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{\title Summary for Policymakers}{\author OilResearcher}{\operator cedwards}{\creatim\yr2004\mo3\dy24\hr18\min4}{\revtim\yr2004\mo3\dy24\hr18\min4}{\version2}{\edmins1}{\nofpages111}{\nofwords-32766}{\nofchars-32766}{\*\company Global Witness}
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\pnlcltr\pnstart1\pnindent720\pnhang{\pntxtb (}{\pntxta )}}{\*\pnseclvl9\pnlcrm\pnstart1\pnindent720\pnhang{\pntxtb (}{\pntxta )}}\pard\plain \s1\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel0\adjustright\rin0\lin0\itap0 
\b\f5\fs32\lang2057\langfe1033\kerning32\cgrid\langnp2057\langfenp1033 {\fs48 TIME FOR TRANSPARENCY
\par }\pard\plain \s6\ql \li0\ri0\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel5\adjustright\rin0\lin0\itap0 \i\fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\fs32 Coming clean on oil, mining and gas revenues
\par }\pard\plain \ql \li0\ri0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\fs32 
\par 
\par A report by Global Witness. March 2004.
\par }{
\par 
\par }\pard\plain \s7\ql \li0\ri0\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel6\adjustright\rin0\lin0\itap0 \fs24\ul\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {Contents
\par }\pard\plain \ql \li0\ri0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {
\par {\listtext\pard\plain\f3\lang2057\langfe1033\langnp2057 \loch\af3\dbch\af0\hich\f3 \'b7\tab}}\pard \ql \fi-360\li720\ri0\widctlpar\jclisttab\tx720\aspalpha\aspnum\faauto\ls3\adjustright\rin0\lin720\itap0 {\i Summary for Policymakers\tab \tab \tab \tab 
\tab  \tab  }{2}{\i 
\par {\listtext\pard\plain\f3\lang2057\langfe1033\langnp2057 \loch\af3\dbch\af0\hich\f3 \'b7\tab}Revenue Transparency: A Priority for Good Governance \'85\tab \tab  }{4}{\i 
\par {\listtext\pard\plain\f3\lang2057\langfe1033\langnp2057 \loch\af3\dbch\af0\hich\f3 \'b7\tab}Kazakhstan\tab \tab \tab \tab \tab \tab \tab \tab  }{8}{\i \tab \tab 
\par {\listtext\pard\plain\f3\lang2057\langfe1033\langnp2057 \loch\af3\dbch\af0\hich\f3 \'b7\tab}Congo Brazzaville\tab \tab \tab \tab \tab \tab \tab }{21}{\i 
\par {\listtext\pard\plain\f3\lang2057\langfe1033\langnp2057 \loch\af3\dbch\af0\hich\f3 \'b7\tab}Angola\tab \tab \tab \tab \tab \tab \tab \tab \tab }{40
\par {\listtext\pard\plain\f3\lang2057\langfe1033\langnp2057 \loch\af3\dbch\af0\hich\f3 \'b7\tab}}{\i Equatorial Guinea\tab \tab \tab \tab \tab \tab \tab }{60}{\i 
\par {\listtext\pard\plain\f3\lang2057\langfe1033\langnp2057 \loch\af3\dbch\af0\hich\f3 \'b7\tab}Nauru\tab \tab \tab \tab \tab \tab \tab \tab \tab }{72}{\i 
\par {\listtext\pard\plain\f3\lang2057\langfe1033\langnp2057 \loch\af3\dbch\af0\hich\f3 \'b7\tab}Making companies and governments transparent\tab \tab \tab }{79}{\i 
\par {\listtext\pard\plain\f3\lang2057\langfe1033\langnp2057 \loch\af3\dbch\af0\hich\f3 \'b7\tab}Conclusion\tab \tab \tab \tab \tab \tab \tab \tab }{95}{\i 
\par {\listtext\pard\plain\f3\lang2057\langfe1033\langnp2057 \loch\af3\dbch\af0\hich\f3 \'b7\tab}References\tab \tab \tab \tab \tab \tab \tab \tab }{98}{\i 
\par }\pard \ql \li0\ri0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 {
\par }\pard\plain \s1\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel0\adjustright\rin0\lin0\itap0 \b\f5\fs32\lang2057\langfe1033\kerning32\cgrid\langnp2057\langfenp1033 {\page Summary for Policymakers
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\sl-280\slmult0\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {What is the problem?
\par }\pard\plain \s15\ql \fi-357\li357\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin357\itap0 \f4\fs20\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\bullet \tab Governments of resource-rich developing coun
tries often do not provide information about their revenues from natural resources, nor do multinational extractive companies publish information about payments made to the governments of those countries. Such opacity hides billions of dollars worth of fi
nancial impropriety, as this report reveals.
\par }\pard\plain \ql \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\fs20 
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\sl-280\slmult0\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {Why does it matter?
\par }\pard\plain \s16\ql \fi-357\li357\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin357\itap0 \f4\fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\fs20 \bullet \tab 
Ordinary citizens, the real owners of natural resources, are left without the information to call their governments to account over the management of their revenues. Dispossessed, they are 
often left marginalized and at the mercy of donor assistance. In Angola, for example, one in every four oil dollars earned goes missing. At the same time, one in four Angolan children dies before the age of five from preventable diseases.
\par 
\par \bullet \tab Businesses see their legitimate revenues misappropriated and squandered and are left vulnerable to accusations of complicity with corruption and its attendant reputational risk. Crooked elites can extract all sorts of \lquote 
facilitation payments\rquote  from firms that would probably prefer not to pay bribes.
\par 
\par \bullet \tab States that mismanage resources may fail, forcing the international community to give more aid, and creating instability that threatens the supply of vital industrial commodities.
\par }\pard\plain \ql \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\fs20 
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\sl-280\slmult0\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {What can be done?
\par }\pard\plain \s16\ql \fi-357\li357\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin357\itap0 \f4\fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\fs20 \bullet \tab All resource-rich devel
oping countries and resource extraction companies should actively participate in the UK government\rquote 
s Extractive Industries Transparency Initiative and seek to voluntarily disclose their revenues from resource extraction. However, voluntary disclosure will 
not work everywhere that transparency is most needed because many political and business elites have a vested interest in avoiding transparency to protect their illicit profits. 
\par 
\par \bullet \tab A set of joined-up policies is needed to make resource extraction companies publish what they pay to governments on a country-by-country basis and to make host governments publish what they earn. 
\par }\pard\plain \ql \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\fs20 
\par \bullet  Simple adjustments to existing policies of company disclosure, \lquote books and records\rquote  provisions in anti-corruption legislation, and international accounting standards can be used to require multinational companies to \lquote 
publish what they pay\rquote . 
\par 
\par }\pard\plain \s16\ql \fi-357\li357\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin357\itap0 \f4\fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\fs20 \bullet \tab 
Export credit agencies, bilateral and multilateral bodies, and banks should make all their lending and insurance conditional on governments publishing their receipts from resource extraction.
\par 
\par \bullet \tab International financial institutions like the World Bank should mainstream revenue transparency across their lending and technical assistance portfolios by making it a condition of all their financial su
pport and by including it in their national poverty reduction strategy consultations. 
\par }\pard\plain \ql \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\fs20 
\par }\pard\plain \s22\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {
This approach is fully consistent with, and a stepping-stone towards, international objectives of promoting accountable government, democratic debate over resource management, and ensuring energy security through a more sustainable operating environment. 

\par }\pard\plain \ql \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\fs20 
\par }\pard\plain \s1\qj \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel0\adjustright\rin0\lin0\itap0 \b\f5\fs32\lang2057\langfe1033\kerning32\cgrid\langnp2057\langfenp1033 {\page 
Revenue Transparency: A Priority for Good Governance and Energy Security
\par }\pard\plain \qj \li0\ri0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\fs20 
\par }\pard \qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 {\fs20 Across the globe, revenues from oil, gas and mining that should be funding sustainable econo
mic development have been misappropriated and mismanaged. This Global Witness report considers five major examples of this problem: Kazakhstan, Congo Brazzaville, Angola, Equatorial Guinea and Nauru.
\par 
\par }\pard\plain \s20\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \f4\fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\fs20 In these countries, governments do not provide even bas
ic information about their revenues from natural resources. Nor do oil, mining and gas companies publish any information about payments made to governments. Huge amounts of money are therefore not subject to any oversight and crooked elites can extract al
l sorts of \lquote facilitation payments\rquote 
 from firms that would probably prefer not to pay bribes. Investigations also reveal that some companies have played a willing role in facilitating off-the-books payments, misappropriation of state assets, and other nefario
us activities such as arms shipments, as part of an anti-competitive, under-the-table method of winning business with unaccountable regimes. Ordinary citizens, who often own a country\rquote 
s resources under its constitution, are thus left without the informatio
n to call their governments to account over the management of their revenues. The end result is a litany of corruption, social decay, increased poverty, reinforcement of authoritarian government and political unrest, which can ultimately lead to state fai
lure and the spread of instability across regions.
\par }\pard\plain \qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\fs20 
\par In }{\b\fs20 Kazakhstan}{\fs20 , the largest-ever foreign corruption investigation in US legal history has uncovered a major international corruption scandal that \lquote defrauded the Government of Kazakhstan of funds to which it
 was entitled from oil transactions and defrauded the people of Kazakhstan of the right to the honest services of their elected and appointed officials\rquote .}{\fs20\super 1}{\fs20 
 The scheme was based around Kazakh President Nursultan Nazarbayev and Oil Minister Nurlan Balgimbayev
 demanding that international oil companies such as Chevron (now Chevron-Texaco) and Mobil (now ExxonMobil) pay a series of unusual fees to middleman James Giffen on behalf of the Republic of Kazakhstan. This arrangement, the indictment alleges, helped Gi
f
fen to skim money from the deals and send some US$78 million in kickbacks to President Nazarbayev and others through dozens of overseas bank accounts in Switzerland, Liechtenstein and the British Virgin Islands. Only Giffen is charged in this indictment. 
Another US$1 billion of Kazakh oil money has also been uncovered offshore and out-of-sight under Nazarbayev\rquote 
s direct control in a secret fund in Switzerland. Ironically, the only reason that such information has emerged is because President Nazarbayev inadvertently revealed the true state of affairs whilst trying to discredit a presidential rival.}{\fs20\super 
2}{\fs20 
\par 
\par }{\b\fs20 Congo Brazzaville}{\fs20  is one of the petro-states most closely associated with the legacy of influence peddling and dirty deals in Africa by the now-notorious French 
state oil company Elf Aquitaine (now Total). Elf treated Congo as its colony, buying off the ruling elite and helping it to mortgage the country\rquote 
s future oil income in exchange for expensive loans. The company even financed both sides of the civil war, as it also did in Angola. 
\par 
\par Although former senior Elf officials have been jailed in France for \lquote misuse of company assets\rquote , their legacy of opacity and hair-raising accounting endures. Despite huge existing debts and a supposed programme of cooperation with t
he international community to restructure Congo\rquote s finances, the government has entered into ever more arcane and tortuous deals to avoid financial scrutiny from the international community and its own citizens. Indeed, the national oil company }{
\i\fs20 Soci\'e9t\'e9 Nationale des P\'e9troles du Congo}{\fs20  makes a multi-million dollar profit but, according to the IMF, does not pay a single penny of this money into the government\rquote s coffers.
\par 
\par In }{\b\fs20 Angola}{\fs20 , new evidence from IMF documents and elsewhere confirm previous allegations made by Global Witness that over US$1 billion per year of the country\rquote s oil revenues \endash  about a quarter of the state\rquote 
s yearly income \endash  has gone unaccounted for since 1996. Meanwhile, one in four of Angola\rquote s children die before the age of five and one million int
ernally-displaced people remain dependent on international food aid. This report highlights the latest revelations from the \lquote Angolagate\rquote  scandal, in which political and business elites in France, Angola and elsewhere exploited the country
\rquote s civil war to si
phon off oil revenues. Most recently, evidence has emerged in a Swiss investigation of millions of dollars being paid to President Dos Santos himself. The government continues to seek oil-backed loans at high rates of interest which are financed through o
paque and unaccountable offshore structures. A major concern exists that Angola\rquote s elite will now simply switch from wartime looting of state assets to profiteering from its reconstruction.
\par 
\par In }{\b\fs20 Equatorial Guinea}{\fs20 , oil companies appear keen to do business with the brutal regime of President Obiang Nguema. The country\rquote 
s government has been tarnished by allegations of corruption, political violence, human rights abuses, and narcotics trafficking. Although the country\rquote s oil boom has resulted in a dramatic increase
 in GDP, its living standards remain among the worst in Africa. This may be because much of the country\rquote 
s oil money stays abroad: journalists have recently uncovered evidence that major US oil companies are paying revenues directly into an account under the president\rquote s control at Riggs Bank in downtown Washington DC. 
