#16 - JRL 7241
Financial Times (UK)
June 26, 2003
President Nursultan Nazarbayev has gone to extraordinary lengths in the past decade to gain influence in the US capital and is seeking to limit the damage from a bribery scandal
By Joshua Chaffin

By any measure, Nursultan Nazarbayev's trip to the US in December 2001 was an impressive diplomatic feat. Mr Nazarbayev, president of Kazakhstan, a country few Americans could place on a map, managed to score meetings with not one, but two Presidents Bush.

In Houston, he met George H.W. Bush and James Baker, the former secretary of state, as well as a group of executives from some of the world's largest oil companies. After awarding Mr Bush the Order of Dostyk, one of Kazakhstan's highest honours, Mr Nazarbayev jetted to Washington and made a pit-stop at a lunch hosted by Dick Cheney, the vice-president. Then it was on to the White House for the greatest diplomatic prize of all: an official meeting with George W. Bush.

The whirlwind tour testified to the impressive ties that the former Soviet republic had forged with Washington in little more than a decade, founded on Mr Nazarbayev's decision in 1993 to surrender thousands of Soviet nuclear missiles, to co-operate closely with western oil companies and to allow Kazakhstan's strategic location to be used for the war on terrorism.

But all was not exactly as it seemed on Mr Nazarbayev's visit. For a start, despite the apparent bonhomie, the White House did not want to leave Mr Bush alone with the Kazakh leader. The president's handlers were afraid that Mr Nazarbayev would try to manoeuvre for a "pull-aside", a discreet diplomatic dance step in which he would take the US leader by the arm and quietly ask for help with a troubling piece of business: a Justice Department bribery investigation in which he has become entangled.

The scandal spilt into public view in March, when James Giffen, Mr Nazarbayev's US business consultant, was arrested for the largest alleged violation of the Foreign Corrupt Practices Act. Mr Giffen was accused of funnelling more than Dollars 78m in payments from western oil companies, including Mobil, to two senior Kazakh officials. Swiss legal documents reveal that Mr Nazarbayev controlled at least one of the bank accounts where the money was stashed.

On one level the Kazakhs' tale is a familiar one, of a Washington infatuation with a promising reformer from the former Soviet Union that soured after he turned out to be something other than advertised. Yet the saga is truly rare in shining a light on the legions of lobbyists, lawyers and public relations specialists who haunt the US capital.

Despite their people's poverty, the Kazakhs have spent millions of dollars on such influence-peddlers as they try to prise open the doors to power in Washington. Mr Nazarbayev has made relentless efforts to shut down the ongoing criminal investigation.

While the Kazakhs trod softly with Mr Bush, they made an aggressive effort to target Mr Cheney, appealing to him in person and attempting to apply pressure through Halliburton, the oil company he once ran.

More recently, two Kazakh officials took up the investigation with Richard Armitage, Colin Powell's State Department deputy, just days after Mr Giffen's arrest.

Karim Massimov, Kazakhstan's deputy prime minister, denies any attempt to meddle. "We don't want to interfere with the investigation," he told the Financial Times. "The Kazakh government does not have any intention to squash it or stop it."

But US diplomats were dismayed that the Kazakhs would raise a criminal matter alongside diplomatic affairs such as the war on terrorism and co-operation on energy. "It's just not appropriate for them to bring that up at all. It implicitly links the two," says one US official.

While there is no evidence that the lobbying campaign has worked - and some that it has in fact backfired - the Kazakhs show no signs of slowing down.

"They're taking all their shots," one lobbyist says of the Kazakhs' strategy. "When you think of the stakes involved - a few billion dollars and jail - they hope they might get someone to intervene." he Kazakhs' Washington ties pre-date the Bush administration and even the Soviet collapse. In 1990, Mr Nazarbayev, then a regional Communist party boss, would travel regularly to Moscow to call on Robert Strauss, the US ambassador at the time. "He was anxious to learn how things worked in the west," Mr Strauss recalls. "He wanted lessons in what a country did to grow."

Mr Nazarbayev later retained Akin, Gump, Strauss, Hauer & Feld, Mr Strauss's powerhouse Washington law firm, along with Mr Giffen, after his country won independence in 1991.

In addition to legal advice, Mr Strauss, the former chairman of the Democratic National Committee and a grand old power-broker in DC, offered the Kazakh leader something arguably more valuable: connections. He presented his client like a debutante to Washington's elite.

One dinner at the Metropolitan Club included Vernon Jordan, President Bill Clinton's favourite golf partner, Federico Pena, energy secretary, and a group of luminary journalists.

