Crude World

by Peter Maass

  I introduced myself. There was a brief silence.

  “Are you looking into the relationship between the industry and the government?” the wealthy client asked.

  “To the extent that I can,” I replied.

  “That’s where to look,” he said, then smiled.

  James Giffen was the son of a California clothier and had come a long way from his childhood in Stockton. His ambition had propelled him to a career in the steel industry, and this had sent him to the Soviet Union in the 1980s, when it was just becoming possible to do business with the former Evil Empire. Giffen did not speak Russian, but he was a schmoozer of the highest order, capable of ingratiating himself with powerful men by boasting persuasively about accomplishments and clout that did not always accord with reality. He even managed to befriend Mikhail Gorbachev, the Soviet leader, and put together a consortium of American firms that offered to make the largest investment in the Soviet Union since the time of Lenin. That deal fell through, largely because the Soviet Union itself was falling through, but Giffen did not disappear. He emerged as the top financial adviser to Nursultan Nazarbayev, leader of newly independent Kazakhstan.

  In those days, American and European firms were brawling like roughnecks over contracts to explore Kazakhstan’s reservoirs, including the world’s sixth-largest field, Tengiz. Developing these fields would cost scores of billions of dollars, and the payoff would be glorious—Kazakhstan’s oil and gas could be worth more than $1 trillion. Giffen was custom-made for these above-the-law, fortune-making times. He was intelligent and aggressive as well as profane, hard-drinking and, when the situation required it, nasty. Giffen convinced Nazarbayev that foreign oil companies were predators—and this was certainly true, because the behemoths from Houston, London and Paris knew that a just-born country like Kazakhstan was an excellent locale for a financial killing. Giffen, who became so close to Nazarbayev that they shared saunas as well as confidences, was the regime’s pin-striped bulldog.

  As deals were struck, Giffen’s wealth soared. An appreciative Chevron, which won the contract to develop Tengiz, agreed to pay him 7.5 cents for every barrel extracted—a “success fee” worth tens of millions of dollars. Giffen was delighted to show off his new wealth. In New York, he bought a posh estate in the suburb of Mamaroneck and drove into the city in an $80,000 Bentley. The walls of his Park Avenue office were decorated with pictures of himself and Gorbachev, President George H. W. Bush, President Carter, President Ford, President Nixon and so on. The glory days lasted until 2003, when Giffen was arrested at John F. Kennedy International Airport as he was departing for Kazakhstan.

  According to the Justice Department’s indictment, Giffen had siphoned off nearly $80 million in payments from oil companies and distributed the proceeds to President Nazarbayev and Nurlan Balgimbayev, a former prime minister. Most of the funds were channeled through Swiss accounts and front companies. Some were conveyed in gifts, including $30,000 in fur coats, two snowmobiles and a luxury speedboat. Remarkably, the corruption indictment described President Nazarbayev not as a victim but as a partner in these crimes. The Kazakh leader was named as an unindicted coconspirator in a scheme to steal the country’s oil revenues.

  I saw Giffen several times at the courthouse and visited him at his Manhattan office. (He had no trouble making his $10 million bail.) He was always impeccably dressed and reminded me, with his well-groomed hair and his prosperous look and abundant vitriol, of Lou Dobbs, the never-at-a-loss-for-outrage host on CNN. At his office, Giffen went on for nearly two hours about deal making in the Caspian, scribbling charts on a legal pad to illustrate one of his points: that an honest man willing to make a fair deal is unknown in the oil world. A condition of our meeting was that I not quote him, and that’s just as well, because profanities were among his closest verbal friends. His kindest description of oil executives was along the lines of “They want to fuck you against a wall.” He suggested that I burn into my head the notion that oilmen will do anything to win. Giffen, who was honest enough not to exclude himself from their anything-goes ranks, helpfully directed my attention to a notorious scene in the movie Syriana. An oilman, played by Tim Blake Nelson, explains how the system works: “Corruption is our protection. Corruption keeps us safe and warm. Corruption is why you and I are prancing around in here instead of fighting over scraps of meat out in the street. Corruption is why we win.” Giffen proudly reminded me that Nelson’s character was based on him.

