BACKGROUND: According to the information released, the Justice Department has asked the Swiss authorities to provide information on suspicious bank accounts in their country that are thought to contain payments from western oil companies for Kazakh oil, diverted to the private accounts of Nazarbayev and two close associates. Allegedly $60 million dollars passed in the mid to late 1990s to accounts in Switzerland controlled by Nazarbayev, former Kazakh Prime Minister Akezhan Kazhegeldin and Nurlan Balgimbayev, the former prime minister and now head of Kazakhstan’s state oil company.

Exxon Mobil corporation, the largest publicly traded oil company, is cooperating in the investigation but their other partners in Offshore Kazakhstan International Oil Co., BP Amoco and Phillips are not yet involved in the inquiry. No grand jury has been convened and no action has been taken to sanction either Giffen or the American oil companies. But if the investigation progresses, Giffen could be indicted for turning royalty payments from the oil companies into bribes on a huge scale. If the oil companies are proven to be aware of this misconduct, they in turn could be criminally liable.

Kazhegeldin issued a statement to the press through his lawyer in early July that he received a $6 million payment in 1997 and tried unsuccessfully to return it. Subsequently, Kazhegeldin, presently the chief opponent of Nazarbayev, was arrested in Italy on the basis of a Kazakh request issued through Interpol. He was released two days later because there were no grounds for his detention. Some believe that this Interpol request was motivated by Nazarbayev’s fear that Kazhegeldin might offer evidence in the Giffen investigation which that implicate Nazarbayev and possibly also the oil companies investing in Kazakhstan.

IMPLICATIONS: Corruption is a very serious problem in all countries with significant natural resources such as oil and gas. Most of the countries that rank highest on Transparency International’s International Corruption Perceptions Index are ones with very significant oil and gas industries. Kazakhstan rated an 84 out of a possible score of 99. The only countries of the former Soviet Union that ranked higher in terms of their level of corruption were the Kyrgyz Republic and Azerbaijan. The high level of business corruption in Kazakhstan was no secret to the American and western business community.

Some American investment advisors have told their clients privately to avoid Giffen because the situation did not "smell right." Others advised their clients that they had to deal with Giffen because there was no other alternative for those who wanted to be large-scale investors in Kazakhstan. Giffen consolidated his relationship with Nazarbayev in 1991 as the American Trade Consortium, a vehicle organized by Giffen during the Soviet period to promote trade and investment, dissolved with the break up of the Soviet Union. Giffen’s close relationship with Nazarbayev allowed him to become the intermediary between western investors and the Kazakhstan government.

The Foreign Corrupt Practices Act has rarely been applied to American businesses. It must be presumed that similar relationships went on between American oil investors and corrupt Nigerian and Indonesian government officials but no criminal prosecutions resulted from these arrangements. Therefore, American investors had a sense of immunity in their dealings in Kazakhstan. The recent Swiss and American attention to corruption and organized crime from the former Soviet Union has brought such practices which earlier might have evaded attention to the forefront. Under the present political environment in Switzerland and the United States, it is likely that this investigation will continue and may implicate more than just James Giffen before the end of this administration.

CONCLUSION: The corruption and money laundering investigation will have reverberations throughout Central Asia and the Caucasus. The leaders of these countries may also be concerned that they and their foreign bank accounts may be subject to foreign investigations. While there will not be any cooperation from the Kazakh side, the multilateral cooperation between the U.S. and Switzerland and the oil companies may lead to revelations that will disturb the Kazakh government. The investigations will also be part of a larger political game that will affect both the United States and Russian presence in the region and internal American presidential politics.

Russian-Kazakh relationships may strengthen as Kazakhstan fears no such intimidating inquiries from the Russian government. Putin may exploit Kazakh and other regional leaders’ fears that Americans are undependable and even risky trade partners and investors.

In the United States, the Clinton administration’s failure to recognize the costs of corruption could be used by Republican presidential candidate George W. Bush to his own political advantage. The Bush campaign may exploit the political situation by showing that American policy to strengthen its presence in Central Asia has been significantly weakened by recent events.

AUTHOR BIO: Louise Shelley is the founder and Director of the Center for Transnational Crime and Corruption at American University and also a Professor in the Department of Justice, Law and Society and the School of International

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