\par 
\par Riggs Bank has also managed the purchase of million-dollar mansions for Obiang and his family. The line between state revenues and the president\rquote s personal finances seems unclear. The governm
ent maintains that it is completely open and transparent about its oil revenues but, so far, the only way that any information has entered the public domain is when it has been dragged there by the international media.
\par 
\par Finally, the opaque and unaccountable management of phosphate reserves has transformed tiny }{\b\fs20 Nauru}{\fs20 
 from the richest nation in the world (per capita) to a bankrupt wasteland. Phosphate mining took place in a country synonymous with secret banking and money-laundering, where over US$80 billion was laundered during Russia\rquote 
s economic transition in the 1990s. In this tax-free, reporting-free environment, the island\rquote s phosphate revenues were squandered by irresponsible officials, frivolous speculation, and in the words of one observer, \lquote a steady str
eam of carpetbaggers and outright crooks\rquote .}{\fs20\super 3}{\fs20  The money has now dried up. Bankrupt, in social and political turmoil, and facing possible extinction from rising seawaters, Nauru is a sinking ship. 
\par 
\par The major finding of this report is that none of the revenue embezzlement scandals discussed herein could have happened if multinational companies had been required to disclose publicly their basic payments for resources to the state. 
\par 
\par More generally, transparency in the management of revenues from natural resourc
es is fundamental for successful development and poverty reduction. Oil, mining and gas are critically important economic sectors in about 60 developing or transition countries.}{\fs20\super 4}{\fs20 
 Amongst the 3.5 billion people in those countries, some 1.5 billion live on less than US$2 per day and constitute over two-thirds of the world\rquote s poorest people. Twelve of the world\rquote s 25 most mineral-dependent states and six of the world
\rquote s most oil-dependent states are classified by the World Bank as Highly Indebted Poor Countries with amongst the world\rquote s worst Human Development Indicators.
\par 
\par The status quo in the resource extraction business is a lose-lose situation for all parties:
\par 
\par }\pard \qj \fi-357\li357\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin357\itap0 {\fs20 \bullet \tab }{\b\fs20 Businesses}{\fs20  see their legitimate revenues paid to governments being misappropriated and squandered, 
which leads to social divisiveness and an unstable business environment. Investors managing some US$6.9 trillion of funds recently highlighted the significant business risk represented by lack of transparency, stating that: \lquote 
legitimate, but undisclosed, payments to governments may be accused of contributing to the conditions under which corruption can thrive\rquote . Failing to disclose net payments not only lays companies open to \lquote 
accusations of complicity in corrupt behaviour\rquote ; it also undermines their social \lquote license to operate\rquote , making them \lquote 
vulnerable to local conflict, and insecurity, and possibly compromising their long-term commercial prospects in these markets\rquote .}{\fs20\super 5}{\fs20  A recent example of these problems is the continuing unrest in Nigeria\rquote 
s oil region which has led to significant interruptions in oil output.
\par }\pard \qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 {\fs20 
\par }\pard\plain \s18\qj \fi-357\li357\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin357\itap0 \f4\fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\fs20 \bullet \tab }{\b\fs20 Ordinary citizens}{\fs20 
, who often are the real owners of the resources, are left dispossessed and reliant on donor assistance.
\par 
\par \bullet \tab }{\b\fs20 Taxpayers in the North}{\fs20  are required to compensate for state failure in the South in the form of aid: this is inefficient and undermines the current donor emphasis on improving governance in non-transparent countries. 
\par 
\par \bullet \tab }{\b\fs20 The}{\fs20  }{\b\fs20 international community}{\fs20  faces instability that, in some cases, directly threatens the security of energy suppli
es. Current policies of energy security seem to rely on leaving failed and failing states alone whilst the resources keep flowing out. The lessons from this report are that this approach does not work: initial problems with accountability are left to beco
me fatal flaws in a state\rquote s whole architecture, eventually causing a collapse that interrupts resource flows and renders states vulnerable to infiltration by criminal and terrorist groups.
\par }\pard\plain \qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\fs20 
\par The international community has taken its first steps towards recog
nising the importance of improved transparency and accountability of natural resource revenues, but its proposed solutions are neither efficient nor comprehensive. UK Prime Minister Tony Blair and his Department for International Development have convened
 a forum called the }{\b\fs20 Extractive Industries Transparency Initiative}{\fs20 
 (EITI) to promote action by governments and companies on this issue. Whilst the EITI has done some valuable work, including identifying the main revenue streams in the resource extraction bus
iness and developing a series of templates for collecting data, it remains poorly resourced and relies purely on voluntary reporting by companies and governments. The 2003 declaration of the G8 summit in Evian similarly highlighted a voluntary approach to
 promoting transparency in the extractive sector. 
\par 
\par This voluntary approach will not work in the majority of countries where it is most needed. The massive financial improprieties uncovered in this report show that political and business elites currently ha
ve a vested interest in avoiding transparency. Indeed, when BP wanted to disclose payments in Angola, it immediately faced the threat of losing its licence to less scrupulous competitors. If disclosure was required by law, it would void \lquote 
gagging clauses\rquote  i
n licence agreements with some governments that prevent disclosure and would thus avoid the problem of companies being penalised for breach of contract. Disclosure of key financial data is required by law in every developed country, so why should it be di
fferent in Angola and other developing economies?
\par 
\par To that end, the }{\b\fs20 Publish What You Pay}{\fs20  coalition of more than 190 Northern and Southern NGOs is calling for legislation to require extractive companies to disclose their payments to all governments. This cru
cial first step would help citizens in resource-rich-but-poor countries to hold their governments to account over the management of revenues. In addition, by creating a level playing field through regulation, companies\rquote 
 reputational risks will be mitigated and they will be protected from the threat of having contracts cancelled by corrupt governments.
\par 
\par The last section of this report looks at the pressing need for international regulations and a systematic foreign policy approach to promoting revenue transp
arency. International stock markets and accounting standards should require oil, mining and gas companies to disclose their payments worldwide. A requirement for transparency about a country\rquote 
s resource income and expenditure should become a standard condit
ion in all international financial assistance to all countries where such transparency does not exist. Transparency should also be a condition of resource-backed loans from private banks. Export credit agencies, which insure many major extractive investme
nts, should also require disclosure of revenues.
\par 
\par The monitoring of revenues could be improved by amending the operational parameters of the World Bank and the IMF to mainstream revenue transparency across their lending and technical assistance portfolios, 
by making it a condition of all aid and loans, and national poverty reduction strategy consultations.
\par 
\par The public disclosure of revenues by extractive companies and governments in resource-dependent countries will not stop all corruption overnight. But wit
hout transparency, there can be no accountable government, and efforts to ensure that resource revenues are well spent are likely to fail, with the effect of deepening poverty, instability, conflict and state failure. It is time for companies and governme
nts to come clean on the revenues generated by natural resource exploitation.
\par }\pard\plain \s1\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel0\adjustright\rin0\lin0\itap0 \b\f5\fs32\lang2057\langfe1033\kerning32\cgrid\langnp2057\langfenp1033 {\page Kazakhstan}{\f4\fs20 
\par }\pard\plain \s21\ql \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \f92\fs24\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f4\fs20 
\par }\pard \s21\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 {\b\f4\fs20 Money unaccounted for}{\f4\fs20 : US$1.1 billion from the \lquote Kazakhgate\rquote  scandal and a massive presidential \lquote secret fund
\rquote  in Switzerland.
\par }\pard \s21\ql \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 {
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {Introduction
\par }\pard\plain \s22\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f4 In early 1993, the newly in
dependent Republic of Kazakhstan drew up two crucial agreements: its first national constitution and its first oil contract with an American company, Chevron (now ChevronTexaco). In the decade since, Kazakh President Nursultan Nazarbayev has tried to amen
d both to suit his personal ambition. Altering the constitution has not proven problematic for him \endash  Nazarbayev now rules, essentially, by decree  \endash 
 but Chevron was less than pleased with his desire to rewrite the terms of the 40-year, US$20 billion deal th
at bought it a large share of the massive Tengiz oil field. The spat was resolved after the Bush administration stepped in to protect the interests of US oil companies. 
\par 
\par Nazarbayev was wise to back down: this section details the \lquote Kazakhgate\rquote  scandal in wh
ich the President and others became enormously rich profiteering from the entry of multinational oil companies into Kazakhstan in the mid-1990s. This story, coupled with the demise of Kazakhstan\rquote 
s fledgling democracy, the deteriorating human rights situati
on of its citizens, revelations of a billion-dollar secret government account in Switzerland, and the largest foreign corruption case in US history that has resulted from Kazakhgate, make a compelling rationale for improved transparency and accountability
 from both corporations and host governments.
\par 
\par If companies had been obliged to publish their payments to the Kazakh government, it is unlikely that the system of kickbacks and offshore money laundering detailed below could have come into being. The lack of
 transparency during contract negotiations was so complete, in fact, that the Kazakhgate scandal was only uncovered as a result of a disastrous miscalculation by President Nazarbayev himself.
\par }{\fs24 
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {Kazakhgate
\par }\pard\plain \s22\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f4 Kazakhstan, a former Soviet republic and geopolitica
l linchpin in central Asia, possesses some of the largest oil and gas reserves in the world.}{\cs23\f4\fs10\up10\super 1}{\f4  Chevron\rquote s 1993 purchase of a half-share in Kazakhstan\rquote 
s massive Tengiz field made it an early entrant into Kazakhstan\rquote s post-Soviet economy. Containing some six billion barrels, Tengiz is believed to be the world\rquote s fifth largest deposit of crude oil.}{\cs23\f4\fs10\up10\super 2}{\f4 
 One retired Chevron executive termed it \lquote a geologist\rquote s dream\rquote .}{\cs23\f4\fs10\up10\super 3}{\f4  
\par 
\par Once it became apparent how enormous the reserves were at Tengiz, other European and American companies became increasingly desperate to get involved. Yet by 1996, only one other company \endash  Mobil (now ExxonMobil) \endash 
 succeeded in purchasing a share. It seems that it did so without taking part in any formal bidding process. 
\par 
\par How did they land the deal? Ente
r two American citizens who have since become subject to criminal proceedings in the US for their involvement in these deals: former Mobil executive J. Bryan Williams III and independent merchant banker James Giffen. Williams pleaded guilty in June 2003 t
o evading taxes on}{ }{\f4 more than US$7 million in unreported income, including a US$2 million kickback he received in connection with Mobil\rquote s business in Kazakhstan.}{\cs23\f4\fs10\up10\super 4}{\f4  \lquote 
I knew what I was doing was wrong and unlawful\rquote , Williams admitted.}{\cs23\f4\fs10\up10\super 5}{\f4  Whilst he admitted to conspiring with others, Williams declined to disclose any names. Giffen\rquote 
s case, at the time of writing, has yet to go to trial. Meanwhile, international investigations into the role of other parties continue.
\par 
\par Back in the mid-1990s Williams was a high-flying 
oil broker for Mobil, specializing in crude purchases on the spot market. Giffen, who was apparently president of the US-USSR Trade and Economic Council in the 1980s, had long-standing ties with the Kazakh leadership and became a special advisor to Presid
ent Nazarbayev shortly after the latter took office in 1991. Giffen founded a private banking company, Mercator, headquartered in New York, which the Kazakh government subsequently hired to negotiate deals with foreign oil companies. 
\par 
\par Giffen\rquote s indictment by a Grand Jury in New York alleges that he set up a scheme that \lquote 
defrauded the Government of Kazakhstan of funds to which it was entitled from oil transactions and defrauded the people of Kazakhstan of the right to the honest services of their elected and appointed officials\rquote .}{\cs23\f4\fs10\up10\super 6}{\f4 
 The alleged scheme was based around Nazarbayev and Kazakh Oil Minister Nurlan Balgimbayev demanding that the oil companies pay Mercator\rquote s fee on behalf of the Republic of Kazakhstan, an odd arrangement that, the indictments allege, h
elped Giffen to skim money from the deals and distribute largesse. 
\par }{\f4\fs24 
\par }{\f4 After Mercator helped Chevron buy into Tengiz in 1993, for example, it received a \lquote success fee\rquote  of US$0.75 for every barrel of oil that Chevron pumped there.}{\cs23\f4\fs10\up10\super 3}{\f4  Given that it was the Republ
ic of Kazakhstan that retained Giffen\rquote s services, it seems odd that Chevron should pay him such a bonus. Furthermore, there is a law in the United States called the Foreign Agents Registration Act that requires anyone who acts as an \lquote 
agent of a foreign principal\rquote }{\cs23\f4\fs10\up10\super 7}{\f4  to register with the Justice Department but, according to a detailed study of his activities in the }{\cs24\f4\fs18 New Yorker}{\f4  magazine, Giffen did not.}{
\cs23\f4\fs10\up10\super 3}{\f4  Neither Giffen nor Mercator are currently registered in the latest listings (for 2002).}{\cs23\f4\fs10\up10\super 8}{\f4  In the mid-1990s, US
 Ambassador to Kazakhstan William Courtney reportedly urged Giffen to comply, though the New Yorker also reported that Giffen denied having the conversation with Courtney.}{\cs23\f4\fs10\up10\super 9}{\f4  Courtney\rquote 
s successor also expressed misgivings about Giffen\rquote s failure to register.}{\cs23\f4\fs10\up10\super 3}{\f4 
\par }{\f4\fs24 
\par }{\f4 According to the US Grand Jury Indictment against Giffen, Mercator received roughly US$67 million in such success fees between 1995 and 2000.}{\cs23\f4\fs10\up10\super 10}{\f4 
 During the same period, the indictment records that Giffen also caused approximately US$70 million, paid by oi
l companies into escrow accounts at Swiss banks for oil and gas rights in Kazkahstan, to be diverted into secret accounts under his control. Out of the success fees and the funds diverted by oil companies, the indictment alleges that Giffen made unlawful 
payments of more than US$78 million to two very senior officials of the Kazakh government dubbed \lquote KO-1\rquote  and \lquote KO-2\rquote .