The reception must have been dizzying for the Kazakhs. For months after the Soviet collapse, they were so impoverished that their official presence in Washington consisted of a rented room in the old Russian embassy on 16th Street. When the Kazakhs eventually secured an embassy of their own on Massachusetts Avenue, they had to rely on a local businessman to serve as a guarantor. Yet suddenly, they were one of the most sought-after contingents in town.

Mr Giffen was also instrumental. He had known Mr Strauss since the 1980s, when he tried to set up export deals for US companies with the Soviet Union, and would later use Akin Gump to represent his merchant bank, Mercator. Mr Giffen gained Mr Nazarbayev's favour by introducing him to Fortune 500 executives with money to invest.

Mr Giffen also enjoyed extensive contacts in Washington, including Toby Gati, who was an assistant secretary of state for intelligence and research and then a special adviser to Mr Clinton on Russia and the former Soviet Republics. Ms Gati, who would later go to work at Akin Gump, knew Mr Giffen from their Russia days.

For a time, these overlapping relationships seemed to represent a rare and happy confluence of commercial and diplomatic interests.

While advisers such as Mr Giffen and Akin Gump turned a tidy profit in Kazakhstan they were also helping western companies such as Mobil and Chevron to plant the flag in a sliver of oil-soaked land that had long been under Russian control - something that Mr Clinton had made a priority.

At the same time, Mr Nazarbayev's growing exposure to the west contributed to hopes that some of the virtues of democracy might rub off on the former communist plant engineer.

Of course, Akin Gump and Mr Giffen were not the only well connected Americans drawn to the oil rush in central Asia. Shearman & Sterling, one of New York's best-regarded corporate law firms, represented several branches of the Kazakh government.

The connections were not limited to Democrats. Mr Baker, secretary of state for the first President Bush and a rainmaker on a par with Mr Strauss, called on the Kazakhs in April 1996 at one of Mr Nazarbayev's mansions in Almaty. Over lunch, the Kazakh leader proposed to Mr Baker a pipeline to ports in Iran, according to a person present at the meeting. The pipeline would have solved the isolated country's problem of how to bring its vast crude reserves to outside markets. Yet Washington favoured a longer route away from Iran, through friendly countries such as Georgia and Turkey.

Mr Nazarbayev promised that he and Mr Baker could each earn Dollars 1bn if the deal went through, according to someone who was present. Mr Baker was taken aback - and refused.

While he was rebuffed on that occasion, Mr Nazarbayev could not have failed to recognise the enormous sway he held over oil executives.

One memorable example was an hours-long lunch that Mr Nazarbayev hosted in 1995 with a dozen or so chairmen from some of the largest western oil companies at the Rainbow Room restaurant high above New York's Rockefeller Centre. The executives were each asked to contribute Dollars 100,000 to develop a Kazakhstan cultural centre, next door to the Kennedy Centre in Washington. Although the idea was later dropped, the oil chiefs are said to have nodded their approval on the spot, according to someone present at the meeting. ith such contacts and clout in the US, the Kazakhs rejected entreaties by several US public relations firms interested in launching a broader image campaign. There was simply no need to do so.

But something changed in late 1998. All of a sudden, the Kazakhs began to retain a range of high-priced lobbying and public relations companies that were only too eager for the business.

Edelman, a public relations firm, and its executive Michael Deaver, a former Reagan image-maker, were paid Dollars 195,000 by Kazakhstan for six months of work. Mark Siegel, a former vice-chairman of the Democratic party, was paid more than Dollars 225,000. Abernathy MacGregor, yet another public relations firm, was placed on a Dollars 47,000 monthly retainer. Akin Gump collected Dollars 1m for six months' work in 1999.

The assignments were all related to diplomatic visits to the US and consulting work on various "democratisation" projects, according to Justice Department filings. But several US businessmen and lawyers who worked in Kazakhstan were sceptical. They believed the firms - whether they were aware of it or not - had in fact been recruited to divert attention from the emerging bribery scandal.

At the time, Mr Nazarbayev was facing early elections that would serve as a test of his commitment to liberal reforms. Rumours were beginning to swirl that hundreds of millions of dollars in royalties from oil deals simply never made it to the Treasury. "It was beginning to smell," recalls one US consultant who worked for the Kazakhs. "The word was around that maybe there were secret accounts in Switzerland." Foreign newspapers were reporting on the immense fortune the president was said to have amassed. In parliament, there was talk of an investigation.

Meanwhile, perhaps the most extensive lobbying arrangement Kazakhstan struck was with The Carmen Group, a government lobbying firm headed by Gerald Carmen, Ronald Reagan's former ambassador to the United Nations in Geneva. A business proposal to a Kazakh official, obtained by the Financial Times, reveals much about how influence is shaped in Washington. In the Dollars 1m pitch, Mr Carmen wrote: "I am confident that we can do much to enhance President Nazarbayev's image and assist Kazakhstan's standing in its relationship with the United States. President Nazarbayev and Kazakhstan have to be portrayed as not only important, but favourably in the minds and thoughts of American decision-makers."

