INVESTIGATIONS KLEPTOCRACY

Oil, Cash and Corruption

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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.

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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.”

By RON STODGHILLNOV. 5, 2006

Original arti­cle : NYT
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