\par 
\par The indictment itself does not mention who these officials are but says that they had the power to influence substantially whether Mercator 
obtained and retained lucrative business with the Kazakh government. KO-1 is, in fact, then-oil minister Balgimbayev, whilst KO-2 is President Nazarbayev himself. Their identities have been confirmed by numerous observers and can be checked by cross-refer
encing the US indictments with mutual legal aid requests and Swiss court documents relating to the matter.
\par 
\par For example, the Grand Jury indictments specify that KO-1 was the owner of an account called Orchard Holdings into which money was diverted.}{\cs23\f4\fs10\up10\super 11}{\f4  Swiss court filings obtained by Global Witness detail Balgimbayev\rquote 
s legal appeal against the freezing of assets in the Orchard account by a Swiss magistrate in June 2000. Balgimbayev is therefore identified as the owner of Orchard and hence KO-1. Similarly, the 
Giffen indictment alleges that the Semrek Foundation, which owned one of the recipient companies of diverted funds called Orel Capital, was secretly owned by \lquote KO-2 and his heirs\rquote .}{\cs23\f4\fs10\up10\super 12}{\f4 
 Swiss court documents state that Nazarbayev was the beneficiary owner of Semrek and, hence, KO-2.}{\cs23\f4\fs10\up10\super 13}{\f4 
\par }{\fs24 
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {From Vaeko to Tengiz
\par }\pard\plain \s22\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f4 Mobil\rquote 
s Williams appears to have negotiated with Giffen in order to secure access to Tengiz for the company, knowing that, as one US State Department official stated, he \lquote seemed to have a stranglehold on almost all oil and gas contracts\rquote .}{
\cs23\f4\fs10\up10 9}{\f4  With Giffen\rquote s help, Mobil entered into two contracts related to Kazakhstan in July 1995.
\par 
\par The first of Mobil\rquote s contracts described above was a preliminary agreement with the Kazakh government that gave Mobil the right to negotiate a share in Tengiz, for which Mobil paid a US$5 million \lquote advance\rquote 
 to Mercator. The second deal was more complex: Mobil entered into an agreement to finance an \lquote assetless shell company\rquote  called Vaeko Europe in its purchase, transport, processing, and s
ale of condensate (a liquid form of natural gas) from Kazakhstan to a refinery in Orenburg across the Russian border.}{\cs23\f4\fs10\up10 14}{\f4  According to the }{\cs24\f4\fs18 New Yorker}{\f4 , even Mobil\rquote 
s in-house lawyers would come to conclude that the Vaeko deal was intended to smooth the company\rquote s path into Tengiz and not a profitable venture in its own right.}{\cs23\f4\fs10\up10 3}{\f4  The indictment against Giffen also describes the deal as 
\lquote an effort to induce Kazakhstan to close the deal in Tengiz\rquote .}{\cs23\f4\fs10\up10 14}{\f4 
\par 
\par As all pipelines from Kazakhstan went through Russia at the time, 
Russian influence on the Kazakh oil sector and its future projects was significant; and, as it turned out, the Russians needed help. An ageing refinery owned by the family of a former prime minister had been left without gas supplies by the collapse of th
e Soviet regime.}{\cs23\f4\fs10\up10 3}{\f4  
\par 
\par Giffen recruited the aid of business colleague Friedhelm Eronat, who controlled Vaeko Europe.}{\cs23\f4\fs10\up10 15}{\f4 
 The US indictments specified that the plan was to use Vaeko as a vehicle for cash that Williams would supply from Mobil to fund the transfer 
of condensate from the Kazakh gas field of Karachaganak to the refinery in Russia. The processed fuel would be returned, Mobil would receive a small fee from condensate sales and Vaeko would reap all remaining profits. The indictments describe this deal i
n its most basic terms as an unsecured loan to Vaeko for which Mobil assumed all risk and was entitled to no profit beyond the set fee from the sales.}{\cs23\f4\fs10\up10 16}{\f4 
\par 
\par But Vaeko did not repay Mobil and the latter booked a loss of tens of millions of dollars.}{\cs23\f4\fs10\up10 17}{\f4  Millions o
f dollars of Kazakh customs revenues also seems to have been lost on the deal as the processed material appears to have been sent on to Europe rather than being re-imported to Kazakhstan. A set of official Kazakh customs documents provided to Global Witne
ss calculated the loss of revenue to the Kazakh government to be almost US$42 million.}{\cs23\f4\fs10\up10 18}{\f4  That this state of affairs was allowed to continue suggests high-level sanction for the deal on the Kazakh side of the border.
\par 
\par Not everybody appears to have lost out, however. According to the US court indictments of Giffen and Williams, US$1.1 million was transferred from Vaeko\rquote 
s bank account into a secret Swiss account controlled by Giffen in March 1996. The latter subsequently wired US$1 million to the account of Balgimbayev\rquote 
s Orchard account. Subsequently, Balgimbayev allegedly used the money to purchase over US$180,000 worth of diamond jewellery and a spa vacation for his family.}{\cs23\f4\fs10\up10 19}{\f4 
\par 
\par Back in Fairfax, Virginia, Mobil\rquote s financial analysts may have become concerned with
 the reported losses from the deal Williams had struck. When challenged, however, Williams assured his colleagues that Mobil President Lucio Noto had approved the deal and explained that \lquote the Russian mafia had got hold of the money.}{
\cs23\f4\fs10\up10 3}{\f4  Mobil\rquote s lawyers investigated and eventually concluded, according to one internal summary, that \lquote Mobil had long-term projects and interests \endash  Tengiz \endash  in mind when it entered this transaction\rquote .}
{\cs23\f4\fs10\up10 20}{\f4 
\par 
\par The Kazakh government was certainly aware of Mobil\rquote s relationship with Vaeko. Global Witness has obtained a copy of Vaeko\rquote 
s contract with the government dated 17 February 1995, in which Balgimbayev approved the sale of five million tons of gas condensate to Mobil and its \lquote agent\rquote  Vaeko Europe. 
\par 
\par In the autumn of 1995, Lucio Noto flew Giffen, Nazarbayev and a few senior Mobil executives to the Bahamas via corporate jet to talk about Tengiz.}{\cs23\f4\fs10\up10 3}{\f4 
 By 5 April 1996, however, negotiations had stalled. Williams was dispatched to restore goodwill and on 9 April 1996, Mobil was awarded a 25% share in Tengiz.}{\cs23\f4\fs10\up10 21}{\f4 
\par 
\par In a report filed with the US Securities and Exchange Commission announcing the Tengiz purchase, Noto is quoted as saying that: \lquote Mobil is delighted to have obtained 25% of the Tengiz field given that there was a substantial amount of competition
 from other major companies\rquote .}{\cs23\f4\fs10\up10 22}{\f4 
 This comment about competition seems odd because, although other companies were clearly interested in getting into Tengiz, Global Witness sources have consistently highlighted the absence of any formal bidding procedures for the 25% stake.}{
\cs23\f4\fs10\up10 23}{\f4  A former Chevron executive told the }{\cs24\f4\fs18 New Yorker}{\f4  that Kazakhstan\rquote 
s willingness to let another American company buy into the field without competitive bidding was a surprise to industry insiders because European companies were also very interested in the stake.}{\cs23\f4\fs10\up10 3}{\f4 
 This raises important questions about the basis on which Mobil was chosen. 
\par 
\par The }{\cs24\f4\fs18 New Yorker}{\f4  reported that, at the meeting in the Bahamas, Nazarbayev made extraordinary requests, including a Gulfstream jet, tennis courts at his home, and satellite trucks for his daughter\rquote s television network.}{
\cs23\f4\fs10\up10 3}{\f4  Mobil apparently declined these demands, but nevertheless had to hurdle two other unusual requests before landing a stake in Tengiz: that Mobil directly pay Mercator\rquote s fees that were due from the 
Kazakh government, and that Mobil pay them on top of the asking price for the field.
\par }\pard\plain \s21\ql \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \f92\fs24\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f28\fs18 
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {Mobil over a barrel
\par }\pard\plain \s22\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f4 
According to the indictment of Williams, during the initial negotiations over Tengiz, the Kazakh officials insisted that Mobil pay the fees the Republ
ic of Kazakhstan owed to Mercator for its services in brokering the deal. The Williams indictment states that: \lquote 
Mobil executives raised questions about the propriety of the arrangement and expressed concerns regarding whether [it] would violate the Foreign Corrupt Practices Act\rquote 
. Williams vouched for Giffen, the indictment adds, and Mobil eventually agreed to pay the fee.}{\cs23\f4\fs10\up10 24}{\f4 
\par 
\par The other key adjustment to Mobil\rquote s original position was that, contrary to their prior arrangement, Mobil would now pay Mercator\rquote s 5% fee \endash  some US$51 million \endash  }{\cs24\f4\fs18 on top}{\f4 
 of the purchase price. Given Nazarbayev\rquote s requests for an aeroplane and tennis courts, and given their previous concern over the legality of the fees, Mobil officials might reasonably have guessed there was a real risk of
 impropriety on the Kazakh side. 
\par }{
\par }{\f4 The Williams indictment put the value of Mobil\rquote s purchase at US$1.05 billion. Yet in its May 1996 filing with the US Securities and Exchange Commission, Mobil announced that it had acquired a 25% share of Tengiz for US$1.
1 billion. This US$50 million difference is almost exactly the amount that Mercator was paid. It is hard not to conclude that Mobil therefore included its payment to Mercator, a fee that was not paid to the government of Kazakhstan, in the contract amount
 
reported to the SEC. If this was the case, then it follows that Mobil was in effect treating the unusual payments to middlemen as just another cost of doing business in Kazakhstan. Requiring companies to disclose their net payments to national governments
 would, of course, have detected these unusual side-payments. 
\par 
\par Between 3 August 1995 and 17 May 1996, Mobil wired a total of US$51 million into Mercator\rquote s account at Citibank in New York, inclusive of the US$5 million goodwill payment mentioned earlier.}{\cs23\f4\fs10\up10 25}{\f4  
The indictments describe how more than half of that money was immediately funnelled out of Mercator\rquote s account to the accounts controlled by various parties to the deal. 
\par 
\par Some US$25 million passed through the account of a Swiss company called Nichem controlled by a person labelled in the indictments as \lquote Co-Conspirator One (CC-1)\rquote 
. Information contained in legal assistance documents passed to Global Witness reveal that CC-1 is, in fact, Vaeko boss Friedhelm Eronat.}{\cs23\f4\fs10\up10 26}{\f4  Nichem directed millions into the account
 of Hovelon Trading, a company based in the British Virgin Islands and controlled by Giffen with the help of an unidentified individual referred to in the indictment as \lquote Co-conspirator Two (CC-2)\rquote 
. Hovelon then wired US$20.5 million to a Swiss account in the name of Orel Capital Ltd, a company beneficially owned by Nazarbayev and his heirs.}{\cs23\f4\fs10\up10 27}{\f4 
 Nazarbayev spent this money on, amongst other things, some US$45,000 of fees for an exclusive Swiss boarding school for his daughter.}{\cs23\f4\fs10\up10 27}{\f4 
\par }{
\par }{\f4 According to the indictments, there were numerous similar transactions over a period of several years. Some US$2 million was deposited in the account of Alqi Holdings, an offshore company belonging to Mobil\rquote s Williams.}{\cs23\f4\fs10\up10 28}
{\f4  Other beneficiaries included Balgimbayev via his Orchard account, which received payments totalling more than US$10 million between August 1997 and April 1999.}{\cs23\f4\fs10\up10 29}{\f4  
\par  
\par According to the indictment, the person who set up the bank accounts and managed money on behalf of Giffen and others was an employee of French bank Credit Agricole Indosuez (CAI), named as \lquote Co-conspirator Three (CC-3)\rquote .}{\cs23\f4\fs10\up10 
30}{\f4  The }{\cs24\f4\fs18 Wall Street Journal}{\f4  quoted \lquote people familiar with the matter\rquote  as saying that CC-3 is Jean-Jacques Bovay, a senior manager at the Geneva branch of CAI who has since left the bank. The new
spaper quoted its sources as alleging that Bovay was paid millions of dollars for his services. Bovay\rquote s lawyer declined to comment to the newspaper on this allegation.}{\cs23\f4\fs10\up10 31}{\f4 
 An American request for legal assistance in investigating \lquote Kazakhgate\rquote  also identified Bovay\rquote s involvement in moving money for Mercator for \lquote Financial Advisory Services for the Republic of Kazakhstan\rquote .}{
\cs23\f4\fs10\up10 32}{\f4  
\par }{
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {Mobil and the middlemen 
\par }\pard\plain \s22\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f4 
Giffen has subsequently been charged with wire fraud and/or violating the US Foreign Corrupt Practices Act for his role in the above transfers, save that to Williams\rquote 
 Alqi account, which was a payment between two private American citizens and therefore not proscribed by law. Williams is charged only with tax evasion on that money.}{\cs23\f4\fs10\up10 33}{\f4  Giffen now faces up to 88 years 
in jail and fines of more than US$84 million. 