  In court, Giffen’s defense was startling. He did not contest the financial crimes of which he was accused. Instead, his lawyers asserted that he was, in addition to being the Kazakh leader’s close friend, top adviser and partner in saunas, an operative of the Central Intelligence Agency. And it was true—Giffen’s contacts with the CIA and other U.S. government agencies were not disputed by the agencies or the prosecutors who filed charges against him. His lawyers were offering what’s known as a “public authority defense,” which means that an accused’s actions were committed with the approval of the U.S. government and thus cannot be prosecuted. Giffen was our man in Astana. Giffen’s lawyers asserted that the U.S. government was in a position to know about the diversion of Kazakh revenues into the president’s pockets.

  By the end of early 2009, five years after indictment, the case still had not gone to trial. Due to the potential embarrassment of revealing more information about the CIA’s role in Giffen’s activities, the charges seemed likely to be dropped or plea-bargained to a slap on the wrist.

  What is your number?

  I mean, how much would it cost to corrupt you?

  Particularly for oilmen, this is not a hypothetical question. The industry all but extracts cash from the ground. Making steel, computers or socks requires the purchase of raw materials, the building of factories, the employment of workers and a search for buyers. The oil industry cuts down on that: if you acquire ownership or rights to a field, you acquire the key to a vault of guaranteed profit. You don’t need to skim wealth; you can scoop it up.

  J. Bryan Williams, who was a Mobil executive in the 1990s, knew this as well as anyone. Making deals across the former Soviet Union, Williams encountered offers and demands for under-the-table payments. This was in an atmosphere of negative regulation—government officials who were supposed to enforce the law were instead inviting him to break it.

  Oil rigs in the waters of Azerbaijan

  We met on a winter day in 2006. Williams, who’d pleaded guilty to avoiding taxes on income that prosecutors said had come from illegal payoffs, had just been released from prison and was living in a halfway house in Washington, D.C. He was sharing a room with drug dealers. Permitted to leave during the day, he agreed to meet me at a middlebrow Asian restaurant near K Street, where the capital’s lobbyists, including ones from his former employer, have their offices. Williams wore a rumpled plaid shirt and cotton pants that were similarly distressed. He had the thick, disheveled look of a retired lumberjack who’d just rolled out of bed. This was a change from his Big Oil days. Back then, he’d dined at the best restaurants and had flown first class when a company Gulfstream was unavailable. He’d put together billion-dollar deals. In addition to several years in jail, his sentence had included more than $3.5 million in fines and restitution, so I did not know whether his fallen-on-hard-times appearance reflected his reduced circumstances or was a charade until he was free and clear of the judicial system. Lunch was on me.

  Williams began by saying what he had not done. Once, Russian businessmen who were in a position to help Mobil had asked for a $5 million “loan.” Williams said he’d nearly fallen out of his seat because their request was so crude and unrealistic. Another time, an aide to a powerful minister had said a $100 million payment would be required before the minister would approve a particular project. Williams told me that he’d declined but had later heard that the minister received the tribute from a rival firm. And another time, during a legal dispute over Mobil’s ownership of a refinery, a senior KGB offici
al had offered, for a price, to have his organization make the problem go away. Williams had turned down the offer but asked, hypothetically, how the KGB would settle things. His KGB friend had replied, “We will occupy the factory.”

  Williams joined Mobil in the 1970s and initially worked on deals in Saudi Arabia and Nigeria, though by the 1990s he was deeply involved in Russia and Kazakhstan. He said French and medium-sized firms of any nationality were the worst bribers, because they did not have the mass or mastery of the truly big players. As he put it, “They have to do the extras.” Mobil’s tactics were legal, he said. Though he didn’t want to get into specifics, he offered several scenarios that obviously came from his memory rather than imagination. In Nigeria, a tribal chief whose support was needed for a project might be hired at a high salary for which clocking in for work would not be expected. Depending on the salary, these men were referred to, in intracompany discussions, as “double chiefs” or “triple chiefs.” Relatives of key officials might be hired under similar conditions.

