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. Last Updated: 07/27/2016

Bribery Scandal Old Hat in Almaty

ALMATY, Kazakhstan -- The U.S. government's indictment of an American counselor to Kazakhstan's President Nursultan Nazarbayev on charges of funneling $60 million in oil payments into his boss' secret Swiss bank accounts is sending shudders throughout the global oil industry.

But in Kazakhstan, it is being met by a big "So what?"

The investigation, says Scott Horton, a Columbia University law professor who advises oil companies on Central Asia, appears to be the biggest ever undertaken under the 28-year-old Foreign Corrupt Practices Act, which forbids U.S. citizens and companies from paying bribes to obtain contracts.

"It is also one of the most significant criminal investigations of any sort to target the oil industry," he added.

The act had been mostly used to prosecute bribes in arms deals, and experts say the main function of the prosecutions are to show companies what is acceptable under the act and what is not -- a line that is expected to be redrawn when the case ends.

The investigation, which began in Belgium -- ironically at the request of Kazakhstan's government, which was seeking to tarnish a Nazarbayev rival -- and spread into Switzerland, is still under way in Federal District Court in Manhattan, a spokesman said in a telephone interview.

According to the indictment, between 1995 and 2000, New York businessman James Giffen, 62, received $138 million in bonuses and commissions from some of the world's largest oil companies, of which he is alleged to have passed on $60 million to the president and $17 million to Nurlan Balgimbayev, a former prime minister and head of state oil company Kazakhoil.

In addition, Giffen is alleged to have paid $30,000 for two mink coats (one for Nazarbayev's wife and one for one of his three daughters); $80,000 for a Donzi speedboat, which was given to Balgimbayev to give to the president, and two snowmobiles that Giffen gave to the president himself.

The allegations contained in the indictment follow a pattern: Giant oil companies anxious to secure access to Kazakhstan's huge oil deposits, which were neglected in Soviet days because they were too difficult to extract, pay millions in various bonuses to the indispensable Giffen.

Giffen then is accused of engineering a series of transfers and "sham agreements" with an unindicted accomplice at Credit Agricole Indosuez in Geneva, so that millions are paid into secret Swiss accounts controlled by the two Kazakh officials. The indictment does not name the officials, but biographical and other details make it easy to recognize Nazarbayev as "Kazakh Official 2" and Balgimbayev as "Kazakh Official 1."

The companies paid the bonuses to secure access to Kashagan, the world's fifth-largest oil field; to Tengiz, the sixth-largest; to the Caspian Pipeline Consortium, which carries Tengiz crude to Novorossiisk on the Russian Black Sea coast; and to Karachaganak, the country's third-largest field.

In all, these companies plan to invest some $30 billion over the next two decades -- dwarfing the amounts involved in the alleged kickbacks -- to triple oil production from the current 1 million barrels per day, propelling Kazakhstan in the process into the ranks of the world's top four or five exporters.

The companies that negotiated these deals are Mobil Oil Corp., now a unit of ExxonMobil; Chevron Corp., now ChevronTexaco; Total, now TotalFinaElf; Royal Dutch Shell; British Gas; Amoco, now BP; and Phillips Petroleum, now ConocoPhillips.

Ironically, Exxon had a reputation as a company with strict rules and a particular aversion to questionable deals. Some analysts believe this is one reason why Exxon stayed away from Kazakhstan and is absent from notoriously corrupt Nigeria.

Mobil, with whom Exxon merged several years ago, was known to have less strict rules.

In a separate indictment under the same investigation, Bryan Williams, a former Mobil executive, has been charged with failing to pay taxes on a $2 million kickback.

"The anxiety level at ExxonMobil is pretty much off the chart," said a source close to the world's largest publicly traded oil company. Another source added, "Everybody is keen to know what's going on with the prosecution, but nobody wants to betray the depth of his company's interest."

The chief concern among these companies is that Giffen and Williams may decide to cooperate with prosecutors and provide information that could lead to more indictments in exchange for leniency.

Giffen is charged with, among other things, 33 counts of money laundering and eight counts of violating the act. He faces several 20-year prison sentences and forfeiture of $84 million. Williams, charged with tax evasion, faces fines and up to three years in prison.

The indictment states that by making these payments, Giffen, who served as Nazarbayev's gatekeeper on oil matters for most of the past decade, not only defrauded Kazakhstan out of millions of dollars but "defrauded the people of Kazakhstan out of the honest services of its officials."

But for the people of Kazakhstan, it has been business as usual.

Under Nazarbayev's ambivalent notion of press freedom, which he often proclaims exists in Kazakhstan, the mainstream media know that to report on issues involving the corruption of the president or his family is to invite official prosecution (insulting the dignity of the president is a crime) and harassment. As a result, the mainstream media declined to report Giffen's arrest and the allegations contained in the indictment.

The opposition press, which includes several weeklies openly available in newsstands around the country, has reported the story, but with little resonance. "Even when these papers tell the truth, no one fully believes them, because everyone thinks they are just the mouthpieces of fat-cats who want power themselves," said a banker who is sharply critical of the president and asked not to be identified.

Part of the lack of interest stems from the fact that corruption is so pervasive as to be considered normal.

"We are a society of thieves," says Nurbulat Massanov, a historian and prominent dissident.

Meanwhile, the country's economy is booming, recording nearly 10 percent growth per year over the last four years.

According to Grigory Marchenko, the head of the central bank, Kazakhstan in 2004 will become the first former Soviet country to bounce back from the Soviet collapse and reach the gross domestic product level it had at independence, Baltic countries excluded.

Fikret Akcura, a United Nations representative in Almaty, says the percentage of people living below the poverty level has fallen from 42 percent in 2000 to 28 percent in 2003.