­tors to obtain detailed records of Mr. Giffen’s finan­cial activ­i­ties in New York and Switzerland, accord­ing to his lawyers. In February 2003, the United States attorney’s office in Manhattan won a grand jury indict­ment against Mr. Giffen on fraud charge. A month lat­er, as Mr. Giffen board­ed a flight from New York to Paris with his lawyers, fed­er­al author­i­ties arrest­ed him.

As the Giffen tri­al moves for­ward, with the pos­si­bil­i­ty that more infor­ma­tion about Mr. Giffen’s inter­ac­tions with the Kazakh gov­ern­ment, Washington pol­i­cy mak­ers and multi­na­tion­al cor­po­ra­tions may emerge, it promis­es to shine a spot­light on the terms of engage­ment when the United States courts resource-rich coun­tries rid­dled with corruption.

Corruption is at the heart of what caus­es pover­ty in third world coun­tries,” said Mr. Blum, the for­mer Congressional inves­ti­ga­tor. “We tell our­selves that in the short term, we can buy these guys who will serve the nation­al inter­est, but in the long run it always turns into a disaster.”

The World Bank, the Washington eco­nom­ic devel­op­ment orga­ni­za­tion that focus­es its efforts on needy coun­tries, has brought much of the cur­rent debate about over­seas finan­cial cor­rup­tion to the fore. In the ear­ly 1990s, the bank start­ed mea­sur­ing cor­rup­tion with­in the gov­ern­ments of its mem­ber coun­tries. The ini­tia­tive was con­tro­ver­sial because until then, econ­o­mists had large­ly con­sid­ered cor­rup­tion to be an eth­i­cal or cul­tur­al issue. The bank began inter­view­ing hun­dreds of pri­vate cit­i­zens, as well as employ­ees in gov­ern­ment and busi­ness, try­ing to pin down the pat­tern and preva­lence of cor­rup­tion in areas like bank­ing, real estate, health care, media and education.

What we real­ized was that cor­rup­tion is not just a moral or eth­i­cal issue but an eco­nom­ic devel­op­ment issue,” said Daniel Kaufmann, an econ­o­mist who began the World Bank’s cor­rup­tion stud­ies. “We esti­mat­ed that with good gov­er­nance, there is a three­fold increase in per capi­ta income as funds that should be allo­cat­ed toward the gross domes­tic prod­uct are not siphoned off.”

BY 1995, Mr. Kaufmann’s team devel­oped a rat­ing sys­tem that mea­sured fac­tors like cor­rup­tion con­trol, absence of vio­lence, gov­ern­ment account­abil­i­ty and reg­u­la­to­ry qual­i­ty in var­i­ous coun­tries. The ideas became a cor­ner­stone of the bank’s agen­da. Since the mid-1990s, it has start­ed more than 600 anti­cor­rup­tion pro­grams in near­ly 100 coun­tries. Under Paul D. Wolfowitz, who became head of the World Bank last year, it has con­tin­ued its anti­cor­rup­tion efforts. In what Mr. Wolfowitz described as efforts to stem cor­rup­tion, he recent­ly threat­ened to cut loans and devel­op­ment con­tracts in India and Kenya. Mr. Wolfowitz, a for­mer deputy defense sec­re­tary in the Bush admin­is­tra­tion and an archi­tect of its poli­cies in the Middle East, has received the White House’s back­ing in pri­or­i­tiz­ing anti­cor­rup­tion cam­paigns. But some research groups, and some of the bank’s own admin­is­tra­tors, have crit­i­cized Mr. Wolfowitz for using the World Bank to advance the White House’s for­eign pol­i­cy goals in coun­tries like Iraq, where the bank recent­ly increased its lend­ing support.

A World Bank spokesman denied that Mr. Wolfowitz was serv­ing the White House’s inter­ests. “He doesn’t hes­i­tate to serve as an inde­pen­dent voice for the poor­est peo­ple — includ­ing when it goes against the grain on issues like trade, debt relief and sup­port for offi­cial devel­op­ment assis­tance,” the spokesman wrote in an e‑mail message.

Former Prime Minister Akezhan Kazhegeldin of Kazakhstan said that he clashed often with James H. Giffen. CreditGraham Barclay/Bloomberg News

Kazakhstan, and Mr. Nazarbayev’s stew­ard­ship of the coun­try, have been fod­der for World Bank scruti­ny. According to the bank’s 2005 Worldwide Governance Indicators, Kazakhstan ranks with Angola, Bolivia, Kenya, Libya and Pakistan among the world’s cor­rup­tion hotspots.

Other anti­cor­rup­tion watch­dogs, like Transparency International, also rate Kazakhstan poor­ly for its gov­er­nance prac­tices. The State Department’s 2005 Kazakhstan Country Report on Human Rights Practices not­ed that the Kazakhstan government’s “human rights record remained poor” and that “cor­rup­tion remained a seri­ous problem.”