  As a convicted felon, Williams did not have an unblemished reputation to defend, so he spoke with greater honesty than most oilmen do.

  “What are oil companies supposed to do? We don’t create these places. Do we only develop oil in London and Paris? If so, we’ll all be out there walking and stepping over piles of manure.”

  He was getting angry.

  “You go where the bloody oil is,” he said.

  Like most people, Williams was not averse to becoming rich. Not Miami-condo rich, which he could afford on his midlevel executive salary, but mansion-in-Aspen rich, which would require a bit more. And why not go for it? Fortunes were being amassed by everyone he dealt with—ministers, bureaucrats, consultants. According to his plea agreement, in 1993 he set up a Swiss bank account into which was deposited more than $7 million. Prosecutors alleged that a portion of those funds were kickbacks, but Williams denied this. In court, he carefully admitted that “some of the payments … including a $2 million payment I received in 1996, were paid to me by people, organizations or governments with whom I did business on Mobil’s behalf.”

  When I asked about the $2 million, Williams said it was a loan out of the blue by associates who were grateful for his hard work on a pipeline deal. He shifted in his seat, looked down at his plate and swallowed his words as well as his food. “I thought they were going to give me a watch,” he mumbled.

  He was more persuasive about the guilt of others, and this reminded me that finger-pointing can be a compass as well as a dodge. He mentioned Viktor Chernomyrdin, the former Russian prime minister reported to have accumulated a fortune of more than a billion dollars during the grab-what-you-can 1990s. When the CIA sent the White House a classified report that said Chernomyrdin was corrupt, Vice President Al Gore, who had close ties to Chernomyrdin, reportedly returned his copy with a single word scrawled on the cover: “Bullshit.”

  “The governments are more crooked than some of the oil companies,” Williams said.

  I had several hours, on the train back to New York, to consider the dissonance of a government imprisoning fish like Williams while protecting sharks like Chernomyrdin. The White House had rolled out a red carpet for Azerbaijan’s father-and-son despots, Heydar and Ilham Aliyev. Nazarbayev, accused by prosecutors of receiving millions of dollars in bribes from Giffen, was treated to a state dinner in Washington while his partner in kickbacks, Giffen, faced the prospect of the rest of his life in jail. I had to wonder whether the sins of my bitter lunch companion were the symptoms of an illness rather than the illness itself.

  Sadad al-Husseini, who served as vice president for exploration and development at Saudi Aramco, was credited with turning the state-owned company into a model of efficiency and safety in the 1980s and 1990s. After retiring from the company in 2003, he became a global consultant, working out of a villa in Dhahran. He was not royalty-rich but was wealthy enough to afford to live in another villa not far away. He was one of the most respected oil experts in the world, which is why I listened closely when he described the behavior of foreign executives. He noted that Aramco had more oil at its disposal than any other company in the world and did not need to compete for new fields or worry about hostile takeovers if its financial performance faltered; the firm could afford to operate its facilities in a first-class manner. The situation was not the same at companies owned by investors rather than royalty.

  “Their motivation is totally different from our motivation,” Husseini said, using a vocabulary that was as carefully selected as the numbers in an engineering calculation. “Some of my best friends are in these oil companies. They have brilliant leaders, they have brilliant engineers, but they get exposed to commercial pressures which they have to live with. If they are in financial trouble and have to cut corners, they will cut corners. It means that if your tanker is old and you ought to retire it, you keep it working. It means that if you have an offshore platform that is beyond the national boundaries of a certain country and you can dump chemicals into the sea, you do. It means that if you have to abandon a facility that is a pollutant, you abandon it in place and walk away without cleaning it up. If you’ve hired people and can work them in unhealthy environments where you’ve got sulfur dioxide, you do it. All of these are ways in which you say, It’s not my problem. It’s not my cost.”