\par 
\par Mobil has yet to face any charges, although the Justice Department is seeking extensive information over its transactions with Giffen and others.}{\cs23\f4\fs10\up10 34}{\f4  Justice Department investigations have also widened to take 
in at least one other major oil company. ChevronTexaco was subpoenaed in April 2003 to appear in court in New York, and to hand over any documents relating to its dealings with President Nazarbayev, Balgimbayev, Giffen, Eronat, Bovay, and other individual
s and companies.}{\cs23\f4\fs10\up10 35}{\f4  The company has said all its payments to Kazakhstan were \lquote properly made\rquote  and complied with US and local laws.}{\cs23\f4\fs10\up10 36}{\f4 
\par In June 2003, Williams changed his plea to guilty on the charges of tax evasion, acknowledging that he received payments from unidentified \lquote people, organisations and governments\rquote  with whom he did business on Mobil\rquote s behalf.}{
\cs23\f4\fs10\up10 37}{\f4  He did not say why he had been paid, nor did he disclose any connection between these payments and his business at Mobil.
\par 
\par It is difficult to believe that W
illiams was unaware that Giffen would distribute largesse to others given that he would receive a kickback from Mercator himself. At best, Williams was an employee willing to talk his company into making an irregular payment to a middleman on behalf of a 
foreign government, and he appears to have received a large reward for his ingenuity.
\par 
\par Mobil \endash  ExxonMobil since the 1999 merger \endash  claims that Giffen was \lquote an official representative of the Kazakh government and therefore a legitimate conduit for concessions payments\rquote .}{\cs23\f4\fs10\up10 38}{\f4 
 However, it remains unclear whether Giffen had registered as a representative of a foreign government and one might expect a company as prominent as Mobil to check that the middlemen with whom it does business are operating in compliance with 
the US Foreign Agents Registration Act before sending tens of millions of dollars into their accounts. 
\par 
\par It is also hard to understand why Mobil did not take more vigorous action to oversee the activities of Mercator, Giffen and Williams given the outrageo
us demands alleged to have been made by Nazarbayev in his meeting with Noto. Assuming the innocence of everyone at Mobil, the company should nonetheless exercise better supervision _of executives authorised to grant payments of tens of millions of dollars
 and to negotiate deals worth more than a billion dollars. 
\par 
\par A written request from US investigators for assistance from the Swiss authorities, obtained by Global Witness, indicates that Mobil was concerned about a risk of impropriety by its employees and had some knowledge of CAI\rquote s Jean-Jacques Bovay.}{
\cs23\f4\fs10\up10 39}{\f4  According to the request, Mobil discovered that one of its employees had taken out an unauthorised loan of US$11 million from CAI and in April 1997 notified Banque Indosuez that Bovay was \lquote familiar with the 
circumstances surrounding the transaction\rquote . Mobil repaid the loan and closed the CAI account.
\par 
\par The request goes on to note that in March 1998, Mobil contacted Yves Capian, the Chief of General Inspection at CAI, and advised him that it was \lquote conducting a co
nfidential internal review of certain commercial activities that may have adversely affected Mobil\rquote .}{\cs23\f4\fs10\up10 39}{\f4  The areas under review included: \lquote 
1) unauthorised payments to third parties; 2) possible diversion of funds to unidentifiable offshore entities; and 3) possible money laundering transactions\rquote . 
\par 
\par As all these three points featured in the indictments, it is hard therefore to avoid the conclusion that Mobil\rquote s probe may have concerned the Mercator case and Kazakhstan. Since no Mobil executive has been charged 
with these crimes, it can only be assumed that the investigation came up empty. Worryingly, Mobil once again began to do business with Kazakhstan through CAI only a month later (see next section). It may be only coincidence that about this time, according
 to the }{\cs24\f4\fs18 New Yorker}{\f4 , Williams quietly retired from Mobil at the age of 58.}{\cs23\f4\fs10\up10 3}{\f4  He was subsequently appointed the US government\rquote s overseer of the UN\rquote s Iraqi Sanctions Committee.}{
\cs23\f4\fs10\up10 40}{\f4  
\par }{
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {Same system, different companies?
\par }\pard\plain \s22\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f4 Mobil was not the only oil company to play int
o the hands of Giffen, Nazarbayev, and Balgimbayev. In other transactions investigated by the US Justice Department, oil companies looking to secure exploration and production-sharing deals with the government of Kazakhstan made huge deposits into escrow 
accounts at CAI with the understanding that the bank would distribute the funds to pay the \lquote fees of certain advisors to Kazakhstan\rquote , including Mercator.}{\cs23\f4\fs10\up10 41}{\f4 
 None of the oil companies involved have been charged for their role in these unusual procedures.
\par 
\par In e
arly 1997, Amoco paid US$51 million into such an account, while Texaco was part of a consortium that wired US$17 million to CAI in November of 1997. In April 1998, a group of international companies including Mobil paid US$23 million of a US$175 million 
\lquote signature bonus\rquote  into a CAI escrow account at the direction of the Kazakh leadership. Later that year, at Balgimbayev\rquote 
s instruction, Phillips Petroleum directed US$30 million of a US$277 million purchase into another escrow account at CAI.
\par 
\par Amoco\rquote s money appears to have been siphoned away courtesy of what the indictment describes as a \lquote sham agreement\rquote  between a company affiliated with CAI and the Kazakh leadership, facilitated by Giffen.}{\cs23\f4\fs10\up10 42}{\f4 
 In the other instances, Nazarbayev and Balgimbayev entered into an \lquote exclusive paying agency agreement\rquote  with CAI, which directed huge fees to the bank for the privilege of doing business there. Of Texaco\rquote 
s US$17 million, for example, over US$11.4 million was retained by CAI as a \lquote fee\rquote .}{\cs23\f4\fs10\up10 43}{\f4  
\par 
\par The Giffen indictment then describes how this fee was shunted to private beneficiaries: Nazarbayev\rquote s Orel received US$5 million, Balgimbayev\rquote s Orchard Holdings banked US$2.5 million and a private company called Condor \endash 
 named as belonging to Giffen in his indictment \endash  was sent some US$2 million.}{\cs23\f4\fs10\up10 44}{\f4  As the Giffen indictment describes, a secret agreement \lquote disguised the fact that almost 90% of CAI\rquote 
s purported fee was being paid to Giffen and, through Giffen, to Kazakh officials and Giffen himself\rquote .}{\cs23\f4\fs10\up10 44}{\f4  
\par 
\par The indictment also names CC-3, who Global Witness believes to be Jean-Jacques Bovay, as being involved in \lquote a paper record making it appear that those funds would be used to pay Kazakhstan\rquote 
s consultants on the transaction and then diverted a large percentage of the funds in escrow through a series of secret Swiss accounts into secret accounts beneficially owned by senior Kazakh officials and Giffen himself\rquote .}{\cs23\f4\fs10\up10 45}{
\f4  Swiss investigators have subsequently announced a probe into the role played by Bovay and whether he personally received any payments from the Kazakh transactions.}{\cs23\f4\fs10\up10 46}{\f4 
\par 
\par None of the oil companies can be accused of directly knowing that the money they poured into escrow accounts would end up in the pockets of Kazakh officials, bank employees or James Giffen. However, it remains unclear what due dil
igence and risk mitigation took place, especially given the curious arrangement by which companies like Amoco and Mobil paid consultancy fees to Mercator on behalf of the government of Kazakhstan. The Williams indictment alleges that Mobil did this in spi
te of concerns about possible US Foreign Corrupt Practices violations when Williams, who benefited personally from the transactions, vouched for Giffen.}{\cs23\f4\fs10\up10 47}{\f4 
 If Mobil had been obliged to disclose its payments to Mercator on behalf of the Kazakh government, it might have mitigated the risk of such conflicts of interest and protected its reputation more effectively.
\par 
\par It is also reasonable to ask why companies were content to deposit such huge sums owed to the government of Kazakhstan into various accounts held in Switzerland rather than with Kazakhstan\rquote 
s national bank or its official treasury accounts. It is striking that a mere month after Mobil wrote to the Chief of General Inspection at CAI advising him of its internal review of bank transactions and possible d
iversion of funds to unidentifiable offshore entities and money laundering transactions, the Giffen indictment reported that Mobil was part of a consortium that paid US$23 million of a signature bonus into an escrow account at the bank at the direction of
 Balgimbayev.}{\cs23\f4\fs10\up10 48}{\f4  The indictment also alleged that US$11 million of that money was subsequently retained as a fee by CAI, of which US$10 million was siphoned off to Balgimbayev, Giffen and Nazarbayev.}{\cs23\f4\fs10\up10 48}{\f4  

\par 
\par The lack of transparency in the brokering of oil deals
 was so extreme that Kazakh government officials were often blocked entirely from the negotiating process. In one letter dated 21 July 2000 and leaked to Global Witness, the acting president of state oil company Kazakhoil lamented that the sale of an addi
tional 5% share of Tengiz to Chevron that year was closed \lquote 
without consideration of the preparatory work completed by the Government of the Republic of Kazakhstan and its consultants [including major US law firm Sherman and Sterling] during the last two years\rquote .}{\cs23\f4\fs10\up10 49}{\f4 
\par 
\par In the letter, the company president requests that the contract be changed to reflect \lquote key positions defending the interest of the Republic of Kazakhstan\rquote 
, which had been left out. One wonders whose interests, exactly, were defended in the contract as it was drawn up between Chevron and the Kazakh leadership. 
\par }\pard\plain \s21\ql \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \f92\fs24\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {How Nazarbayev \lquote shot himself in the ass\rquote }{
\cs23\f28\fs10\up10 50}{
\par }\pard\plain \s22\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f4 
The system of money-laundering and bribes maintained by Nazarbayev, Balgimbayev, Giffen and others, as described by the indictments, appears to have
 been so extensive that investigating magistrates in Switzerland identified as suspicious between 50-60 accounts in at least four different banks. In 2000, Swiss officials froze the assets of several accounts that the US indictments would later describe a
s \lquote secret accounts beneficially-owned by senior Kazakh officials\rquote  including Nazarbayev and Balgimbayev.}{\cs23\f4\fs10\up10 51}{\f4 
\par 
\par In fact, their transgressions only came to light because of a spectacular blunder on the part of Nazarbayev. Hoping to pillory Akezhan Kazhegeldin, a 
political opponent who was once prime minister, Nazarbayev asked Belgian bank officials to search for illegal assets in accounts that may have been held by Kazhegeldin.}{\cs23\f4\fs10\up10 52}{\f4 
 The Belgian investigators found none, but they did uncover accounts benefiting other Kazakh officials. They referred the investigation to Swiss officials who subsequently notified the US Justice Department of James Giffen\rquote 
s involvement in the transfers to Kazakh officials. Kazhegeldin claims to have phoned Nazarbayev and taunted him for inadvertently revealing his own accounts with the words: \lquote you shot yourself in the ass!\rquote .}{\cs23\f4\fs10\up10 50}{\f4 

\par 
\par By 1999, the pressure was on and legal investigations had also begun in the US. In August, Nazarbayev transferred US$84 million out of his Orel account at CAI and in
to a new account at Banque Pictet, established as the official property of the Republic of Kazakhstan.}{\cs23\f4\fs10\up10 53}{\f4  Shortly thereafter, Balgimbayev\rquote 
s wife and children moved out of the house in Massachusetts that had been bought by a front company owned by Balgimbayev and funded by oil money.}{\cs23\f4\fs10\up10 54}{\f4 
 Investigators were uncovering a host of private benefits, including the matching \lquote his and hers\rquote  snowmobiles Giffen had sent Nazerbayev and his wife and the oil money that the President used to pay for his daughter\rquote s Swiss board
ing school.}{\cs23\f4\fs10\up10 55}{\f4  
\par }\pard\plain \s21\ql \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \f92\fs24\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {Crackdown at home
\par }\pard\plain \s22\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f4 
The lavish lifestyle of those Kazakhs reported in the indictments contrasts sharply with the appalling intimidation and violence directed at those within the country who are trying to investigate Kazakhstan\rquote s missing money. 