Despite such low scores and scathing cri­tiques, the World Bank has lent Kazakhstan more than $2 bil­lion for 28 projects since 1992. In fis­cal 2006, com­mit­ments to Kazakhstan totaled $130 mil­lion, with over­all com­mit­ments for active projects at $648 million.

Juan José Daboub, who over­sees the World Bank’s gov­er­nance pro­gram, declined to com­ment specif­i­cal­ly on cor­rup­tion issues in Kazakhstan or on Mr. Nazarbayev’s leadership.

We respect what coun­tries pick in terms of lead­er­ship,” said Mr. Daboub. “We are not judges, pros­e­cu­tors or investigators.”

But Mr. Baker, the ener­gy ana­lyst at the Brookings Institution, saw things dif­fer­ent­ly: “If you’re a coun­try with a lot of oil, you get a lot of free passes.”

Human rights groups have spent years blast­ing Mr. Nazarbayev for shut­ting news­pa­pers crit­i­cal of his regime; pass­ing laws that threat­ened to pros­e­cute indi­vid­u­als whose actions were con­sid­ered threats to the country’s eco­nom­ic devel­op­ment efforts; tol­er­at­ing and par­tic­i­pat­ing in vast graft; and the like. But rarely have American pol­i­cy mak­ers open­ly opposed Mr. Nazarbayev’s lead­er­ship and actions, ana­lysts said.

He has done a pret­ty sophis­ti­cat­ed job of reach­ing out to many sec­tors,” said Thomas O. Melia, deputy direc­tor of Freedom House, a lib­er­al research group in Washington. “He is not like a lot of lead­ers, who put all of their eggs in the White House basket.”

Even so, the White House, through suc­ces­sive admin­is­tra­tions, has been a reli­able and enor­mous­ly influ­en­tial ally of Mr. Nazarbayev, and its con­tin­ued embrace of Kazakhstan’s leader ran­kles some mem­bers of Congress.

It’s just hyp­o­crit­i­cal for President Bush to issue state­ments on com­bat­ing for­eign cor­rup­tion and then to embrace a dic­ta­tor,” said Senator Carl Levin of Michigan, the rank­ing Democrat on the Senate Governmental Affairs Committee. “It sends a real neg­a­tive mes­sage to coun­tries that you’re try­ing to win sup­port from.”

Senator Levin char­ac­ter­ized Mr. Nazarbayev as “an iron-fist­ed dic­ta­tor who impris­ons his oppo­nents, bans oppo­si­tion par­ties and con­trols the press.”

But some say the White House should be world­ly wise when it comes to sup­port­ing cer­tain coun­tries in volatile but resource-rich regions. Ariel Cohen, a senior fel­low at the Heritage Foundation, a con­ser­v­a­tive research group, said the Bush admin­is­tra­tion had effec­tive­ly bal­anced its long-term for­eign pol­i­cy goals involv­ing ener­gy issues with its human rights stan­dards in Central Asia. Because of tur­moil in oth­er Central Asian coun­tries, Kazakhstan has emerged as a pos­si­ble mil­i­tary foothold for the United States there.

When it comes to Kazakhstan, it’s all about three things; ener­gy, democ­ra­cy and secu­ri­ty,” Mr. Cohen said. “I would argue that rel­a­tive to his com­pe­ti­tion in Central Asia, Nazarbayev is the most suc­cess­ful in pur­su­ing each of them. Sure, there is still cor­rup­tion and insuf­fi­cient rule of law, but this is a coun­try that 15 years ago had no state­hood. They have start­ed from scratch.”

If Mr. Giffen’s tri­al gets under way in February, it may enrich and shed light on the debate about the United States’ engage­ment with Kazakhstan and oth­er coun­tries that have poor anti­cor­rup­tion records.

FOR their part, Kazakh offi­cials wor­ry that Mr. Giffen’s tri­al may set their nation on a back­ward course. Mr. Weingarten, the lawyer rep­re­sent­ing the Kazakh gov­ern­ment, wrote a let­ter in 2002 to the Justice Department on behalf of his client. The let­ter was straight­for­ward: “Even if it were pos­si­ble for the pros­e­cu­tors to indict President Nazarbayev, we can­not envi­sion a sce­nario where the United States would deem it in its inter­est to indict the leader of an impor­tant strate­gic ally.”

Even more impor­tant, said some of Mr. Giffen’s allies, is that the whole messy affair of mov­ing bribes and laun­dered mon­ey around the world has caused Mr. Giffen’s work to become unfair­ly mischaracterized.

If this whole thing was just about oil, it was one of the biggest snow jobs in U.S. his­to­ry,” said Mr. Siegel, the Washington lob­by­ist who aid­ed Mr. Giffen’s efforts in Kazakhstan. “I believed that we were doing God’s work.”


Original arti­cle : NYT
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