Have you ever heard of James H. Giffen? Probably not, as he doesn't even have a Wikipedia entry.
In March 2003, Giffen was arrested by FBI agents at New York's JFK airport as Giffen was about to board a plane to Kazakhstan. Giffen was charged on 62 counts, including mail and wire fraud, money laundering as well as violations of the
Foreign Corrupt Practices Act (FCPA).
Giffen was the CEO of a small company called Mercator Corporation, whose business was representing American petroleum companies in former Soviet countries, particularly Kazakhstan. The Department of Justice's case stated that Giffen pocketed millions of dollars in fees from oil firms when he successfully bribed the Kazakh government into awarding them lucrative contracts.
Despite the fact that nearly 3 years has transpired, Giffen's case is still not yet resolved. According to the last news report (December 17, 2005), Giffen may never serve a day in prison because his case could be dropped on national security grounds.
The case is in itself rather simple. In 1998, a Jordanian businessman named Farhat Tabbah filed a suit in Britain saying that Giffen and J. Bryan Williams III (then a senior Mobil official) had defrauded him in an "oil swap" deal, causing him to lose $34.5 million dollars. The deal involved a 10-year agreement to swap oil between Kazakhstan and Iran.
Tabbah lost that case but records he procured from the U.S. Customs Service (and records he gave to the authorities) started an FBI investigation into Williams and Giffen in 1999. Seymour Hersh wrote an extensive article on this in July 2001. It should be noted that Swiss authorities greatly helped in this investigating and providing documentation in this case, as well as by freezing accounts going to Nazarbayev.
In the 1970's, Giffen was the vice-president for Armco Steel, which amongst other things sold oil field development equipment to Russia. Armco's president, William Verity Jr., later became the Commerce Secretary under Ronald Reagan.
Back in 1984, during the Cold War, Giffen was one of the first Americans to be welcomed in Russia by Mikhail Gorbachev under the "perestroika" policy. Giffen spent a lot of time hobnobbing and rubbing elbows with the Communist Party leadership, which included a man named Nursultan Nazarbayev, whom Mikhail Gorbachev had installed as the leader of the Kazakh Soviet Socialist Republic.
In 1990, Kazakhstan became an independent nation and Nursultan Nazarbayev has remained in power ever since, continuing his close ties with Giffen. Although Kazakhstan is a vast, sparsely-populated country, it sits on top some of the world's largest reserves of gas and oil, including the absolutely immense Tenghiz oil field, which the U.S. government has estimated has 6 billion barrels of oil.
The negotiations over the Tenghiz oil field began in 1988, when Kazakhstan was part of the Soviet Union, and finalized in 1992, when Kazakhstan was an independent nation. Mobil (now ExxonMobil) won a 25% interest in the Tenghiz field (at the cost of 1 billion dollars) through the services of Giffen and his Mercator Corporation. As such, Mobil paid him over $50 million in cash in fees. Giffen then transferred this to Swiss banks, where it went into the hands of Kazakh officials.
In the federal indictment (PDB) against Giffen, the government said that some of this bribe money went to a "senior Kazakh official" who was not named and referred to only as "KO-2". Later court motions revealed that KO-2 was none other than Kazakh President Nursultan Nazarbayev, and that the money was spent on acquiring luxuries as well as sending Nazarbayev's daughter to an expensive Swiss boarding school.
Chevron (now TexacoChevron) also hired Giffen as a consultant and they too won a portion of the Tenghiz oilfield. This is not disputed but so far there are no charges relating to bribes paid for or on behalf of Chevron (at least for Tenghiz), although Giffen's "fee" remains 7.5 cents for every barrel of oil pumped from the field. Giffen later helped Amoco get a share of the Caspian Pipeline Consortium (1997) and Texaco's stake in the Karachaganak oil field (1998) amonst others.