  I liked most executives I met. They were hardworking men with a thrill for the deal, a fear of failure and a moral compass that occasionally responded to the force of self-preservation; the compass did not always point in a moral direction. They were flawed, but that meant they were like the rest of us, using masks and shields in their real-world dealings. They might be one thing at the office, perhaps believing in the institution that employed them, perhaps not believing; and they might be something quite different outside the office. Gabriel Nguema, the son of one of the world’s worst dictators, Teodoro Obiang, had a reasonable perspective on the oilmen who marched through his office at the Ministry of Mines, Industry and Energy. “Somebody in a company told me that when you work in this company you take your brain out and you put this box in,” Nguema said. “Once you return to your house you put your brain back in. So you don’t follow your feeling of what people need, you just follow what the company tells you.” Nguema was on to something, though he didn’t attempt a broader application of his observation. Oilmen had the same business DNA as executives in other industries. Buy low, sell high, keep your job. The main difference arose from the unusual conditions in which oilmen competed.

  If you want to alter the behavior of an executive who usually follows the highest ethical standards, just give him a briefcase and tell him that his job depends on his winning an oil contract in a country that is not Norway. In this scenario, an executive from Apple Computer would not be dispatched to Boston to sell MacBooks to an eager client whose accounts are examined by the IRS and the SEC. Instead, he would be sent to Baku to win drilling rights to one of the fields that were up for grabs in the 1990s. The man from Apple would find himself in the crazy Skinner box that was Azerbaijan in the 1990s. It is impossible to understand oilmen if you do not understand the box.

  In Azerbaijan, Western oilmen were competing for an initial round of contracts that involved paying at least $7 billion to develop offshore fields in the Caspian Sea from which a million barrels of oil would be extracted on a daily basis by 2010. Combined with contracts for other fields and a transnational pipeline, the total value of the contracts would reach tens of billions of dollars; the revenues from the oil would be substantially higher. The competition for the Caspian basin was billed as the last great oil rush of the modern era, though it would not be the first time a fortune had been made in Baku. In the late 1800s, France’s Rothschild family and Sweden’s Nobel brothers built their financial empires from the oil of Azerbaijan, which at the outset of the twentieth century produced half the world’s petroleum. As the Soviet Union fell apart nearly a century later, the door reopened to foreign companies whose tech
nology could extract crude that was beyond the reach of Soviet expertise. A crack team of behavioral psychologists could not have concocted a better environment for bringing out the worst in their human subjects.

  The experiment in Baku, Azerbaijan’s capital, was centered at the Intourist Hotel, which by the 1990s had not been burdened with much maintenance since its construction in the 1930s. The Intourist was the only place foreign oil executives were allowed to stay as they wined, dined and negotiated with ministers, middlemen and warlords who might possess the power to issue exploration contracts. The hotel, a five-story brute, was located on the aptly named Neftchiler Prospekt—Oilmen’s Avenue. Tantalizingly, hotel residents could see, from their balconies, the derelict rigs that dotted the waterfront, visual cues to the huge fields that were farther offshore.

  The oilmen did not have the Intourist to themselves. The hotel also played host to mercenaries from America and Afghanistan who were fighting in Azerbaijan’s war with Armenia. In the early 1990s, this was the unfinished business of the Soviet collapse. And among the guests were diplomats, spies and journalists reconnoitering this newest and shakiest of nations. When the American, British, Turkish and Russian governments initially set up their embassies in Azerbaijan, all were located in the Intourist Hotel. (Because space was so tight, the British embassy began its operations in the offices of British Petroleum.) Everyone was trying to figure out what everyone else was doing, who was meeting whom, what was being said, who was telling the truth, who was working a con and who was spending time with the perfumed women of the evening in the basement tavern that some guests referred to as Ho Bar. There was an unseen witness to everything said—the Azeri security services, a thriving vestige of the KGB, which had wired the hotel from top to bottom. Going outside was one way to avoid listening devices, but at times it was too perilous to try that, because crime and political instability made the streets dangerous at night and, occasionally, during the day, too.