U.S. Official Confirms Probe Into Alleged Kazakh Oil Deal

A U.S. law enforcement official confirmed reports that the U.S. Justice Department is investigating whether a U.S. financial consultant improperly funneled tens of millions of dollars from major oil companies to Kazakh President Nursultan A. Nazarbayev and other leaders of the oil-rich former Soviet republic.

Exxon Mobil Corp., the world’s biggest publicly traded oil company, said it is cooperating with the probe of James Giffen, who has acted as middleman between Western oil companies and Kazakhstan officials.

The oil companies, including BP Amoco and Phillips Petroleum Co., aren’t the focus of the investigation, and a grand jury hasn’t been convened, said the law enforcement official, who spoke on condition of anonymity.

The investigation was reported in the Wall Street Journal and in other publications.

The Justice Department is asking Swiss authorities for help in the probe, which centers on whether there have been violations of a U.S. law that forbids companies from paying bribes to secure business overseas.

Oil companies routinely pay royalties, taxes and fees for rights to drill on government lands. The investigation centers on whether Giffen, 59, a longtime middleman between Central Asian governments and Western companies, broke the law by diverting the companies’ payments, according to the U.S. official and BP Amoco spokesman Youssef Ibrahim.

“If any of these funds were diverted illegally we have no way of knowing,” Ibrahim said, adding that the Justice Department hasn’t officially notified BP of the probe.

BP Amoco, the world’s No. 3 publicly traded oil company, was formed in 1998 when London-based British Petroleum Co. bought Amoco. Irving, Texas-based Exxon Mobil, formed last year when Exxon Corp. bought Mobil, wouldn’t comment further. Phillips, based in Bartlesville, Okla., declined to comment.

Exxon Mobil, BP Amoco and Phillips are partners with six other oil companies in Offshore Kazakhstan International Oil Co. The group has drilled a well, called Kashagan East, in the Caspian Sea that could be the biggest oil discovery in more than 20 years, the Washington Post has reported.

The U.S. government has backed oil companies’ ventures in countries created by the breakup of the Soviet Union, hoping to ease the region’s dependence on Russia and bring its oil and gas to Western markets.

Exxon Mobil shares rose $1.05 to $79.55 on the New York Stock Exchange. BP’s American depositary receipts rose $1.69 to $58.31. Phillips rose 31 cents to $51 on NYSE.

Giffen, who heads a New York-based firm, Mercator Corp., declined to comment on the probe when reached by the Journal in Astana, Kazakhstan’s capital.

“When all the facts associated with this matter are clearly understood, we are confident that Mercator will be shown to have acted lawfully,” Giffen’s lawyer, Mark MacDougall, said in a statement cited by the Journal.

Justice Department officials declined comment on the investigation. MacDougall didn’t return calls to his Washington office. A Mercator employee said Monday that Giffen could not be reached and nobody from the company was available for comment.

The Journal said its report was based on a Justice Department document that sought assistance from Swiss authorities last month.

The department received information from Switzerland that helped trace the payments, the newspaper said. The Justice Department hasn’t sought to freeze the Swiss accounts, the U.S. official said.

The document said payments of at least $115 million were made from the U.S. bank accounts of several oil companies to a numbered account, at Bankers Trust in New York, belonging to an unidentified Swiss bank, the Journal said.

Giffen allegedly passed almost $60 million from the numbered account to accounts 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, the Journal said.

An attorney for Kazhegeldin told the paper that his client received a $6-million payment in 1997 and tried unsuccessfully to return it.