\par 
\par As investigations advanced in 1999, Nazarbayev created a Law on Confidential State Affairs placing \lquote 
disclosure or publication of information about the president and his family and their economic interests or investments into the realm of state secrets punishable by severe sanctions\rquote .}{\cs23\f4\fs10\up10 56}{\f4 
 He installed his daughter as head of the state television channel and signed a law requiring that all channels air at least half their broadcasts in the Kazakh language, a blow to commercial stations since half of their a
udience speaks Russian rather than Kazakh. Transmission of one news programme on Kazakhstan\rquote s NTV channel reporting a }{\cs24\f4\fs18 New York Times}{\f4  article about the secret Swiss accounts was pulled off the air in mid-sentence.}{
\cs23\f4\fs10\up10 57}{\f4 
\par 
\par A series of brutal attacks have also occurred on Kazakh journalists investigating Kazakhgate. On 6 May 2002, Irina Petrushova, chief editor of }{\cs24\f4\fs18 Respublika}{\f4 
, an opposition newspaper that had written extensively about the scandal, was sent a funeral wreath with the script, \lquote Dear Irina Petroshova, from colleagues\rquote 
. On 19 May, a headless dog was tied to their office window with a note attached by a screwdriver stabbed into the animal informing her that \lquote There won\rquote t be a next time\rquote . Petrushova later found the dog\rquote 
s head on the doorstep of her home. On 22 May, the office was burnt to the ground. 
\par 
\par Journalist Lira Baysetova, who lost an eye after being beaten by unknown assailants in 1997, published an interview with a Swiss official confirming that Switzerland had frozen the accounts of Nazarbayev and two
 former prime ministers in the opposition paper }{\cs24\f4\fs18 Soldat}{\f4  in 2002. The next day, her daughter went missing and the newspaper\rquote 
s offices were destroyed by fire. Three weeks later, she was informed that her daughter had been arrested for drug possession and a fe
w weeks after that she was told that her daughter had died while in custody. International human rights groups have since voiced suspicions about the circumstances of the girl\rquote s death.}{\cs23\f4\fs10\up10 58}{\f4  
\par 
\par On 28 October 2002, the night before flying to the US to give a ser
ies of talks about political conditions in Kazakhstan, freelance journalist Sergei Duvanov was arrested for allegedly raping a minor. He has lost two appeals, despite clear evidence of an egregious miscarriage of justice: an unpublished report by the Orga
nisation for Security and Co-operation in Europe (OSCE), obtained by Global Witness, found \lquote serious procedural violations\rquote 
 and concluded that the investigation had not been full and objective, and the evidence presented in court was not sufficient to reach a conclusion.}{\cs23\f4\fs10\up10 59}{\f4 
 Duvanov had previously been attacked by knife-wielding assailants outside his home.}{\cs23\f4\fs10\up10 60}{\f4 
\par 
\par Today, there is no independent television station in Kazakhstan and little independent press. In the words of Irina Petrushova: \lquote without exception, every
 single independent journalist and editor who has published a report opposing the government has had criminal charges brought against him or her\rquote .}{\cs23\f4\fs10\up10 61}{\f4 
 The government also requires all news-related websites to register with the authorities. Another account states that although \lquote 
nobody officially dictates to journalists what they should write, and there is no ban on criticism ... everyone who takes that path knows what the consequences may be\rquote .}{\cs23\f4\fs10\up10 62}{\f4 
\par 
\par Nazarbayev was quick to defend himself politically as well. In June 2000, he got parliament to give him life-long immunity from prosecution. He also eliminated the presidency\rquote 
s term limits and its mandatory retirement age and granted himself the right to ban any political party. 
\par 
\par In the summer of 2001, a month-long legal window was opened during which money could be repatriated from overseas accounts and deposited in Kazakh banks, with no taxes charged and no questions asked. The President\rquote 
s ability to make full use of this law himself may have been constrained by the fact that many of his overseas accounts had been frozen at the time. Another measure of protection, according to radio reports, was the \lquote 
scheduled destruction of all tax records between 1995 and 2000\rquote .}{\cs23\f4\fs10\up10 63}{\f4  
\par 
\par By 2002, Swiss and American officials were exchanging information and ten years of Mercator\rquote s files had been subpoenaed. Nazarbayev had his Washington lawyer address a letter to the US Justice Department, which stated, \lquote 
I am deeply concerned that foreign relations between the US and the Republic of Kazakhstan\emdash an important ally in the war on terrorism with significant oil and gas reserves in an unstable geographic region\emdash 
will deteriorate if prosecutors maintain their pursuit of the documents in Kazakhstan and continue to aggressively investigate Kazakh officials\rquote .}{\cs23\f4\fs10\up10 64}{\f4  It is no longer a secret that one of those \lquote Kazakh officials
\rquote  was Nazarbayev himself.
\par }\pard\plain \s21\ql \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \f92\fs24\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {The billion-dollar secret fund
\par }\pard\plain \s22\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f4 
The most startling revelation of the whole affair was yet to come. The pressure of the investigation, and the fact that Switzerland was becoming a perilous place for Kazakh officials\rquote 
 secret accounts, led to a stunning announcement in parliament in April 2002 by new Prime Minister Imangaly Tasmagambetov: he stated that in 1996, the Kazakh leadership had created a top-secret Swiss account, under Nazarbayev\rquote 
s direct control, to hold a US$1 billion payment made for an oil contract that year. Exactly which contract was not made clear but it is most likely to have been the other US$1 billion from the Mobil deal because of the timing. 
\par 
\par Tasmagambetov went so far as to say the fund had saved Kazakhstan\rquote s independence: \lquote 
The head of state was left with no other choice except to take all responsibility upon himself. That was when the appropriate decree was signed on the secret fund as a reserv
e fund of the government in the event of economic crisis or a threat to the security of the country. I emphasize that the President acted exclusively in the interests of the country and within the framework of the laws of the Republic of Kazakhstan.
\rquote }{\cs23\f4\fs10\up10 65}{\f4  
\par 
\par Tasmagambetov also distinguished between the secret fund and the foreign bank accounts allegedly belonging to Nazarbayev, saying that if such accounts exist, they were set up by other people to compromise the President\rquote s name.}{\cs23\f4\fs10\up10 
65}{\f4  
\par 
\par The account had supposedly been tapped twice, once for US$800 million to shore up pension funds and once to help stabilize the currency after the devaluation of the Russian rouble.}{\cs23\f4\fs10\up10 66}{\f4 
 Tasmagambetov said the remaining amount would be transferred back into a new national fund within Kazakhstan. 
\par 
\par However, budget transparency was so poor that it has been impossible to determine whether the \lquote secret fund\rquote 
 was in fact used as Tasmagambetov said it had been. The World Bank might wonder, for example, why Nazarbayev did not use the fund in 19
99 (when it supposedly still contained US$200 million) rather than taking out a World Bank loan of US$300 million to finance pension reforms.}{\cs23\f4\fs10\up10 67}{\f4  
\par 
\par To this day, Kazakhstan\rquote s rulers have never clearly identified where all this US$1 billion went, nor have they explained why the President himself unilaterally decided that he was the most appropriate person to control a huge slice of Kazakhstan
\rquote s oil money out of sight of his parliament and his public, nor exactly how this unusual approach to money management fits within the framework of Kazakhstan\rquote 
s laws. The Kazakh Constitution, for example, requires in Article 54(2) that parliament \lquote approve the republican budget, the reports of the Government, and Estimation Committee about its implementation, and introduce changes into the budget\rquote .

\par 
\par Tasmagambetov stated, by way of explanation, that \lquote in 1996, it would have been complicated for parliament to make this law about the National Fund themselves\rquote .}{\cs23\f4\fs10\up10 68}{\f4 
 Similarly, the Kazakh Deputy Minister of Information has gone on the record to argue that information about the secret account had not been shared with parliament because \lquote it would have elicited many questions\rquote .}{\cs23\f4\fs10\up10 69}{\f4 

\par }{\f92\fs24 
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {So, many questions
\par }\pard\plain \s22\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f4 
One may admire the candour of a government that admits to hiding a billion dollars overseas in order to avoid questions from its parliament and people about what it is doing with public money. It is one of the main aims of the }{\cs24\f4\fs18 
Publish What You Pay}{\f4  campaign not only to generate such questions but also to ensure, through revenue transparency, that they can be answered.
\par 
\par The US$200 million left in the secret fund was transferred back to Kazakhstan to form part of an official National Fund for oil and gas revenues that was created in August 2000. Other major deposits in the National Fund have included
 some US$660 million from the sale of a 5% share in the TengizChevroil consortium \endash  which, as mentioned earlier, took place without any supervision \endash 
 and some 10% of taxes paid by the nine largest oil companies and three largest mining companies operating in the country. The latest information available is that the National Fund now contains assets in excess of US$2 billion.}{\cs23\f4\fs10\up10 70}{
\f4  
\par 
\par Although day-to-day bookkeeping of the National Fund\rquote s assets rests with the National Bank of Kazakhstan, almost every line of con
trol rests solely with Nazarbayev. He has the exclusive right to make and change the rules that govern the Fund as well as to authorize its expenditure. He also determines the Fund\rquote s supervisors.}{\cs23\f4\fs10\up10 1}{\f4 
 While the parliament receives reports about the Fund\rquote s acti
vities, there are no rules specifying the content of these reports or the dates for their submission. More importantly, parliament has no authority to approve, reject, or amend these reports. No guidelines exist on what constitutes permissible expenditure
 and what limits exist on spending. Just as the Fund was created by presidential decree, so it can be scrapped at Nazerbayev\rquote s whim. 
\par 
\par Outside the National Fund, the government\rquote s income and management of oil revenues is equally opaque. The chairman of Kazakhstan\rquote 
s national bank is on the record as saying that information about how much money remains in government accounts abroad is a \lquote state secret\rquote .}{\cs23\f4\fs10\up10 71}{\f4  
\par 
\par Kazakhstan\rquote s national oil and gas company, KazMunaiGaz, whose holdings include a 20% stake in the Tengiz o
il field, is not subject to the accountability and reporting requirements expected of publicly traded companies or elected officials. It operates behind a veil of secrecy, with no public disclosure requirements. 
\par 
\par Transfer pricing \endash  the practice of transferring goods on paper to offshore accounts in order to elude taxes \endash  is also rife. The tax havens of Bermuda and the British Virgin Islands were ranked in 2000 as Kazakhstan\rquote 
s second and third largest trading partners behind Russia, mostly receiving oil.}{\cs23\f4\fs10\up10 72}{\f4  Such operations may cost the state an estimated US$1 billion per year of the US$4 billion tax income due to it.
\par 
\par Perhaps the biggest question that remains is: \lquote what went wrong?\rquote  The weekly paper }{\cs24\f4\fs18 Argumenty i fakti Kazakhstan}{\f4  touched on the irony of Kazakhstan\rquote s oil boom when it reported as an April Fool\rquote 
s joke that a new decree would divide the state\rquote s earnings from hydrocarbon development equally among Kazakhstan\rquote s adult population. \lquote This means that every citizen of the country who has come of age at the mo
ment the decree is issued will receive, according to some calculations, $200,000 with monthly dividends on top!\rquote }{\cs23\f4\fs10\up10 73}{\f4  
\par 
\par The arithmetic may be questionable but the point is clear: ordinary Kazakhs have not seen the benefits to which they are entitled. Instead,
 some 40% of the population are classified as living in poverty and a quarter of the nation lives on less than US$4 a day.}{\cs23\f4\fs10\up10 74}{\f4  Overall, the number of people in poverty has doubled since independence.
\par 
\par The rest of the world has a strong interest in doing business with Kazakhstan, as evidenced by the plans of international oil companies to invest at least US$37 billion in the country over the next 40 years.}{\cs23\f4\fs10\up10 75}{\f4 
 But there is a strong need to establish clear ground rules for doing business in such environments. A g
overnment making the transition to a capitalist economy is under enormous pressure to create an economic environment that is both functional and fair, but it cannot succeed with either goal without the help of the massive international companies that crea
te markets. 
\par 
\par The American oil companies referenced in the Giffen and Williams indictments provided capital that was needed by Kazakhstan but they also consented to highly unusual payments to middlemen and deposited huge amounts of money into accounts at Sw
iss banks. Since Nazarbayev appears intent on eliminating the ability of his fellow citizens to investigate and expose corruption at the highest levels, the obligation of oil companies doing business with Kazakhstan to maintain strict ethical standards is
 all the more significant.
\par 
\par In this context, revenue transparency from multinational companies is a neat and efficient solution. If companies had been required to publish what they pay openly, then neither the Kazakhgate embezzlements nor the billion-dollar
 secret fund could have been kept secret. The fact that the commissions to Giffen and others were reported as a cost of doing business makes the case for systematic disclosure even clearer: Kazakh citizens and authorities, had they been aware of this info
rmation, would have had details about payments that oil companies thought they were making to the government that had not made it through to the Kazakh treasury. Mobil\rquote 
s reputation inside and outside of the country might not have suffered so much collateral damage from events if it had openly disclosed that information to Kazakhstan\rquote s people and to the relevant national authorities. 
