Bribes in the Name of National Security

Last month, I covered two different models which have been used to return corruption assets to Kazakhstan. Here, I’ll discuss the international political dynamics facilitating corruption and stymying anti-corruption efforts in the context of the infamous James Giffen case.

While the James Giffen case is more than a decade old, it continues to be the best illustration of the role of international players in facilitating corruption and the ways in which politics challenge legal realities. In Giffen’s case, a Cold War mindset, and the U.S. War on Terror, changed the course of a fairly clear-cut corruption case.

A Cold Warrior on the Kazakh Steppe

In the late 1990s, Kazakhstan was the site of a veritable feeding frenzy for international energy giants looking to set up in the untapped formerly Soviet hinterlands. Men like James Giffen, with colorful pasts working in the realm of U.S.-Soviet business and trade deals, stepped easily into the role of facilitator between U.S. companies and the Kazakh government.

As I noted in last month’s magazine, in 2010 69-year-old American James Giffen pleaded guilty to a misdemeanor tax charge and walked free. He’d been enmeshed in a seven-year legal battle that all of a sudden disappeared, despite what one commentator described as “slam-dunk documents” implicating him in a classic money-laundering scheme on behalf of Kazakh officials, including President Nursultan Nazarbayev.

As Steve Levine chronicled in his 2007 book on Caspian energy politics, The Oil and the Glory, a prosecuting magistrate in Geneva, Switzerland had sent a request in 1999 to Swiss banks for records containing the word “Kazakhstan” as part of his response to a Belgian request to look for accounts held by Akezhan Kazhegeldin, a former Kazakh prime minister and political opponent of Nazarbayev. Nazarbayev’s son-in-law had set Belgian authorities on Kazhegeldin’s trail, hoping to implicate him in financial crimes, not knowing the Belgians would copy the Swiss on the request and thus blow open his father-in-law’s secret Swiss bank accounts.

Because Kazhegeldin has several possible spellings, the Swiss included the term “Kazakhstan” in their search and while nothing came up for Kazhegeldin, two transactions regarding Kazakhstan cropped up as suspicious. Money from a Kazakh government account had been transferred into a personal account whose beneficial owner was Nazarbayev himself, and then transferred to another state account at a different bank. Then the Swiss found Giffen.

As Levine wrote:

A U.S. businessman named James H. Giffen had been wiring money into the Swiss accounts of well-connected Kazakhs. As [the Swiss prosecuting magistrate] dug more deeply, he established that U.S. oil companies operating in Kazakhstan had been sending “bonus payments” to a New York bank account officially belonging to the Kazakh government but secretly controlled by Giffen. The American, in turn, had channeled the payments into the accounts of Kazakh insiders, including the president. Such payments to foreign governments for rights to oil fields were standard in the industry. But they were illegal under U.S. law if the money went to a foreign official with the intent of influencing his actions. They then became bribery.

Giffen’s bribes were never proven in court, I wrote last month, “an outcome that more closely reflects the politics of the moment – namely the post-Cold War scramble for influence and the unyielding pressure of the U.S. War on Terror – than the lack of evidence of financial crimes.”

The shelving of the bribery case against Giffen was rooted in the fact that he had put forward a so-called CIA defense (or alternatively, the public authority defense) claiming that any illegal acts which may have been committed by Giffen were done in the course of work affecting national security. William Schwartz, Giffen’s lawyer, request classified documents that would establish his client’s relationship with the U.S. government. The CIA declined to produce such documentation, thereby ensuring that Schwartz could make a reasonable case that he could not adequately defend his client.

At his sentencing in 2010, U.S. District Judge William Pauley said the classified documents he had been permitted to view demonstrated that Giffen had “advanced the strategic interests of the United States and American businesses in Central Asia” and that he had “continued to act as a conduit for communications on issues vital to America’s national interest in the region,” throughout his time.

“Mr. Giffen was a significant source of information for the U.S. government and a conduit for secret communications to the Soviet Union and its leadership during the Cold War,” the judge said.

In 1969, Giffen went to Moscow as the representative of a U.S. metals trader. After more than two decades brokering deals under the chill of the Cold War, he had moved on to focus on Kazakhstan in 1992 – building close ties to Nazarbayev, “the Boss.”

Cold War Out, War on Terror In

The Giffen case bridges the Cold War and the U.S. War on Terror. Giffen, positioning himself as an indispensable individual in communicating with the Soviet Union and then independent Kazakhstan, was ultimately spared jail because of War on Terror political necessities.

The facts of the corruption case were frankly irrelevant in the face of political considerations at hand. In 2003, when Giffen was indicted, the United States was two years into its war in Afghanistan. By 2006, as both the Giffen case and the U.S. War on Terror dragged on, U.S. President George W. Bush was hosting Nazarbayev at the White House one moment and denouncing corruption the next, without apparent appreciation for the irony.

As Nick Kochan wrote in Corruption: The New Corporate Challenge, “In an era of both post-9/11 secrecy and fears over energy security, the CIA was never going to release documents that would incriminate a strategic partner.”

Anti-corruption efforts play second-fiddle to national interests, in so much as the powers-that-be rank those interests. It didn’t matter if Giffen’s CIA defense was bunk or not (and Levine’s 2007 book alleges that CIA officers of the era denied Giffen was as important as he made himself out to be). The relationship between Washington and Astana was too important to skuttle over something as meaningless as bribery that benefitted American companies.

While Central Asia has a bad reputation when it comes to corruption, the schemes of its leaders to filch their own states of resource revenue are predicated on access to an international financial system through which dirty money is washed and spent. Central Asia’s reputation for corruption is well deserved, but that reality is fundamentally tied to the complicity of foreign governments in abetting corruption, profiting from it, and looking the other way when politically expedient. Unless foreign governments -- in Switzerland and in the United States, for example -- confront their role in Central Asian corruption, nothing will meaningfully change.