Nightmare in Boomtown

Dark Days: Seidenfeld enters the courtroom to await a verdict.

For a while, the U.S. presence in Kazakhstan was a win-win for both countries. But times change. As the Kazakhs found their economy increasingly controlled by outsiders (and increasingly successful), they moved to reclaim it--by any means necessary. According to Transparency International, a Berlin-based monitoring group, Kazakhstan rates 111th on the 2006 Transparency International Perceptions Index. That's behind Colombia, Libya, and Syria. "Foreign investment in virtually all sectors is restricted by exclusive barriers," says a report from the Heritage Foundation's Index of Economic Freedom. "Government policy actively favors domestic businesses, and the weak rule of law allows for significant corruption and insecure property rights." According to the report "Doing Business in Kazakhstan," produced by the U.S. Commercial Service in Almaty, there are "frequent harassments by local and national 'financial police' and other taxation authorities through generally intrusive inspections. Quite often, these cases with the tax authorities lead to criminal charges by local governmental officials as a pressure tactic."

Amid this culture of corruption, foreign investors--especially those on the ground--have been forced to walk an increasingly vague and hazardous line. And those expecting Washington to step in to referee are missing a larger reality. American strategic interests--not only Kazakhstan's oil reserves but also its geographic position between China, Russia, and the Middle East--have drawn the U.S. government into its own set of compromises. We need Kazakhstan, the official line runs, and the country's current regime--like those in Saudi Arabia, Pakistan, and any number of other dodgy strategic partners--has proven "cooperative" on issues such as terrorism and nuclear weapons.

In other words, to cement its influence in Kazakhstan, Washington has been forced into a delicate balancing act that requires tacit approval, or at least some tolerance, of systemic corruption. Witness the case of James Giffen, once an adviser to Kazakhstan's president Nursultan Nazarbayev and the former CEO of Mercator, a small New York-based merchant bank. Giffen, who was the model for the "Mr. Kazakhstan" character in the film Syriana, was due in Manhattan's Federal District Court last month to face charges of money laundering, wire fraud, and breaching the Foreign Corrupt Practices Act. Specifically, the case alleges he paid more than $78 million in bribes to the Kazakh president and the former oil and gas minister to secure contracts in the Tengiz oil fields for BP, Chevron, ConocoPhillips, and ExxonMobil. He is accused of creating Swiss bank accounts with which to pay tuition at exclusive boarding schools for family members of Kazakh officials, and to buy speedboats, fur coats, jewelry, and other lavish gifts for the president and his family.

"Kazakhgate" is the largest foreign bribery suit ever brought against an American citizen. Giffen's lawyers contend he was acting with the full approval of the U.S. government, and with the encouragement of senior officials at the CIA, the State Department, and even the White House. Citing national-security interests, the government has refused to declassify documents the defense says would establish the connection, despite pressure from the judge.

As the months passed after his arrest, Seidenfeld came to the creeping realization that he'd been hung out to dry. The State Department had done next to nothing to get him sprung, despite pleas for help to the consulate. Weighed against Washington's other regional priorities, a small-time telecom executive, American or not, didn't add up to much. As one local businessman told me, Seidenfeld was a "nobody."

The irony, Seidenfeld says, is that his real "crime" was trying to conduct an honest, transparent transaction. He had tried to sell a controlling stake in Arna in a public auction to the highest bidder, riling the company's sole Kazakh shareholder, Murat Zhunussov. Zhunussov did ultimately take control of the firm but not at the knockdown price he was pushing for. Seidenfeld's refusal to cut a sweetheart deal cost the Kazakh about $5 million. "I had no idea the lengths he would go to get me for that," says Seidenfeld.

A few weeks after Seidenfeld's arrest, his local attorneys relayed a message from a Kazakh lawyer for Zhunussov, who said he could have Seidenfeld freed if he paid a ransom of $5 million, either in cash or by buying grossly inflated shares in Arna. "If I didn't, they said I would be held indefinitely," Seidenfeld says. "But I just didn't have that sort of money." A lesser offer of $3 million came through a few months later. Then the price dropped to $1 million. Seidenfeld didn't have the cash. He remained in jail.