Tame ending to "Mr Kazakhstan" investigation

By bne IntelliNews August 10, 2010

Clare Nuttall in Almaty -

James Giffen, the American consultant dubbed "Mr Kazakhstan" for his role in 1990s oil deals, has pleaded guilty to a tax misdemeanor. He is facing a maximum penalty of just one year in jail and a $25,000 fine when he is sentenced in November.

Giffen was originally arrested and indicted in 2003 for multiple breaches of the US' Foreign Corrupt Practices Act (FCPA). However, charges of skimming millions of dollars off international oil deals and paying bribes to top Kazakh officials were later dropped. Instead, after striking a plea bargain with prosecutors, Giffen pleaded guilty at the Manhattan district court to failing to disclose on his 1996 US income tax return a Swiss bank account that he controlled.

At the hearing on August 6, Giffen's bail was reduced from $10m to just $250,000. He did not comment on the case, but speaking to journalists later, his lawyer William Schwartz, partner at Cooley LLP, said: "Jim Giffen is gratified to begin to put this matter behind him, more than seven years after the indictment in the case and 10 years after the investigation began."

Meanwhile, Mercator Corporation, Giffen's New York-based merchant bank, pleaded guilty to violating the FCPA. The bank has admitted to giving two snowmobiles worth $16,000 as a New Year present to a senior Kazakh official in an attempt to influence decisions on oil contracts. "Three senior officials in the government of Kazakhstan had the power to substantially influence whether Mercator obtained and retained lucrative business, as well as the authority to pay Mercator substantial success fees if certain oil transactions closed, as well as to decide whether or not those transactions would close," says a statement from the US Department of Justice (DoJ). "Mercator was therefore dependent upon the goodwill of those senior officials, and in an effort to maintain its lucrative position, Mercator caused the purchase of two snowmobiles in November 1999. The snowmobiles were shipped to Kazakhstan for delivery to one of the officials."

Middleman

Giffen, now 69, has been involved in the former Soviet region since the Cold War, when he established himself as an authority on trade between the US and the Soviet Union. In 1994, he was hired by the Kazakh government as an adviser on foreign investment in the oil sector, acting as a middleman between the Kazakh government and international oil majors.

However, in 2003, Giffen was arrested on charges of violating the FCPA on 13 counts, in addition to a raft of other charges including money laundering and conspiracy. The DoJ alleged that he had arranged for oil companies including Texaco, Amoco, Phillips Petroleum and Mobil Oil to make payments into Swiss bank accounts in connection to Kazakh oil projects. He was charged him with diverting over $70m and paying more than $78m in bribes to Kazakh officials. In 2004, US prosecutors alleged that Kazakhstan's President Nursultan Nazarbayev was among those who had received payments from Giffen.

Giffen has denied the bribery claims, and claims his actions were authorised by the US government. Little progress was made in the seven years since his indictment, since both public prosecutors and Giffen's defence lawyers have struggled to obtain classified documents relevant to the case from the CIA and other US government agencies.

One important step was in 2007 when agreement was reached between the US, Kazakhstan and Switzerland to use $84m frozen in Swiss bank accounts to fund programmes for poor children in Kazakhstan.

Giffen's 2003 indictment was one of the most significant since the FCPA, which bans companies and individuals operating in the US from paying bribes to foreign officials, was adopted in 1977. However, there have been other successes within the former Soviet Union. On August 6, the Kyrgyzstan and Thailand subsidiaries of tobacco companies Alliance One International pleaded guilty to paying bribes to officials in both countries to facilitate purchases from local growers. The two subsidiaries will pay fines totalling $9.45m. In 2009, Frederic Bourke, co-founder of accessories designer Dooney & Bourke, received a one-year prison term for conspiracy to bribe Azeri government in a 1998 oil deal.

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