According to reports, Giffen's influence in Kazakhstan was (and still is) immense. Former CIA officer Robert Baer's book See No Evil describes Giffen's influence:
"Jim Giffen was Mr. Kazahkstan. If you wanted an oil concession in Kazahkstan, you went to Giffen because his consulting company, Mercator Corporation, held the keys to the kingdom. If you wanted to get out of your concession . . . because you'd been ripped off, you went to Giffen. He collected the commissions and distributed them, no questions asked, as long as the numbers on the check were right."
Furthermore, Giffen's influence in Kazakhstan was so great that when Nursultan Nazarbayev made his first visit to the United States, in 1992 to see George Bush, it was Giffen who handled everything from the security to the hotel arrangements, not the American Ambassador to Kazakhstan (Elizabeth Jones).
Giffen has a wide array of friends and connections. Besides Reagan Commerce Secretary William Verity (Giffen's old boss) he was also friends with Robert Strauss, the American Ambassador to Russia from August 1991 to November 1992. Strauss, like Giffen, was an American businessman who had extensive relations in Russia. Strauss is a former FBI agent and was awarded the Presidential Medal of Freedom in 1981 by Ronald Reagan.
After retiring from the federal government in 1992, Strauss became a senior partner at the law firm of Akin, Gump, Strauss, Hauer & Field. Giffen is a client of this law firm (and they are defending him in this case), which is also a registered foreign agent of the Saudi government. Several of George W. Bush's associates, James Langdon, George Salem and Barnett "Sandy" Kress, are also partners of this firm.
Giffen also has strong ties to Elizabeth Jones, formerly the U.S. Ambassador to Kazakhstan and the U.S. State Department's Assistant Secretary of State for European and Eurasian Affairs (2001-2005).
Giffen also has connections to Brent Scowcroft, formerly of the National Security Council (for George H.W. Bush) and who later served as George W. Bush's chairperson for the President's Foreign Intelligence Advisory Board.
Giffen also regularly met with Lawrence Eagleburger and James Baker III, both former Secretaries of State. Baker in particular has strong connections to the oil industry from Azerbaijan to Saudi Arabia.
Giffen became so important to the Nazarbayev government that in 1995 it awarded him the status of "president's counselor" and the Kazakh government also issued Giffen a Kazakh diplomatic passport.
Giffen's law team threw a spanner in the works during the July 29, 2004 hearing when they stated that Giffen had not violated the FCPA because he had been acting with the consent of (and perhaps on behalf of) the United States government, including the CIA.
Giffen's lawyers filed a motion under the Classified Information Procedures Act, in which classified CIA documents were given to the defense team. This is known as the "public authority" defense of the FCPA:
The public authority defense is available when a defendant commits an illegal act based on a statement or act of a government agent with actual legal authority to empower the commission of that illegal act. In July, the judge agreed that this defense may be viable when ruling that, "if the United States was encouraging Giffen to ingratiate himself to senior Kazakh officials through his financial dealings with them, [he] may be able to assert a public authority defense."
In other words, what Giffen was doing was illegal but since he did it with the knowledge of high-ranking (American) government officials, Giffen can't be held liable.
Giffen's law team won that motion and did get access to CIA documents. His lawyers also argued that he worked with the administration to get Kazakhstan to relinquish its nuclear arsenal and to stop shipping military aircraft to North Korea.
Giffen never claimed he was a CIA agent, rather that he was their "eyes and ears" in Kazakhstan and regularly debriefed the government (including the CIA, FBI, State Department and National Security Council) on what was going on.
Ex-CIA agent Bob Baer, who has no love for Giffen, denies that:
They cast Giffen as a sleazy operator whose real goal was to enrich himself and party like a frat boy, playing bigshot overseas with Central Asian beauties a third his age and downing Scotch with Nazarbayev and other senior Kazakh officials until late into the night.
"He's a slick talker -- and he was scamming the U.S. government," said Robert Baer, a former CIA case officer who reviewed reports on Giffen's information that came to the agency.
According to Baer, Giffen -- described by many as brash, shrewd and garrulous -- exaggerated his importance as a cover while engaging in shady practices and forging deals that netted him as much as $200 million, according to another source's estimate.
