U.S. District Court Judge William Pauley (S.D.N.Y.) recently passed away.
During his career, Judge Pauley presided over U.S. v. James Giffen -one of the strangest Foreign Corrupt Practices Act enforcement actions of all time.
Judge Pauley called Giffen a Cold War hero and stated that the case should never have been brought in the first place. Upon the abrupt conclusion of the case, Judge Pauley remarked: “This ordeal must end. How does Mr. Giffen reclaim his reputation? This Court begins by acknowledging his service.”
The Giffen FCPA enforcement action began in 2003 (see here) with the DOJ alleging that Giffen made “more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with six separate oil transactions, in which the American oil companies Mobil Oil, Amoco, Texaco and Phillips Petroleum acquired valuable oil and gas rights in Kazakhstan” is resolved via a one-paragraph superseding information (see here) charging a misdemeanor tax violation.
Giffen mounted a defense and asserted, among other things, that his actions were taken with the knowledge and support of the Central Intelligence Agency, the National Security Council, the Department of State and the White House. The DOJ did not dispute the fact that Giffen had frequent contacts with senior U.S. intelligence officials or that he used his ties within the Kazakh government to assist the United States. With the court’s approval, Giffen sought discovery from the government to support his “public authority” defense and much of the delay in the case was due to the government’s resistance to such discovery and who was entitled to see such discovery.
In the end, the case ended with a whimper as Giffen pleaded guilty to a one count criminal information charging him with willfully failing to supply information on tax returns regarding foreign bank accounts in violation of 26 USC 7203. Specifically, Giffen acknowledged filing a U.S. individual income tax return which failed to report that he maintained an interest in, and signature and other authority over, a bank account in Switzerland in the name of Condor Capital Management, a British Virgin Islands corporation he controlled.
Judge Pauley refused to sentenced Giffen to any jail time and commented that he was a Cold War hero and that the case should have never been brought.
For the record, Mercator Corporation (Giffen was the principal shareholder, board chairman, and chief executive officer of the company) also pleaded guilty to a one-count criminal information charging it with violating the FCPA’s anti-bribery provisions. According to the information, Mercator “advised Kazakhstan in connection with various transactions related to the sale by Kazakhstan of portions of its oil and gas wealth.” The information alleged that between 1995 and 2000 Mercator was paid approximately $67 million in success fees for its work in assisting the Kazakh Ministry of Oil and Gas Industries develop a strategy for foreign investment in the oil and gas sector and coordinating the negotiation of numerous oil and gas transactions. The information charged that certain senior officials of the Kazakh government had the authority to hire and pay Mercator and that Mercator was therefore “dependant upon the goodwill” of the officials. The one-paragraph statutory allegation merely stated that Mercator “caused the purchase of two snowmobiles that were shipped to Kazakhstan for delivery to [an official].”
The Giffen resolution was an embarrassing loss for the DOJ which (even at the time) preached the transparency and anti-corruption gospel message around the world while calling on other countries to increase enforcement of their own bribery laws. There is really no other way to describe the chronology of events which began with criminal allegations of more than $78 million in unlawful payments to senior Kazakh officials and ended with a misdemeanor tax violation and a largely meaningless FCPA enforcement action against a functionally defunct entity focused merely on two snowmobiles?
Journalist Steve Levine followed the Giffen enforcement action closely and was in Judge Pauley’s courtroom for the conclusion of the case and penned a guest post for FCPA Professor in 2010.
Set forth below is the guest post.
“James Giffen, the oil dealmaker at the center of what was once the largest foreign bribery case in U.S. history, is officially a free man.
The 69-year-old former oil adviser to Kazakhstan’s president, accused of diverting $78 million from oil companies to the Kazakh government, waited out more than a dozen federal prosecutors and sat through some two dozen court appearances and five trial dates over the course of seven years. Today, the effort paid off. Three months after prosecutors announced a stunning capitulation, dropping all foreign bribery, money laundering, and fraud charges against Giffen in exchange for a guilty plea on a misdemeanor tax charge, U.S. District Judge William Pauley ordered no prison time and no fines in sentencing proceedings at a Manhattan courthouse.
In handing down the non-sentence, Pauley seemingly validated the argument to which Giffen’s lawyers had clung since 2003: that whatever crimes Giffen had allegedly committed occurred while he was a highly valued foreign asset of the American intelligence. “Suffice it to say, Mr. Giffen was a significant source of information to the U.S. government and a conduit of secret information from the Soviet Union during the Cold War,” Pauley said today.
Giffen may have been lesser-known than the other businessmen-cum-criminal-defendants of recent decades, but he was equally colorful, a swaggering, coarse-talking, heavy-drinking womanizer and a charismatic fixture on the Caspian Sea. He arrived in Kazakhstan in 1992, but the trajectory that ultimately landed him there began in 1969, when he started traveling to Moscow as an aide to a Connecticut metals trader. Giffen worked his way up to become a major player in a U.S-Soviet business association with top-level political ties in both Washington and Moscow. When the Soviet Union collapsed in 1991, business in Russia dried up, and Giffen moved on to Kazakhstan, which was quickly becoming one of the hottest oil plays on the planet.
Giffen managed to ingratiate himself with a man he called The Boss: Kazakh President Nursultan Nazarbayev. He became Nazarbayev’s chief oil negotiator and, prosecutors alleged, his personal banker. While honchoing some of the era’s biggest oil deals, he also diverted some $78 million in payments made to Kazakhstan by now-dead companies like Mobil, Amoco, and Texaco into Swiss and other bank accounts that he set up in the name of Nazarbayev, other senior Kazakh officials, and their relatives, prosecutors alleged. (U.S. diplomats said that Nazarbayev, an unindicted co-conspirator in the case, so dreaded being tarnished by a Giffen conviction that both he and his envoys pleaded repeatedly for the George W. Bush Administration to order the case dropped.)
The case seemed open and shut, since the prosecutors presented a detailed paper trail — provided by a Swiss magistrate — of Giffen slicing payments into tiny discrete pieces for transfer into secret Swiss bank accounts, rather than shifting them as a whole, a classic method of money laundering. Even at their most voluble and expansive in court, Giffen’s lawyers made no attempt openly to dispute the prosecution’s facts. They simply kept repeating that, whatever Giffen may have done, he was taking orders from the Kazakh government — a sovereign state entitled to its own ideas of legality — and otherwise serving the patriotic interests of the Central Intelligence Agency.
It was an audacious defense that many thought verged on the preposterous. For one thing, CIA officers of the era deny that Giffen was anything of the sort — he walked into CIA headquarters on his own volition and talked to agency officers about Kazakhstan, they said, but that was very different from being a trusted asset on an informal assignment. In short, they asserted, Giffen was simply another dude talking.
The CIA, however, appears to have refused to hand over many — if any — documents sought by the defense. Judge Pauley had ruled that such documents were obligatory if Giffen were to have access to his rights to adequately defend himself. So the prosecution was left with having to drop the charges.
In his sentencing remarks, Pauley said that he had had access to classified documents that no one else in the courtroom had seen, and that they largely validated Giffen’s claims. “He was one of the only Americans with sustained access to” high levels of government in the region, Pauley said. “These relationships, built up over a lifetime, were lost the day of his arrest. This ordeal must end. How does Mr. Giffen reclaim his reputation? This court begins by acknowledging his service.”
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