\par 
\par }{Given the Kazakh government\rquote s decision to deliberately destroy official tax records, it is now impossible for Kazakh citizens
 to know how much money should have gone into their treasury. This would not be the case if oil companies were required to publish details of their payments to the government. Similarly, brave Kazakh journalists would not have been killed, beaten up or ju
dicially framed while attempting to uncover the dealings of a corrupt ruling elite. It is unacceptable that the world should find out what was paid \endash  and into whose pockets the money went \endash 
 only because Nazarbayev inadvertently laid bare his own finances while trying to eliminate a political rival. We cannot rely on the diminished judgment of the corrupt to enforce transparency and legality.
\par }\pard\plain \s1\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel0\adjustright\rin0\lin0\itap0 \b\f5\fs32\lang2057\langfe1033\kerning32\cgrid\langnp2057\langfenp1033 {\f4 \page }{Congo Brazzaville
\par }\pard\plain \ql \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\f4\fs20 
\par }{\b\f4\fs20 Money unaccounted for}{\f4\fs20 : currently, about US$250 million per year.}{\cs23\f28\fs10\up10 1}{\f4\fs20 
\par }{
\par }\pard \qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 {\f4\fs20 The Republic of Congo (Congo Br
azzaville) is one of several African states where oil wealth has left a legacy of corruption, poverty and conflict. This section looks at the way Congo\rquote 
s development has been stymied by the unaccountable management of oil revenues, beginning with the ugly history of French state oil company Elf Aquitaine. 
\par }\pard \ql \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 {\fs20 
\par }\pard \qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 {\f4\fs20 A huge court case in France recently provided unprecedented details of Elf\rquote s opaque and anti-competitive \lquote African Strategy\rquote }{
\f4 .}{\cs23\f4\fs10\up10 2}{\f4  }{\f4\fs20 The company systematically paid kickbacks, peddled influence and encouraged government indebtedness in order to maintain its control over the oil of several African countries. Elf\rquote 
s strategy institutionalised opacity and led to unaccountable government, massive debt and chronic instability.}{\f4 
\par }{\f4\fs20 
\par Perhaps no country suffered more than Congo Brazzaville, the fourth-largest oil producer in sub-Saharan Africa.}{\cs23\f28\fs10\up10 3}{ }{\f4\fs20 
Once one of the richest states in Africa, Congo now has the highest per capita debt in the world: according to the International Monetary Fund (IMF), Congo\rquote s external debt is US$6.4 billion or over twice the country\rquote 
s GDP, while the government itself puts total debt at US$11.5 billion.}{\cs23\f28\fs10\up10 4}{\f4\fs20  One-third of government income goes to service oil-backed debt \endash 
 that is, loans from private sources that are secured against future oil production. One World Bank report cites \lquote mismanagement of the country\rquote s rich natural resources\rquote 
 as the primary factor fuelling the violent conflict that has claimed thousands of lives in the country.}{\cs23\f28\fs10\up10 5}{ 
\par }{\f4\fs20 
\par Elf had an enormous amount at stake as the dominant oil company in Congo Brazzaville, where oil receipts today account for around 70% of the country\rquote s income and 90-95% of its exports.}{\cs23\f28\fs10\up10 6}{ }{\f4\fs20 Elf\rquote 
s proprietary interest in Congo Brazzaville led it not only to feed corruption, but also to meddle with elections, encourage massive indebtedness and, worst of all, to fund both sides in the 1997 civil war. Elf\rquote 
s successor, the private-sector TotalFinaElf (now Total), remains a major player in Congo: in 2002, it still accounted for around 70% of the country\rquote s oil production.}{\cs23\f28\fs10\up10 7}{ }{\f4\fs20 Transparen
cy is still desperately needed in Congo, as this section will outline. Recent negotiations between the Congolese authorities and Total show that the tradition of secrecy surrounding oil income continues under the government of Denis Sassou-Nguesso, autocr
atic strongman turned elected president.
\par 
\par Many Congolese citizens are bitterly aware that oil has not benefited them, its owners, and a resurgent civil society has begun to demand more accountability. In 2002 Congolese church leaders wrote in an open letter to their president: \lquote 
The Congolese people do not know much about how much our country receives from this black gold, and even less about how the revenues are managed. What it does know is the price of oil is measured not in barrels or dollars, but in suff
ering, misery, successive wars, blood, displacement of people, exile, unemployment, late payment of salaries, non-payment of pensions.\rquote }{\cs23\f28\fs10\up10 8}{
\par }{\f4\fs20 
\par Given its huge debts, Congo is understandably keen to join the IMF\rquote s Heavily Indebted Poor Countries Initiative (HIPC)
, which offers massive debt relief in return for policy reforms agreed with the IMF and the World Bank. However, its oil earnings continue to be managed unaccountably, especially the operations of the national oil company}{ }{\cs24\i\f4\fs20 Soci\'e9t\'e9
 Nationale des P\'e9troles du Congo}{\f4\fs20 , undermining the promises on improved transparency that the government has made to the IMF and others. The Sassou-Nguesso government cannot be allowed simply to take the IMF\rquote s money and run.
\par }{
\par }{\f4\fs20 The message of the Elf affair is clear: if the company had been obliged to disclose its financial relationship with the Congolese government, there is no way that its \lquote African Strategy\rquote 
 could have worked. At the same time, if the government had managed its oil income accountably, Congo might not be reeling economically, politically and socially from the crushing burden of debt and war.
\par }{
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {Elf\rquote s legacy in Congo
\par }\pard\plain \qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\f4\fs20 The trial of 37 former senior executives of the now-defunct Elf, for \lquote 
misuse of company assets\rquote  to the tune of hundreds of millions of dollars, ended in Paris in mid-November 2003 with the conviction of 30 of the accused.}{\cs23\f28\fs10\up10 9}{ }{\f4\fs20 
The 600-page indictment listed allegations of corrupt behaviour by top Elf officials including siphoning-off commissions into secret bank accounts, buying multi-million dollar properties and 
expensive jewellery and embezzling money for divorce and alimony fees.}{\cs23\f28\fs10\up10 10}{ }{\f4\fs20 The penalties handed down included fifteen prison sentences, seven suspended sentences and heavy fines. Lo\'ef
k Le Floch-Prigent, former chief executive of Elf, was given a five-year sentence and a US$471,000 (}{\f93\fs20 \'80}{\f4\fs20 375,000) fine; Alfred Sirven, his right-hand man, was also sentenced to five years and fined US$1.25 million (}{\f93\fs20 \'80}{
\f4\fs20 1 million); and Andr\'e9 Tarallo, former Director for Africa and of Hydrocarbons was given four years and a US$2.5 million (}{\f93\fs20 \'80}{\f4\fs20 2 million) fine.}{\cs23\f28\fs10\up10 11}{
\par 
\par }{\f4\fs20 But this is not just another corporate fraud scandal. The indictment alleged that the accused took advantage of the pre-existing \lquote Elf system\rquote ,}{\cs23\f28\fs10\up10 12}{ }{\f4\fs20 
whereby the company paid African decision-makers from offshore accounts to maintain its powerful market position 
in several countries. There was nothing illegal under French law about the largesse distributed by Elf at the time, and the Paris trial looked only at allegations of misuse of the company\rquote s own assets by individual employees. 
\par 
\par Prosecuting judge Renaud Van Ruymbeke aimed to show that the Elf system was used as a \lquote }{\cs24\i\f4\fs20 pompe \'e0 finance}{\rquote }{\cs23\f28\fs10\up10 13}{ }{\f4\fs20 
(cash cow) that effectively transferred revenues from public to private hands. To make this case, the prosecution provided extensive details about how offshore structures were se
t up to buy off African leaders, by diverting signature bonuses (one-off payments) and \lquote }{\cs24\i\f4\fs20 abonnements}{\rquote  }{\f4\fs20 
(money skimmed from oil sales) into personal accounts. These leaders were also encouraged to take out oil-backed loans that enriched \lquote the secret funds of Elf\rquote .}{\cs23\f28\fs10\up10 14}{ }{\f4\fs20 
In Congo, this created conditions of unaccountable government and direct indebtedness to the company that progressively secured Elf\rquote s hold on the country\rquote s politics.
\par 
\par The three top Elf executives who were convicted in the trial enjoyed particular influence in Congo. Lo\'efk Le Floch-Prigent was Elf\rquote s chief executive between 1989 and 1993. Alfred Sirven held the catch-all title of}{\expnd4\expndtw20  }{
\cs24\i\f4\fs20 Directeur des Affaires G\'e9n\'e9rales}{ }{\f4\fs20 (Director of General Affairs), and Andr\'e9 Tarallo, known as \lquote Mr Africa\rquote , was a former president of Elf\rquote s subsidiary, Elf Congo. Andr\'e9
 Tarallo admits to acting as Elf\rquote s \lquote secret financier\rquote  until 1989, a role he testifies was then taken over by Sirven.}{\cs23\f28\fs10\up10 15}{ }{\f4\fs20 His role was to liaise with \lquote existing heads of state\rquote 
 whilst Sirven developed contacts with opposition leaders.}{\cs23\f28\fs10\up10 16}{ }{\f4\fs20 The secret payments and oil-backed loans began in the early 1970s but the company\rquote 
s involvement in Congolese affairs reached its peak during the political upheaval of 1990-1992, when dictator Denis Sassou-Nguesso was replaced by the democratically-elected president Pascal Lissouba.}{\cs23\f28\fs10\up10 17}{
\par }{\f4\fs20 
\par The Elf System in Africa had three main components:
\par 
\par }\pard \qj \fi-284\li568\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin568\itap0 {\f4\fs20 \bullet \tab }{\cs25\b\f4\fs20 Bonus Payments}{\b\f4\fs20 .}{\f4\fs20 
 These were the most basic element of the system. According to Tarallo\rquote s testimony, they usually ranged from US$1 to US$5 million but sometimes exceeded US$10 million.}{\cs23\f4\fs10\up10 18}{\f4  }{\f4\fs20 
Tarallo testified that two payments of US$10 and US$25 million for Congolese offshore permits were directed into accounts controlled by Lissouba,}{\cs23\f4\fs10\up10 19}{\f4  }{\f4\fs20 
and a bonus of US$4 million was paid to Congolese Minister of Oil Koukebene.}{\cs23\f4\fs10\up10 20}{\f4\fs20  Jack Sigolet, in charge of finances for Elf\rquote s African subsidiaries from 1978-1985, was not among the accused.}{\cs23\f4\fs10\up10 21}{
\f4  }{\f4\fs20 He testified to several bonuses of sums ranging from US$3-5 million.}{\cs23\f4\fs10\up10 20}{\f4  }{\f4\fs20 In addition, testimony in the indictment suggests that Sassou was rewar
ded for, for instance, providing Elf with an introduction to Jos\'e9 Eduardo dos Santos, President of neighbouring Angola.}{\cs23\f4\fs10\up10 22}{\f4  }{\f4\fs20 Elf\rquote s activities in Angola are examined in the next section of this report.
\par }\pard \qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 {
\par }\pard \qj \fi-284\li568\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin568\itap0 {\bullet \tab }{\cs25\b\f4\fs20 Abonnements}{. }{\cs24\i\f4\fs20 Abonnements}{ }{\f4\fs20 \endash  literally \lquote subscriptions\rquote  \endash  
are described in the indictment as ongoing payments tied to oil sales.}{\cs23\f28\fs10\up10 23}{ }{\f4\fs20 They were funded by the company\rquote 
s sales subsidiary Elf Trading under-invoicing the crude oil it bought from African subsidiaries by selling the oil with an average mark-up of US$0.20 per barrel and placing US$0.40 per barrel into Liechtenstein-based trusts in Elf\rquote 
s name. These trusts then transferred funds into offshore accounts held by Congolese leaders.}{\cs23\f28\fs10\up10 24}{ }{\f4\fs20 The indictment identifies several accounts, structured under a trust called \lquote Iserco\rquote 
, that it claims were used between 1989 and 1992 to transfer some US$64.8 million into the pockets of Congolese decision-makers.}{\cs23\f28\fs10\up10 25}{
\par }\pard \qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 {
\par }\pard \qj \fi-284\li568\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin568\itap0 {\bullet \tab }{\cs25\b\f4\fs20 Oil-Backed Loans}{. }{\f4\fs20 While bonus payments and }{\cs24\i\f4\fs20 abonnements}{\f4\fs20 
 rewarded decision-makers for favouring Elf, Le Floch-Prigent, has stated on the record that the aim of Elf\rquote s oil-backed loans was \lquote to balance the accounts of the producer states, to allow them generally to pay civil servants\rquote 
 salaries and avoid revolts\rquote .}{\cs23\f28\fs10\up10 26}{ }{\f4\fs20 It could be argued, however, that the actual result was short-termism in the government\rquote s financial management and the collapse of the state\rquote 
s formal accounting structures, which were supplanted by a haywire system of offshore accounting.
