Corruption Case Could Alter Kazakhstan's Energy-Export Calculus

A pre-trial hearing is scheduled for June 3 in a bribery case concerning alleged illicit payments by an American merchant banker to top government officials in Kazakhstan. With Kazakhstan preparing for parliamentary elections, the case is fraught with political liability for President Nursultan Nazarbayev. It also has the potential to alter the Central Asian nation's energy-export calculus.

James Giffen, the head of Mercator Corp., is charged with violating the Foreign Corrupt Practices Act (FCPA) for allegedly making over $78 million in illicit payments to two top Kazakhstani officials while brokering deals between Western oil conglomerates and the government in the mid-1990s. [For background see the Eurasia Insight archive].

Federal prosecutors in New York, where Giffen's trial is to be held, revealed in April that the two officials who allegedly received the illicit payments were Nazarbayev and former prime minister Nurlan Balgimbayev.

Giffen's defense team has sought a dismissal of the case, asserting that US law does not apply to his business dealings with Kazakhstani officials. His lawyers also have claimed that at the same time Giffen was brokering the oil deals, he was in touch with US intelligence agencies, giving him the impression that he was acting as a de facto US government agent.

The case has already experienced delays, and a verdict is months, if not years away. It has generated far more attention in Kazakhstan than in the United States. Nazarbayev critics in Kazakhstan are hoping that possible revelations during the trial will undermine support for pro-presidential political parties in the country's parliamentary election in October, and even make it difficult for the president to run for re-election in 2006. [For background see the Eurasia Insight archive]. Some political experts, however, believe the case will likely not meet the opposition's expectations.

"Everybody says he's going to say nothing, and fall on his sword," says Martha Brill Olcott, a Kazakhstan expert at the Carnegie Endowment for International Peace in Washington, DC. "I've not met anybody who thinks that Giffen is going to divulge anything."

"If he [Giffen] were to turn to cooperate with the government and describe what it was like inside the [Nazarbayev administration] there, it would be damaging for Nazarbayev internationally," Olcott continued. "But as long as Giffen doesn't cooperate with the United States, I think the [political] damage [to Nazarbayev] has been done."

Nazarbayev in recent weeks has sought to protect himself from potential political fallout. In particular he has tried to shift the blame for a broader corruption scandal, dubbed Kazakhgate, away from incumbents in government and on to former prime minister, and currently Nazarbayev's arch political foe, Akezhan Kazhegeldin.

The most important casualty of a Giffen trial could end up being US-Kazakhstani relations. There are already indications that the case has damaged bilateral ties. In comments broadcast May 14, Nazarbayev characterized the charges against Giffen as "acts of provocation." Some observers suggest that Nazarbayev views the case as an attempt by the US government to somehow punish him.

"He [Nazarbayev] doesn't understand why this case wasn't dismissed," said an expert on Kazakhstan's economy who spoke on condition of anonymity. "They [Kazakhstani officials] don't believe that the US judiciary is independent ... and I think they feel this [the Giffen case] is personal."

Helping to create the impression among Kazakhstani officials that the US government is unfairly targeting their country were recent comments by US ambassador to the Organization for Security and Cooperation in Europe, Stephen Minikes, who said the "cancer of corruption" was "eating away" Kazakhstan.

"As long as corruption prevails, democratic and market reforms will never come to Kazakhstan," the Interfax-Kazakhstan news agency quoted Minikes as saying during a May 25 news conference. A Kazakhstani Embassy representative in Washington, DC, later rejected the assertion that corruption was undermining the democratization process in Astana.

A chilling of US-Kazakhstani relations has potentially far-reaching ramifications for Kazakhstan's energy-export agenda. Until recently, Astana viewed the United States as its key energy development partner. Now, it appears as though Nazarbayev is determined to diversify his export options, in particular exploring closer economic ties with Russia and China. [For background see the Eurasia Insight archive].

"My guess is this will be problematic for the Americans," said the expert on Kazakhstan's economy. "I believe Nazarbayev is looking to China, talking about a pipeline to Iran, and going about trying to fortify himself [against pressure] from the United States."