Baer noted that Giffen angered the agency in the mid-1990s when Kazakhstan arranged an oil swap with Iran that went against U.S. sanctions, even after Giffen was personally warned by the National Security Council that such a deal would be illegal. Still, he said, "Who cares about oil swaps with Iran if the guy was giving useful information like on loose nukes, relations with Russia or [possible] Iranian purchases of Kazakh nuclear equipment?"
"But he never provided solid evidence that would have caught Kazakh arms dealers doing this -- and that's crucial. There's certainly nothing he did to overcome oil trading with Iran."
In fact Baer says the CIA merely reached out to American businessmen in foreign countries, such as Giffen, for "information that might be useful to policymakers" and that the agency had no implicit relationship with Giffen.
In 2004, Giffen's law team also asked the presiding judge, William Pauley, to dismiss the charges because Giffen was serving in his capacity as a member of the Kazakh government, not as an American citizen, when the payoffs occurred. The FCPA law only deals with who pays the bribes, not who receives them, but it seems pretty clear it deals with "U.S. persons".
While not making any public statements in support of or against the case, the government of Kazakhstan has been pushing hard to get the case dropped:
In well-publicized accounts, the Kazakh government has lobbied hard and exerted pressure on staff in both the Clinton and Bush administrations to try to quash the investigation; from a 1999 appeal to Vice President Al Gore, to Secretary of State Madeline Albright, through to Vice President Dick Cheney in October 2001.
A spokesman for Al Gore declined to comment, citing a lockdown on interviews since he chose not to run in the 2004 presidential elections. Repeated requests made to Cheney's office went unanswered. Albright's office acknowledged the request for comment but did not grant a request for an interview.
Assistant Secretary for European and Eurasian Affairs Elizabeth Jones and Deputy Secretary Richard Armitage at the State Department were also reportedly approached by representatives of the Kazakh government. The State Department would not comment on the nature of these meetings since the case is still active.
But internal court documents written by Judge Chin in September 2002 confirm that "the Republic made efforts to persuade the United States government to stop the investigation, including a personal appeal from high officials of the Republic to the United States Department of State ... [and to] other executive agencies to halt the investigation. These efforts have not been successful."
That mention of Cheney is significant because he was on the 12-member Kazakhstan Oil Advisory Board during the time Giffen allegedly was funneling bribe money to the Kazakh government.
Oral arguments are scheduled to begin on January 25 of this year but as I said in the beginning, the case might be dropped:
According to the newly declassified court documents, Mr. Giffen has presented 41 documents that his lawyers say prove he cannot be prosecuted because he was telling U.S. intelligence officials about the bribes all along, and the officials never told him to stop.
"He disclosed to the officials the very facts that are at the core of the indictment," his lawyer, William Schwartz, wrote in an affidavit to the court, so he is entitled to what is known as a "public authority defense."
[The prosecutor in the case, Peter] Neiman added: "Giffen no doubt hopes that the government will prefer maintaining the secrecy of many of the incidents described in the documents to pursuing the prosecution."
The documents that Mr. Giffen's lawyers submitted to the court are mostly still classified and detail a relationship with U.S. intelligence that goes back to 1984.
Scott Horton, a New York lawyer specializing in Central Asia who has been closely tracking the case, said that so far, it has been free from political interference, despite multiple attempts by Mr. Nazarbayev to have it dropped.
But the national security concern could "open a crack that would let political input affect prosecutorial discretion legitimately," he said.
So why all the fuss? Why did I spend hours researching this article on a case which hasn't even finished yet?
It's because of the oil. Reading between the lines, it looks like Giffen used his contacts to get very close to the hideously corrupt Kazakh government (who by the way, has an atrocious human rights record). Oil companies wanted to get a slice of that oil and therefore they had to deal with Giffen, whose job was to "broker" the contracts to make sure the Kazakh elite got their pockets lined.
