Dec. 16 (Bloomberg) -- Jim Giffen, an oil consultant and merchant bank owner, spent the last years of the Cold War brokering business deals between the U.S. and Soviet Union while serving as a secret communication conduit between governments.
He later worked as a go-between for oil-rich Kazakhstan and energy companies including Chevron Corp. and the former Mobil Oil Corp., negotiating payments for exploration rights. And for that, he was indicted.
U.S. prosecutors in 2003 accused him of funneling $78 million in bribes to leaders of the former Soviet republic. Seven years later, instead of a prison term for money laundering and bribery, he received no punishment, pleading guilty to a misdemeanor tax charge. Rather than reprimand him, the federal judge overseeing his case thanked him Nov. 19 for “his service” to America during and after the Cold War.
“Listen to the judge’s words,” Giffen, 69, said in an interview from his midtown Manhattan office two weeks later. “He knows damn well what those words mean.” The owner of The Mercator Corp. merchant bank and former adviser to the president of Kazakhstan said the judge’s pronouncement was vindication.
Giffen’s 2003 arrest came at the start of an upswing in Foreign Corrupt Practices Act prosecutions by the Justice Department. The “highly unusual” comments by U.S. District Judge William Pauley marked an “embarrassing” conclusion to the case for prosecutors, said Michael Koehler, a Butler University law professor in Indianapolis.
“It’s not often that a judge at sentencing says a case should never have been brought,” said Koehler, author of the FCPA Professor blog.
Giffen was arrested for passing bribes to Kazakhstan President Nursultan Nazarbayev and another government leader on behalf of American oil companies. At the time, the case was the largest ever brought under the now 33-year-old anti-bribery law.
Giffen denied wrongdoing and said some of his still-classified activities were done at the behest of the U.S. government. For years, the case stalled as prosecutors refused to turn over documents that Giffen said would exonerate him.
Giffen was sentenced last month in Manhattan federal court for a misdemeanor for his failure to disclose a foreign bank account on his 1996 tax return. Pauley sentenced him to time served -- the one night he spent in jail right after his arrest -- while praising him for advancing U.S. “strategic interests.”
Pauley said Giffen served as “a conduit for secret communications to the Soviet Union and its leadership during the Cold War” and later became a “trusted adviser to Kazakhstan’s president” while promoting U.S. priorities.
“How does Mr. Giffen reclaim his good name?” the judge asked during the hearing. “This court begins that process by acknowledging his service.”
Aside from Giffen’s plea, his bank admitted violating the FCPA by giving two snowmobiles worth a total of $16,000 to a Kazakh official. Pauley fined Mercator, which has 10 employees, $32,000.
Today, Giffen said he’s saddened, though not bitter, about a case that threatened to jail him for 20 years and forced an end to his three decades advising Kazakh, American and former Soviet leaders.
“Was I disappointed when all this stopped? Yes,” a gray-haired Giffen said from his 20th-floor midtown office. Photographs of a younger, heavier, darker-haired Giffen with President Ronald Reagan and Soviet President Mikhail Gorbachev hang on his wall. “Would I do it again? Absolutely. What we were doing was important.”
The U.S. has charged more than 70 people with FCPA-related crimes since his 2003 arrest, most in the last three years, according to the law firm Shearman & Sterling LLP. Prosecutors have prevailed in almost every case that went to trial. In the longest sentence to date, businessman Charles Jumet was ordered to prison for more than 7 years for conspiring to make illegal payments to Panamanian government officials for contracts.
Giffen is the rare FCPA defendant who, Koehler said, was successful in waging a defense.
By the time he was charged, the California native had become an influential actor in Kazakhstan, the world’s ninth-largest country, which has “enormous fossil fuel reserves,” according the Central Intelligence Agency’s Web site. The republic ranks 105 out of 178 countries on the Corruption Perception Index of Berlin-based Transparency International.
Early U.S.-U.S.S.R Deals
Giffen’s arrest followed a career begun in 1969, when he brokered some of the earliest business deals between the U.S. and U.S.S.R. He became wealthy in the process, as he shifted his focus to Kazakhstan, Pauley said in court.
By 1995, four years after Kazakhstan emerged from the collapse of the Soviet Union, Giffen had been named adviser to its oil industry and counselor to Nazarbayev, or “The Boss,” as Giffen called him. He helped Kazakh leaders negotiate deals with companies including Chevron and Mobil Oil for access to the Tengiz, Kashagan and Karachaganak fields, among the world’s largest. Exxon purchased Mobil in 1999, forming Exxon Mobil Corp.
Giffen was indicted for money laundering and bribery, accused by prosecutors of funneling bribes while working as a middleman between Kazakhstan and oil companies in violation of the FCPA. The U.S. identified Nazarbayev in 2004 as a bribe recipient, which Kazakhstan denied. Neither he nor oil companies were charged.
