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After Seven Years, 'Kazakhgate' Scandal Ends With Minor Indictment

American businessman James Giffen (left) and Kazakh President Nursultan Nazarbaev (right, with his wife Sara) will emerge from the affair relatively unscathed.
After seven years of legal wrangling, trial postponements, and efforts by Kazakh President Nursultan Nazarbaev to control its political implications, the multimillion-dollar "Kazakhgate" bribery scandal is over.

On August 6, a smiling James Giffen left a New York City courtroom after negotiating a plea deal with U.S. prosecutors in which he admitted guilt for a misdemeanor tax violation and a single bribery count against his company.

His bail, previously set at $10 million, had shrunk to $250,000 by the end of the day, and at his sentencing in November, he faces no more than six months in prison.

It's a far cry from the punishment that many thought Giffen, 69, would receive when he was taken away in handcuffs from New York's John F. Kennedy Airport in March 2003. He was accused of funneling over $80 million on behalf of four U.S. oil companies, including Mobil Oil Corporation, now part of energy giant ExxonMobil, into secret Swiss bank accounts.

Prosecutors said the money served as a bribe to facilitate six lucrative deals for the companies, including a $1 billion stake for Mobil in the Tengiz field, one of the world's largest.

Kazakh officials, including both the president and former Prime Minister Nurlan Balgimbaev, allegedly used the money to purchase jewelry, furs, speedboats, and other luxury items. Nazarbaev was accused of using the funds to cover his daughter's tuition at a swanky Swiss boarding school.

The Kazakh government "worked hard" to extricate President Nazarbaev's name from the case.
Steve LeVine, a contributing editor at "Foreign Policy" magazine, has followed the case closely in his "The Oil And The Glory" blog. He described its conclusion as a "stunning turn of events."

LeVine says that when the case was first announced, it was one of "the largest foreign bribery cases in U.S. history." He says it seemed like a "slam-dunk case" and Giffen seemed set to spend "a long, long time in prison." Instead, it was as if the charges were "effectively dismissed."

CIA Connection

Giffen was made a "counselor to the president of Kazakhstan" in 1995 -- the same year his small investment bank, Mercator Corporation, won the right to represent the oil-rich Central Asian state in negotiations with U.S. oil companies.

According to court records cited by Bloomberg, Astana had tried to limit the U.S. probe into Giffen's activities since 2002 -- in an effort, LeVine says, to at the very least extricate its all-powerful leader from the scandal.

"The Kazakh government, from the outset, has paid an assortment of very powerful law firms in Washington and New York -- very powerful lobbyists -- to bring about an outcome that they hoped would be the dropping of the charges against Jim Giffen," LeVine says, "and if possible, if they couldn't get that, at least to get Nazarbaev removed as an unindicted co-conspirator from the case."

But what eventually settled the case in Giffen's favor, observers say, has little to do with any Kazakh pressure.

According to Giffen's lawyers, even if the charges against him were true, he could not be found guilty.

Giffen claimed to have worked in concert with the Central Intelligence Agency (CIA), which allegedly used him to leverage influence in Kazakhstan. In briefings with the agency, his lawyers argued, officials implicitly condoned the actions he undertook as needed to maintain closeness with Nazarbaev.

Requests by the defense to introduce classified documents from the CIA and other government bodies as evidence in the case, which they say would exonerate Giffen, have been repeatedly refused by lawyers representing the government. That has resulted in years of delays.

'Fig Leaf' Ruling

Giffen's company pleaded guilty to violating the Foreign Corrupt Practices Act by giving two snowmobiles to an unnamed senior Kazakh official in 1999 in part to induce him to act improperly.

Michael Perlis, now a lawyer based in Los Angeles, helped draft the Foreign Corrupt Practices Act in the 1970s. The legislation, which makes it illegal to bribe foreign officials for business kickbacks, did not fail in the "Kazakhgate" case, he says. Rather, he argues, it appears that when the U.S. Justice Department butted heads with the CIA, it seemed expedient to end the case quietly.

"I think that the government had some serious difficulties in pursuing its prosecution," Perlis says. "There were issues relative to document confidentiality and national security, and I think that the government, with respect to Mr. Giffen, got a fig leaf to dress up a failed prosecution."

In 2007, the United States agreed a deal with Kazakhstan and Switzerland to use the funds in the Swiss accounts connected to Giffen for programs for impoverished children and to improve the transparency of the Kazakh oil industry. In court on August 6, Giffen's company surrendered any "right, title, or interest" in the money.

The tax violation Giffen admitted to was failure to supply information about a foreign bank account in a 1996 tax return.

Bryan Williams, a Mobil executive who ran the company's efforts in Kazakhstan, pleaded guilty in June 2003 to tax evasion stemming from the case.

written by Richard Solash in Washington, D.C., with agency material
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