How much oil are we talking about? A lot:
According to the US State Department and the Department of Energy, the Caspian Sea region is estimated to hold between 200 and 235 billion barrels--10 times the amount of the North Sea, roughly as much as Iran and Iraq combined, and about a third of the reserves of the Persian Gulf. Working side by side with the US government, major oil companies have invested billions of dollars in the region--but have yet to realize most of their profits.
Kazahkstan, in particular, has been a focus of US oil efforts. In the Spring-Summer 2000 issue of CovertAction, Karen Talbot provided the following overview, which, in light of recent events, was prescient:
"Kazahkstan is a huge country bordering on the Eastern shore of the Caspian Sea. It has vast petroleum resources. A substantial portion of the oil reserves is in the Tengiz oil fields in the Caspian Basin. Western oil companies are heavily involved in Kazakhstan. However, the only way to transport the petroleum to market is through existing pipelines in Russia, especially the pipeline that crosses Chechnya and terminates at the Black Sea port of Novorossiysk. There is a feverish activity to construct an underwater pipeline beneath the Caspian Sea, which would make it possible to bypass Russia. The major obstacle to this is a treaty requirement that all five littoral states of the Caspian Sea must agree to such a project. That includes Russia and Iran. US officials have been urging that the legalities regarding the Caspian Sea be disregarded in order to move forward with the trans-Caspian pipeline."
The Tengiz oil field on Kazakhstan's Caspian coast is one of the 10 largest oil deposits in the world, and was first developed in 1993 in a joint venture headed by Chevron, which owns 50 percent of the consortium. The resulting enterprise, Tengizchevroil, was later joined by Mobil (now ExxonMobil), a 25 percent owner. The government of Kazakhstan owns another 20 percent, and Russian-American joint venture Lukoil holds a 5 percent share. In November 2000, the Tengizchevroil partners and Lukoil established the Caspian Pipeline Consortium to build a 900-mile pipeline carrying oil from Tengiz to the Russian Black Sea port of Novorossiysk (this pipeline is now operational).
The same Western companies--notably ExxonMobil and BP Amoco--are also involved in exploring another field, Kashagan, which was discovered in the late 1990s. This field is estimated to hold at least 50 billion barrels, but more optimistic projections put the potential figure at 600 billion barrels--twice the reserves of Kuwait.
The key issue for American companies with investments in Kazakhstan has been at the heart of US foreign policy and war planning throughout the region: how to transport oil and gas out of landlocked Caspian/Black Sea fields, while 1) bypassing "hostile" regimes in Iran, Iraq, Afghanistan to the south, and 2) avoiding Russia, and Russian participation (economic, political and military).
The above was written in 2002, before the U.S. was in full control of Afghanistan and before the invasion of Iraq.
Connecting the dots, it looks like the U.S. administration (since Reagan) looked the other way at Giffen's dealings because A) Giffen was informing them of what he was doing and what was going on in Kazakhstan and B) because Giffen was making sure American companies got a major slice of the Kazakhstan oil pie, as opposed to Russian companies. Giffen's tactics were sleazy and corrupt, but the government of Kazakhstan is hideously corrupt and that's just the price of doing business. And frankly I do expect the case to quietly disappear, one way or another.
Since none of the oil companies have been targeted in this case (and are not expected to be), and the only other man charged (Williams) pled guilty on a count of tax invasion, you may be wondering why the government is prosecuting this case at all. Why go to all the trouble of years of litigation to convict a man who was helping out American geostrategic interests?
The only answer I can come up with is that the U.S. Attorney who was in charge of the case is one very honest man: James B. Comey.
You might remember Comey as the man who appointed Patrick Fitzgerald as Special Counsel to investigate the Valerie Plame leak case. And Comey was also the man who refused to sign off on the illegal NSA wiretapping program in 2004 when he was Acting Attorney General.
Comey is an honest man who did his job faithfully, including prosecuting cases against corrupt businessmen who make millions in dollars of profit by taking bribes from oil companies.
And now you know who James H. Giffen is.
Cross-posted from Flogging the Simian
Peace