\par }\pard\plain \s22\qj \li396\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin396\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f4 
\par Jack Sigolet, Elf\rquote s financial wizard, claims the oil-backed loan system was \lquote 
conceived in such a way that the Africans were only aware of the official lending bank and were ignorant of the whole system which Elf rendered particularly and deliberately opaque\rquote .}{\cs23\f4\fs10\up10 27}{\f4 
 Loan money followed a circuitous route and behind the scenes the company was itself profiting directly from it. 
\par 
\par Sigolet testifies that Elf would set up a company, usually in Switzerland, and then either lend money to it at a low interest rate or guarantee a loan to it from another source. The Swiss-based company would then 
lend the money at a higher interest rate to a bank that would, in turn, lend it \endash  at a much higher mark-up \endash  to Congo.}{\cs23\f4\fs10\up10 28}{\f4  Cash-rich Elf was able to borrow at low interest rates but Congo, in Sigolet\rquote 
s words, had to \lquote put up with\rquote  much higher rates because of its indebtedness.}{\cs23\f4\fs10\up10 29}{\f4  It is hard to avoid the conclusion that Elf knowingly capitalised upon, and thus increased, Congo\rquote 
s indebtedness because it was profiting from the difference between these interest rates.
\par 
\par A portion of each loan was held back as \lquote syndication rights\rquote , which amounted in practice to free cash for the company and its allies in the African state. On a two-year, US$100 million loan, these fees would be worth around US$3 million.}{
\cs23\f4\fs10\up10 30}{\f4  According to Sigolet: \lquote Generally, the amount that went to the 
authorities of the African state (head of state, minister for oil or of finance or advisor) could reach around US$700,000. They had offshore accounts to receive the money. The remaining US$2.3 million were transferred into an Elf-controlled account in Swi
tzerland or Liechtenstein.\rquote }{\cs23\f4\fs10\up10 30}{\f4  
\par }\pard\plain \qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs24\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {\f4 
\par }{\f4\fs20 Elf found yet another way to make money off these loans through its 40% stake in the Banque Fran\'e7aise Intercontinentale (FIBA). FIBA, \lquote at the crossroads\rquote }{\cs23\f4\fs10\up10 31}{\f4  }{\f4\fs20 of Elf\rquote 
s relations with African states, was the main vehicle for dispensing Elf\rquote s largesse. It was created in 1975 by Omar Bongo, president of Gabon and Sassou-Nguesso\rquote s son-in-law, with Elf\rquote 
s Jack Sigolet serving as its president until 1996.}{\cs23\f4\fs10\up10 32}{\f4  }{\f4\fs20 Several African nations opened government accounts at the Paris branch of FIBA, 
into which royalties and taxes were paid. According to the indictment, key players also had personal accounts there, among them Bongo and Sassou-Nguesso.}{\cs23\f4\fs10\up10 33}{\f4 
\par }{\f4\fs20 
\par The Elf indictment states that when he came to power, Lissouba opened a personal account, the funds for which came partly from the Congolese Ministry of Finance account at FIBA, into which oil receipts were paid.}{\cs23\f4\fs10\up10 34}{\f4  }{\f4\fs20 
The testimony of FIBA\rquote s then-director, Pierre Houdray, records that he used funds in Lissouba\rquote s account to buy a multi-million dollar property in Paris for Lissouba. He also alleges that \lquote 
Mrs Lissouba made cash withdrawals which sometimes exceeded one million French francs (FF),\rquote  or hundreds of thousands of dollars.}{\cs23\f4\fs10\up10 34}{\f4 
\par }{
\par }{\f4\fs20 According to Sigolet, Congo\rquote s first oil-backed loan was arranged when Sassou-Nguesso took power in 1979 and demanded an immediate advance on future production in response to the sudden destabilisation of the world oil market.}{
\cs23\f4\fs10\up10 35}{\f4  }{\f4\fs20 Initially, Elf sought to ensure that the total sum of loans never went higher than around FF500 million (or US$117 million at the 1979 exchange rate).}{\cs23\f4\fs10\up10 36}{\f4  }{\f4\fs20 
By June 1994, however, this ceiling had doubled to FF1 billion, the repayment of which was rescheduled in exchange for granting Elf new oil concessions.}{\cs23\f4\fs10\up10 37}{\f4 
\par }{\f4\fs20 
\par Yet the loans created an extraordinary paradox: a system dreamed up as a way to pump quick infusions of cash into the country, in order to pay civil servants and preserve the peace, ended up indebting the nation and reducing the government\rquote 
s control of revenues to the extent that unrest was virtually assured. An unpublished 2001 IMF report concluded that \lquote 
rather than contributing to the welfare of the Congolese population, the proceeds from oil-collateralised borrowing may have been used to finance combat operations during the civil war\rquote .}{\cs23\f28\fs10\up10 38}{
\par }\pard \ql \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 {\fs20 
\par }{\f4\fs20 Elf\rquote s system h
ad two key elements. The first was that losses for the state were turned into private gains for the company, Elf officials, and the ruling elite of the country hosting its operations. The second was that the company created conditions of deliberate indebt
edness though oil-backed lending, progressively securing its hold on the country\rquote s internal politics. Le Floch-Prigent\rquote 
s main defence in the Elf trial was to say that he inherited a system that was out of control and there was little he or anyone else could do to contain it}{\f4 .}{\cs23\f4\fs10\up10 39}{\f4  
\par }\pard\plain \s22\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {Elf and the Congolese civil war
\par }\pard\plain \s22\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f4 
In Congo and elsewhere, the Elf system appears to have been used to destabilise any perceived political threat to its interests.}{\cs23\f4\fs10\up10 40}{\f4  According to Tarallo, Elf\rquote s official policy was always to support the 
existing government, which in this case was President Sassou-Nguesso. This situation was upset, however, by the democratisation of the Congo in the early 1990s.}{\cs23\f4\fs10\up10 41}{\f4 
 Sassou-Nguesso gave way to a transitional government and the presidential elections of August 1992 were won by Lissouba. 
\par 
\par According to Tarallo\rquote s testimony, Elf suspended the practice of paying}{ }{\cs24\i\f4\fs18 abonnements}{ }{\f4 during the political transition. But Pierre Fa, Elf\rquote 
s former Head of Audit, testifies that the company intervened to obstruct a planned IMF aud
it of the oil sector in 1991 so as to mask its practice of under-invoicing African subsidiaries. The company was also alleged to have a US$2.5 million slush-fund account called}{ }{\cs24\i\f4\fs18 Tomate}{ }{\f4 (Tomato) for the 1992 elections.}{
\cs23\f4\fs10\up10 42}{\f4  Sirven denies this last allegation, contending that the}{ }{\cs24\i\f4\fs18 Tomate}{ }{\f4 fund was meant instead to fund UNITA, the Angolan rebel army.}{\cs23\f4\fs10\up10 42}{\f4 
 Even if true, this assertion hardly absolves the company of its part in increasing regional instability.
\par 
\par Lissouba asked Elf for a large loan in the run-up to legislative elections in mid-1993, chiefly to pay the salary arrears of Congo\rquote s civil servants. Le Floch-Prigent denied Lissouba\rquote s request for \lquote 
reasons of political stability of the Congo\'85considering that if M. Lissouba won an absolute majority [in the elections], there would be an ethnic war\rquote .}{\cs23\f4\fs10\up10 43}{\f4  Le Floch-Prigent\rquote s testimony states his belief that 
\lquote democracy in Congo is ethnic\rquote ; apparently meaning that he thought Congolese society would fragment along ethnic lines and that Sassou-Nguesso was the only leader capable of uniting it.}{\cs23\f4\fs10\up10 44}{\f4 
\par 
\par Lissouba testified that after France\rquote s then-president Fran\'e7ois Mitterrand refused his request for help, the Congolese government was forced to raise cash by increasing oil taxes and royalties from 17% to 33% and by seeking an oil-backed
 loan of US$150 million from the US company Occidental Petroleum (Oxy).}{\cs23\f4\fs10\up10 45}{\f4 
 The terms of the loan were disastrous for the Congolese, and demonstrative of the way such lending drains the state treasury: according to Le Floch-Prigent\rquote s testimony, Congo\rquote s share
 of oil production for the next 10 years was to be sold at the bargain price of US$3 a barrel.}{\cs23\f4\fs10\up10 46}{\f4  With the help of the Oxy loan, Lissouba won the elections soon after.
\par }{
\par }{\f4 The intervention by a US company into French oil territory appears to have been particul
arly threatening to Elf. According to his testimony, a furious Le Floch-Prigent even went so far as to advise the French government to hold up payment of the loan money through the French-controlled central bank, but his advice was ignored.}{
\cs23\f4\fs10\up10 46}{\f4 
\par 
\par According to Tarallo, Elf subsequently bought the Oxy loan in conjunction with Italian oil company Agip: if true, this suggests that the company was anxious to maintain its hold over the new government.}{\cs23\f4\fs10\up10 47}{\f4 
 Tarallo also claims that Elf approved Lissouba\rquote s request for }{\cs24\i\f4\fs18 abonnements}{\f4  as one of the perks of his new office, although this claim is contested by Lissouba.}{\cs23\f4\fs10\up10 48}{\f4 
 In April 1996, Tarallo alleges that Elf paid some 50 million Swiss francs into accounts held by Lissouba or his proxies.}{\cs23\f4\fs10\up10 49}{\f4  
\par 
\par Although Tarallo is on record stating that Elf\rquote s official policy was always to support the leader in office,}{\cs23\f4\fs10\up10 50}{\f4  and the company attempted to normalise relations with Lissouba,}{\cs23\f4\fs10\up10 51}{\f4 
 the testimony of former Congolese Finance Minister Nguila Moungounga alleges that the company also financed several bids to return the former dictator Sassou-Nguesso to power.}{\cs23\f4\fs10\up10 52}{\f4 
 The first was a coup attempt in January 1992 by the army chief of staff,}{\cs23\f4\fs10\up10 52}{\f4  and the second was the 1993-1994 war sparked by opposition leader Bernard Kolelas and Sassou-Nguesso himself.}{\cs23\f4\fs10\up10 53}{\f4  In 1
996, Sassou-Nguesso renewed his claim to the presidency, and the resulting political tension put Elf in an awkward position.}{\cs23\f4\fs10\up10 54}{\f4 
 Evidence in the indictment suggests that the company resolved the problem as it had in Angola, by supporting both sides of the developing conflict.