The plan was to target business and government leaders, think-tanks and financial journalists. Carmen boasted about close contacts with the Clinton administration, as well as with influential members of Congress such as Jesse Helms and Dennis Hastert. Carmen proposed a blanket of positive news stories about Kazakhstan, spurred in part by staged events such as investment seminars in US cities. These would run under the theme "The future is spelt K-A-Z-A-K-H-S-T-A-N". uch ploys might have seemed absurd or even amusing if they had not clashed with reality in Kazakhstan. Far from embracing reform, Mr Nazarbayev tightened his authoritarian grip.

The 1999 election may have offered the most telling portrait of the man and his intentions. Mr Nazarbayev carried a remarkable 79 per cent of the vote in a contest noted by Human Rights Watch for its irregularities. Mr Nazarbayev had his chief opponent arrested and shut down or suspended the few opposition newspapers.

But despite consolidating power at home, Mr Nazarbayev never eased the lobbying campaign in Washington. If anything, efforts intensified as details of the Justice Department's investigation came to light.

In an episode reported by The New York Times, Bulat Utemuratov, a close aide to Mr Nazarbayev, and another Kazakh official appealed to Mr Cheney for help in October 2001.

The Kazakhs were particularly interested in the vice-president, according to people who have advised them, because they believed the former oil man could appreciate Kazakhstan's strategic value and might be sympathetic.

"They were diplomatic - but their intention was: we want this thing closed," a person at the encounter says. Mr Cheney rebuffed them, recommending in essence that they hire a good lawyer.

At about the same time, Mr Utemuratov tried a different approach. He asked Halliburton, the vice-president's former employer, to plead Kazakhstan's case to the administration. The oilfield services company would seem to have much at stake: Halliburton built the refineries at Kazakhstan's prized Tengiz field and is overseeing drilling and construction at an even larger find, Kashagan. Nonetheless, David Lesar, the company's chief executive, also turned them down.

Unbowed, Mr Utemuratov then went on what one US adviser described as a "shopping spree" for top Republican talent who might carry weight with the administration. Dick Thornburgh, the former attorney-general, ultimately agreed to take them on.

Mr Thornburgh has not returned calls for comment. But people familiar with the engagement say he has advised the Kazakhs not to interfere with the investigation but instead to co-operate with the Justice Department and adopt anti-corruption laws and other measures to repair ties with Washington.

There is little evidence they have taken that advice. The Kazakhs may have been emboldened by the terrorist attacks of September 11 2001, feeling that they increased their country's value to Washington.

That sentiment came through in a nine-page letter from their Washington lawyer, Reid Weingarten, to the Justice Department last September, requesting a meeting with Larry Thompson, the deputy attorney-general. "I am deeply concerned that foreign relations between the United States and the Republic of Kazakhstan - an important strategic ally in the war on terrorism with significant oil and gas reserves in an unstable geographic region - will deteriorate if the prosecutors . . . continue to aggressively investigate Kazakh government officials," Mr Weingarten warned.

If anything, such brazen tactics probably hurt the Kazakhs' cause. Their persistence led Senator John McCain, a prominent critic of Mr Nazarbayev, to write to John Ashcroft, the attorney-general, in November, inquiring about the investigation's progress.

"In a political sense, it backfires," one US official says. "The more they do this, the more it shows how different their mentality is from ours."

The news has worsened for the Kazakhs since Mr Giffen's arrest. Prosecutors this month won their first guilty plea in the investigation. J. Bryan Williams, a former Mobil executive, admitted to tax evasion after he was accused of taking Dollars 2m in kickbacks from Mr Giffen in connection with a Dollars 1bn concession the company had won to develop the Tengiz field. s the investigation grinds on, the Kazakhs have responded to the turmoil in typical fashion: they have hired more lobbyists.

In late May, they retained Patton Boggs, Washington's largest firm, to improve relations with the administration, Congress and the media. Patton will be paid about Dollars 1m over 12 months.

Michael Driver, a Patton partner, says the Kazakhs did not mention the investigation when they approached his firm. Instead they want to tell Washington about their attractive investment climate and their commitment to democracy.

But lobbyists and advisers who have worked for the Kazakhs sense a different motive. "They're convinced that if they throw around enough money, eventually someone will take care of this," one says. "The bottom line is that they're going to spend a lot of money making fools of themselves." In Washington, there are plenty of people to help the Kazakhs do just that.