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May 23, 2005

Kazakhstan: Country Again Features In U.S. Efforts To Combat Corruption

by Nikola Krastev

It is a crime under U.S. law for individuals or companies to bribe officials in a foreign country in order to gain a business advantage. Kazakhstan was placed in the spotlight six years ago by the emergence of the "Kazakhgate" scandal alleging that a U.S. citizen funneled millions in oil-concession fees to Kazakh officials. Now, a new investigation of leading oil-and-gas-services provider Baker Hughes serves as the latest example of authorities' increased efforts to stem corruption by U.S. companies operating overseas.
New York, 23 May 2005 (RFE/RL) -- The U.S. Securities and Exchange Commission -- the government agency overseeing financial and legal compliance of American companies -- on 22 April subpoenaed Baker Hughes seeking information about the Houston-based company's operations in Kazakhstan.

Gary Flaharty, a public relations officer at Baker Hughes, told RFE/RL that the subpoena is considered a confidential inquiry and that the company does not disclose details.

"It's a situation that we're working through with the Department of Justice and we are cooperating fully with their investigation. But other than the fact that we received that [subpoena] on April 22 I don't have any other additional information. Given that it's an ongoing investigation it would be improper for us to comment on it," Flaharty said.

In 2000, Baker Hughes won a contract to provide integrated services to the Karachaganak Petroleum Operating consortium for its Karachaganak oil and gas field in Kazakhstan. The company maintains offices in Kazakhstan's commercial capital Almaty and in the towns of Aksai and Atyrau.


Public relations officer Flaharty told RFE/RL that Baker Hughes operates in more than 80 countries and that its Kazakhstan operations are not among its top five.

"We do have operations in Kazakhstan. We do not comment in detail on what we do in any particular country but we do have operations in Kazakhstan. We only comment on the top five or six countries where we do business and Kazakhstan is not in that list," Flaharty said.

John Heine, a press relations officer for the U.S. Securities and Exchange Commission, told RFE/RL that as a rule the commission does not comment on ongoing investigations.

But while little is known about the reasons for the subpoena, the investigation highlights the U.S. government's recent efforts to enforce its Foreign Corrupt Practices Act. The act includes a statute aimed at preventing bribery by U.S. parties overseas, and several firms that have paid to foreign officials have been prosecuted for violations.

The largest case ever heard in connection with alleged violations of the act centers on Kazakhstan.

Dubbed "Kazakhgate," the six-year-old case pertains to allegations that James Giffen -- a U.S. citizen and a former consultant to the Kazakh government -- violated the Foreign Corrupt Practices Act by funneling more than $78 million from oil-concession fees to Kazakh President Nursultan Nazarbaev, his family, and other Kazakh officials.

U.S. Federal Judge William Pauley recently postponed the trial date to January 2006 -- marking the third time the case has been delayed.

The case has caused diplomatic tension between the U.S. and Kazakhstan, which has tried repeatedly to persuade U.S. officials to use their influence to drop it.

Karim Massimov, who is President Nazarbaev's chief policy adviser, reiterated in New York last week that the Kazakh government sees no part in the pending trial.

"We do not view that James Giffen' case [has anything to do with us]. In the view of Kazakhstan this is the case between U.S. citizen James Giffen and the U.S. government and we don't see any involvement of either Kazakhstan or anybody official from Kazakhstan to be involved. That's why we treat it as a U.S. internal case and we don't think it will have [adverse] effect to Kazakhstan,” Massimov said.

Massimov described the level of cooperation between U.S. and the Kazakh authorities with regard to "Kazakhgate" as very good.

“We do have a cooperation with U.S. Justice Department. Whatever questions they have toward the government of Kazakhstan -- we share all the information, we don't have any problem with that," Massimov said.

Charles Both, a U.S. attorney who is familiar with Kazakh affairs, explained how the postponement of Giffen's trial can bolster his defense. Giffen faces up to 88 years in jail if convicted on all counts.

"I think defendants always have more advantage in postponing the case. People's memories change, they don't have any burden, the burden is on prosecution to prove it," Both said.

William Schwartz, an attorney with Giffen's defense team, declined comment to RFE/RL.
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