A former Mobil executive, J. Bryan Williams, was jailed in 2003 after admitting he evaded taxes on a $7 million payment, which prosecutors said included a kickback for helping the company buy a share of a Kazakhstan oil field.
Giffen said he “can only speculate” on why the U.S. brought what he calls a “selective” prosecution. He said he believed the U.S. joined a Swiss probe of secret Kazakh bank accounts only after Nazarbayev reproached then-U.S. Secretary of State Madeleine Albright in April 2000 for criticizing Kazakhstan’s sale of fighter jets to North Korea.
Previously, the U.S. had ignored the investigation, Giffen said, tracing it to an internal Kazakh feud between Nazarbayev and critics of his authoritarian government.
Investigators uncovered millions of dollars in Swiss accounts owned by Kazakh leaders, which prosecutors later characterized as payoffs flowing through Mercator. The U.S. subsequently blocked Kazakhstan from gaining access to those funds.
“You have to ask the question, ‘In whose interest was the investigation in the first place?’” Giffen said.
Ellen Davis, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, whose office brought the case, declined to comment.
Steve LeVine, author of the 2005 book “The Oil and the Glory,” an account of oil politics in Central Asia, said the U.S. case began with a probe in Belgium that spilled into Switzerland and uncovered the accounts. LeVine said Giffen’s lawyers never answered key allegations, like why Giffen used a convoluted series of transactions to fund the Swiss accounts.
“In court at least, they never disputed the facts of the case,” LeVine said.
Giffen’s attorney, William Schwartz, said he would have shown at a trial that the accounts were lawful. Nazarbayev wanted a small portion of the oil companies’ contractual payments to be kept away from what he considered a wasteful parliament and used for Kazakh reform efforts and expenses, according to court documents submitted by the defense.
To maintain secrecy, Nazarbayev agreed with Swiss bankers who proposed that a percentage of revenue be routed to accounts owned by foreign companies like Mercator but controlled by Kazakh officials. Mercator in turn made expenditures that Kazakh officials ordered, according to the documents.
“There were no bribes,” said Schwartz, of Cooley LLP in New York. Giffen agreed, saying he “was on the record over there as the agent and trustee over Kazakh government accounts.”
Another piece of Giffen’s defense was his “public authority” claim, in which he argued that intelligence agencies knew what he was doing and condoned it so that Giffen could mine Kazakh leaders for information he’d forward to the U.S.
Schwartz said the judge barred Giffen from discussing in public secrets he passed. In court papers, Schwartz said that, by building economic ties with Soviet and Kazakh leaders during and after the Cold War, Giffen became a resource for intelligence agencies seeking information or contacts.
According to court documents, one tip came in June 1996 when Giffen reported on “high-level corruption in the oil industry” while another involved the Swiss bank accounts. A summary of another document said U.S. officials viewed Giffen as “a problematic” and unreliable resource.
“I never had, in 30 years, one U.S. government person tell me what I was doing was wrong,” Giffen said. “Not once.”
Many proceedings in his case occurred in sealed courtrooms, with prosecutors arguing that Giffen himself had no right to view classified documents. After the U.S. Court of Appeals in New York in 2006 allowed Giffen’s lawyers to seek records about his role in Central Asia, prosecutors complained that intelligence agencies weren’t providing documents they sought.
Schwartz said he doesn’t know what was in some reports that eventually made their way to Judge Pauley.
“One person had access,” Schwartz said. “That was the judge, and he made his feelings known.”
Giffen said he spent the past 7 1/2 years in constant consultation with his lawyers while continuing to draft occasional reports for the Kazakh government, which hadn’t fully cut ties with him. Giffen slashed Mercator’s staff as his legal fees mounted.
“They were supportive of me totally until around 2004 or 2005,” Giffen said of the Kazakhstan government. At that point, Kazakh officials launched an effort to recover the funds frozen in Switzerland, culminating in a 2007 agreement to use the money for charity, he said.
Meruyert Saudabay, a spokeswoman at the Kazakh embassy in Washington, didn’t return a call seeking comment.
Michael Perlis, a lawyer at Stroock & Stroock & Lavan LLP who helped draft the FCPA while at the Securities and Exchange Commission in the 1970s, said the case was an “outlier” and unlikely to influence how lawyers defend other FCPA prosecutions. Few defendants can mount the same defense as Giffen, he said.
Giffen’s office is still decorated with photographs of Nazarbayev and the flags of the U.S. and Kazakhstan. He said he would like to return there to help the country develop its industry and build infrastructure. Had he still been there, Giffen said he would have demanded efficiency for projects now mired in bureaucracy.
He pointed to Kashagan, the world’s fifth largest field, which is due to start production in 2012 after years of postponements, as costs topped $100 billion from an initial $30 billion.
“I’m going to go back and have a chat with the folks there,” Giffen said. “Do they have problems? Yes. Do they have a stake in having those problems solved? Yes.”
The case is U.S. v. Giffen, 03-CR-00404, U.S. District Court, Southern District of New York (Manhattan).
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