\par 
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {Arms for oil\tab 
\par }\pard\plain \s22\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f4 
As the civil war of 1997 loomed, the indictment suggests that Tarallo and his former Elf colleague Jack Sigolet helped Lissouba to arrange arms purchases through the notorious Belgian arms-trafficker and money-launderer Jacques Monsieur (see box: \lquote 
Oil for Arms\rquote ).}{\cs23\f4\fs10\up10 55}{\f4  It records that the arms were \lquote paid for with oil\rquote : that is, with funds siphoned off from Congo\rquote s oil revenues and paid into the FIBA account of the Congolese Ministry of Finance.}{
\cs23\f4\fs10\up10 56}{\f4  
\par  
\par Some sources allege that Elf\rquote s involvement in weapons procurement in Congo went beyond introductions and financial facilitation. The French newspaper}{ }{\cs24\i\f4\fs18 Le Canard Encha\'een\'e9}{ }{\f4 
reported in 1997 that Elf supply boats were used to transport Angolan troops supporting Sassou-Nguesso to Congo\rquote s oil town, Pointe-Noire.}{\cs23\f4\fs10\up10 57}{\f4  Lissouba makes a similar assertion in the indictment, claiming that \lquote 
from 1994-1995 onwards, the arms used by Sassou\rquote s young people were transported in Elf barges. They came from Angola\rquote .}{\cs23\f4\fs10\up10 58}{ }{\cs24\i\f4\fs18 Le Monde}{ }{\f4 quotes allegations by French intelligence sources that Sassou
\rquote s militia, the \lquote Cobras\rquote , were able to get arms \lquote thanks to the secret financing networks of oil companies\rquote .}{\cs23\f4\fs10\up10 59}{ }{\cs24\i\f4\fs18 Le Nouvel Observateur}{ }{\f4 
claimed that Elf also employed public relations consultants to boost Sassou-Nguesso\rquote s image abroad and these consultants chartered a flight to take French journalists to visit Sassou-Nguesso\rquote s headquarters.}{\cs23\f4\fs10\up10 60}{\f4 

\par 
\par Such allegations have recently resurfaced. In December 2003, }{\cs24\i\f4\fs18 Le Monde}{\f4  reported that continuing investigations into alleged bribes paid by Elf in Nigeria in the mid-1990s \lquote 
could revive the questions over the possible implication of the oil group in the Congolese civil war\rquote .}{\cs23\f4\fs10\up10 61}{\f4 
\par 
\par Sassou-Nguesso gained the decisive military advantage in 1997 due to support from the Angolan military, according to Tarallo\rquote s testimony.}{\cs23\f4\fs10\up10 62}{\f4  Angolan president Jos\'e9
 Eduardo dos Santos may have had a number of motives for this intervention, not least his belief that Congo had become a launching pad for separatist guerrillas from the oil-rich Cabinda region of Angola, and that 
Congo aided diamond smuggling by the rebel UNITA movement.}{\cs23\f4\fs10\up10 63}{\f4  
\par 
\par Angola appears to have been an Elf ally, too. According to Tarallo\rquote s evidence, Sassou-Nguesso introduced the company to President dos Santos and was duly rewarded.}{\cs23\f4\fs10\up10 64}{\f4  Angola became the recipient of Elf bonuses, }{
\cs24\i\f4\fs18 abonnements}{\f4  and oil-backed loans. }{\cs24\i\f4\fs18 Le Nouvel Observateur}{\f4  commented that Elf had \lquote very promising projects in Angola\rquote  and hoped that \lquote 
the war would have dispersed the final clouds troubling Franco-Angolan relations\rquote .}{\cs23\f4\fs10\up10 60}{\f4  Eye-witnesses report that Elf\rquote 
s offices and its fleet of four-wheel-drive vehicles were left untouched when Angolan soldiers pillaged the rest of the oil town of Pointe-Noire.}{\cs23\f4\fs10\up10 65}{\f4 
\par }{
\par }{\f4 On 15 October 1997 Lissouba fled Congo, leaving behind a capital city devastated by violence, with thousands of dead, widespread looting, systematic rape of women and hundreds of thousands of civilians displaced.}{\cs23\f4\fs10\up10 66}{\f4 
 There were also reports of widespread summary executions of opponents following Sassou-Nguesso\rquote s victory.}{\cs23\f4\fs10\up10 67}{\f4  Yet more fighting in 1998-1999 le
d to the destruction of many southern towns, including parts of Brazzaville, and displaced an estimated 800,000 civilians, one-third of the country\rquote s population.}{\cs23\f4\fs10\up10 68}{\f4  
\par 
\par Sassou-Nguesso and several members of his government have now been indicted in the French 
courts for the execution and disappearance of 350 returning Congolese refugees in May 1999, and the investigating judges have issued an international arrest warrant for one of the accused, Army-Inspector General Norbert Dabira.}{\cs23\f4\fs10\up10 69}{ 

\par }{\f4 
\par When the war finished, Tarallo resumed his role as counsellor to Sassou-Nguesso.}{\cs23\f4\fs10\up10 70}{\f4 
 According to his testimony, his real sympathy in the conflict had always lain with Sassou-Nguesso and his only reason for supporting Lissouba was \lquote to reinforce the interests of Elf\rquote , always his \lquote essential preoccupation\rquote .}{
\cs23\f4\fs10\up10 70}{\f4 
\par 
\par Concerning Elf\rquote s overall role in the Congolese civil war, Le Floch-Prigent, asks in indictment: \lquote how did we get to the point, being the lead oil production company in Congo, of allowing a civil war to develop which transformed th
e capital city of Congo into a wasteland?\rquote }{\cs23\f4\fs10\up10 71}{\f4 
 If the details of who did what to whom are not entirely clear, one truth is unquestionable: if Elf had been obliged to publish its payments to the Congolese government in a transparent way, then the \lquote Elf system\rquote 
 could not have operated or spun out of control so that it engendered wholesale regional instability. 
\par 
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {Box
\par Oil for Arms
\par }\pard\plain \s22\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f4 According to ex-president Lissouba\rquote 
s testimony in the Elf indictment, at the start of the 1997 Congolese civil war, Tarallo told him \lquote you need to have a war chest\rquote 
, and Tarallo and Sigolet subsequently introduced him to notorious Belgian arms trafficker and money launderer Jacques Monsieur.}{\cs23\f4\fs10\up10 72}{\f4  Tarallo denies this: \lquote I do not know Jacques Monsieur \'85
 and I have never had anything to do, in any capacity, with any arms purchase or its financing\rquote .}{\cs23\f4\fs10\up10 73}{\f4  
\par 
\par Orders were placed with Monsieur for weapons such as helicopter gunships}{\cs23\f4\fs10\up10 74}{\f4  totalling US$61.5 million and the payments were routed through the Paris branch of FIBA, partly owned by Elf.}{\cs23\f4\fs10\up10 75}{\f4  The indictm
ent records that the arms were \lquote paid for with oil\rquote : that is, with funds siphoned-off from Congo\rquote s oil revenues and paid into the FIBA account of the Congolese Ministry of Finance.}{\cs23\f4\fs10\up10 76}{\f4 
 From May to September 1997, a total of around US$52 million (FF303 million) entered the account and between US$25 and US$30 million was paid out for arms.}{\cs23\f4\fs10\up10 77}{\f4 
 In addition, Sigolet admits to making arrangements for a new oil-backed loan for US$50 million for Lissouba, routed through an offshore company called Darrow, although he claims the financing never happened.}{\cs23\f4\fs10\up10 78}{\f4 
\par 
\par Sigolet testifies in the indictment that when Sassou-Nguesso returned to power \lquote it was disagreeable for [him] to have to settle debts for the arms delivered to Mr Lissouba\rquote .}{\cs23\f4\fs10\up10 79}{\f4 
 In May 1998, according to newspaper reports, Monsieur delivered the last of Lissouba\rquote s weapons via Jet Finances Consultants.}{\cs23\f4\fs10\up10 80}{\f4  
\par 
\par According to Belgian newspaper Le Soir and meeting notes obtained by Global Witness, Sigolet, acting on behalf of the Congolese government and now retired from Elf, held
 a meeting with Monsieur at the Noga Hilton in Geneva on 9 December 1998, along with several others including the CEO of Jet Consultants Finances.}{\cs23\f4\fs10\up10 81}{\f4 
 At this meeting, the Sassou government agreed to repay the outstanding debt to the tune of \lquote US$5 million ac
cording to the following timetable: first instalment in February 1998 of US$1 million then payment of the same sum each month until liquidation of the debt, at the latest by June 30 1999\rquote .}{\cs23\f4\fs10\up10 82}{\f4 
\par 
\par The participants also discussed the possibility of getting money to Monsieur through \lquote 
over-invoicing for future repair work [on the helicopters Congo had bought] with the aim of recouping part of the money due to the supplier which has not been included in the sum unblocked by the Republic (US$5 million) in settlement of the account
\rquote . This future repair work appears not to have come to pass.}{\cs23\f4\fs10\up10 83}{\f4  
\par 
\par By 2000, with US$1 million still to be repaid, Monsieur allegedly threatened to reveal both the weapons orders signed by Sigolet and the FIBA invoices}{\cs23\f4\fs10\up10 84}{\f4  and to expose kickbacks 
to top executives on aircraft and insurance contracts paid through FIBA\rquote s subsidiary FIBAViat, as Sigolet alleges in the indictment.}{\cs23\f4\fs10\up10 85}{\f4 
\par 
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {End Box
\par }\pard\plain \s22\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f4 
\par }\pard\plain \s2\ql \li0\ri0\sb240\sa60\keepn\widctlpar\aspalpha\aspnum\faauto\outlinelevel1\adjustright\rin0\lin0\itap0 \b\i\f5\fs28\lang2057\langfe1033\cgrid\langnp2057\langfenp1033 {Sassou III: Business as usual? 
\par }\pard\plain \s22\qj \li0\ri0\sl-280\slmult0\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 \fs20\lang1024\langfe1024\cgrid\noproof\langnp2057\langfenp1033 {\f4 Sassou-Nguesso returned to power in elections held in 2002 with almost 90% of t
he vote, by which time Elf had been privatised. Although these elections were given a seal of approval by EU observers, local human rights groups denounced them as rigged.}{\cs23\f4\fs10\up10 86}{\f4  Sassou-Nguesso\rquote 
s main opponents, Lissouba and Kolelas, were excluded and a third contender pulled out hours before the poll alleging \lquote an electoral hold-up\rquote .}{\cs23\f4\fs10\up10 87}{\f4 
\par 
\par A merger in 2000 created TotalFinaElf (now Total) and presumably a chance for the new company to forge a new relationship with Congo. However, the new Total appears to be to paying for Elf\rquote 
s past actions. The Congolese government alleged that changes to Production Sharing Agreements and the sale of government shares in Elf Congo under Lissouba had short-changed Congo of its fair share of taxes and royalties and the government requ
ested that Total reimburse Congo for lost revenues to the tune of US$500 million.}{\cs23\f4\fs10\up10 88}{\f4  The president appeared to be playing hardball with Total, encouraging advances from US oil companies: Total\rquote 
s application for an extension on its Haute Mar concession was t
urned down and the concession was granted instead to an American company (Murphy Oil). Chevron was also made the operator of K Structure (shared between Congo and Angola) even though Total is the main shareholder in the block.}{\cs23\f4\fs10\up10 88}{\f4 
 
\par 
\par Relations between the gov
ernment and Total appear to have improved after an agreement was reached in July 2003. However, the terms of the agreement raise more questions than they answer. Newspapers say that, in return for the government renouncing all its demands, Total agreed to
 reschedule the US$197 million oil-backed debt owed to it by the government. Congo will now have until 2010 to repay, but the heavily-indebted country will end up paying US$280 million, almost US$100 million more.}{\cs23\f4\fs10\up10 89}{\f4  
\par 
\par Moreover, in a bizarre deal smacking of yet more opacity, Total also agreed to give the government its share in the Likouala oil field to settle any outstanding disputes.}{\cs23\f4\fs10\up10 89}{\f4 
 According to newspaper reports, the Likouala field has official reserves of 30 million barrels.}{\cs23\f4\fs10\up10 90}{\f4  However, rather than tur
ning its share over to the state oil company, the SNPC, one newspaper states that the government sold it on to a private company called \lquote Likouala SA\rquote  for around US$160 million.}{\cs23\f4\fs10\up10 89}{\f4  }{\cs24\i\f4\fs18 
Africa Confidential}{\f4  said that \lquote [the shareholders] are thought to include trusted proxies of Sassou\rquote s \'85 the company is essentially a commercial vehicle for sharing revenues from the Likouala oil field\rquote .}{\cs23\f4\fs10\up10 91}
{\f4 
\par 
\par Global Witness has obtained a copy of the draft agreement and also reviewed a confidential memo on the agreement.}{\cs23\f4\fs10\up10 92}{\f4  Both documents appear to confirm the press reports of a \lquote two stage\rquote 
 deal: the government will receive Total\rquote s 65% share in the Likouala field, valued at US$160 dollars, and then immediately transfer its share to a private Congolese-registered company, Likouala S.A. The company is described as having a \lquote 
single shareholder\rquote . The agreement refers to an upfront payment of US$80 million by Likouala S.A. to the Congolese authorities. This money is to be raised by a loan from a bank or banks, with a further US$80 million paym
ent to the government once the initial loan is paid off, the operational margin of the field permitting. Total is to remain the operator. 
\par 
\par The memo states that the reason for this \lquote two stage\rquote  process is \lquote to allow Total to serve as a support for a financial operation linked to Likoula\rquote . In a recent interview, Bruno Itoua, the Head of the SNPC, states that \lquote 
the government needed funds immediately and Total, for tax reasons, did not wish to pay out liquid assets\rquote .}{\cs23\f4\fs10\up10 93}{\f4 
\par 
\par Once again, there has been no public debat
e over this arrangement, nor is it clear who owns Likouala S.A., whether the initial payment of US$80 million has been made and if so, where it has ended up. A summary of the 2004 budget obtained by Global Witness does not appear to record this deal as re
venue for either 2003 or 2004. Moreover, this operation seems to be, in effect, an oil-backed loan. As such, it would contravene the government\rquote s undertaking to the IMF in April 2003 to stop oil-backed lending.}{\cs23\f4\fs10\up10 94}{\f4 
 There is also a question as to what the 65% stake in the Likouala field is actually worth. If 30 million barrels of oil can in fact be extracted from the field, then the value of the 65% stake may be significantly more than US$160 million.
\par 
\par Global Witness has asked Total for clarification of its relationship to Likouala S.A. but at the time of writing had not yet received a response. In the light of Total\rquote 
s participation in international initiatives to improve transparency in revenues from the oil sector such as the UK-led Extractive Industries Trans
parency Initiative, Global Witness believes Total should disclose details of its new arrangements with the Congolese government.
\par 
\par Finally, the memo includes another surprising provision: \lquote TEP [TotalFinaElf Exploration and Production] Congo will take care o
f the costs incurred and any possible financial penalties imposed [on the Republic of Congo] in favour of the Antoine Tabet group. A provision of US$70 million has been created for this purpose.\rquote }{\cs23\f4\fs10\up10 95}{\f4 
\par 
\par Antoine Tabet is a businessman currently involved in litigation with Congo over alleged non-payment for public works projects financed by oil-backed loans f