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The Energy Industry

Oil prices rose sharply in 2000 to levels more than three times that of 1997-98 largely due to an imbalance between global supply and demand. As energy companies and energy exporting countries profited from the price rise, the energy industry increasingly recognized that these large revenue streams could negatively impact prospects for good governance, fiscal and political accountability, and human rights. In particular, large revenue streams generated by oil development provided an incentive for corrupt governments to subvert democratic processes and limit freedom of expression in order to evade public accountability. Two examples of this phenomenon were developments in Kazakhstan and Angola.


A corruption scandal involving President Nursultan Nazarbayev and his associates, coupled with a deteriorating human rights situation, strongly suggested that Nazarbayev was seeking to consolidate political and economic control over this oil-rich country--a key player in the development of Caspian pipelines--at the expense of good governance and human rights.

For example, on June 12, 2000, the United States Department of Justice (DOJ) requested information from the Swiss authorities regarding the "alleged use of U.S. banks to funnel funds belonging to certain oil companies through Swiss bank accounts and shell companies in Switzerland and the British Virgin Islands for ultimate transfer to present and former high-ranking officials of Kazakhstan," in order to determine whether these transactions violated the Foreign Corrupt Practices Act and the Racketeer Influenced and Corrupt Organizations Act (RICO) as well as U.S. money laundering and extortion statutes.

The DOJ cited transactions totaling U.S. $114,822,577 from March 1997 to September 1998, which were transferred from several international oil companies including Amoco Kazakhstan Petroleum Company, Amoco Kazakhstan (CPC) Inc. (both companies are now part of BP), Phillips Petroleum Kazakhstan, and Mobil Oil Corporation (now part of ExxonMobil), to James H. Giffen, a close associate of Nazarbayev and financial advisor to the Kazakh government. Giffen subsequently transferred U.S. $55,869,000 of these funds to accounts belonging to Akezhan Kazhegeldin, a former prime minister of Kazakhstan, Nurlan Balgimbaiev, another former prime minister and current president of the powerful state-owned KazakhOil company, and President Nursultan Nazarbayev, or their families. At this writing, Giffen, as a U.S. citizen and the conduit for these transfers, was the primary focus of the DOJ investigation. The DOJ had not determined whether any of the U.S. oil companies acted illegally.

During the period that these transactions took place (March 1997 to September 1998), the Nazarbayev government took action to undermine freedom of speech, assembly, and association in Kazakhstan to prevent independent media reporting of such activities, and to deny Kazakh citizens the right to express their opinions and change their government.

The government used six main methods to harass the independent media: it filed criminal charges of engaging in "criminal speech" against individuals and publications; confiscated publications for alleged violations of the Law on the Mass Media; bankrupted publications through the awarding of large libel damages to government officials; disrupted publications' activities through harassment by the tax inspectorate or the customs authorities, and by denying access to state printing and distribution networks; and through informal and formal censorship of reporters.

One particularly illustrative case concerned the independent newspaper Dat. On September 10, 1998 an Almaty district court found Dat guilty of criminal libel and ordered to pay 35 million tenge (approximately U.S. $457,000) to the head of the state-funded Kazakhstan-1 television channel. Dat routinely published articles on government corruption and in this case, reprinted an account of a July 7, 1997 press conference in which a former employee of Kazakhstan-1 claimed that the station misused government funds. After the decision, police seized Dat's computer equipment and other property, and froze its bank accounts. Five days after the court's decision, Phillips Petroleum Kazakhstan Ltd. transferred U.S. $30,000,000 into a Swiss account for its legitimate participation in the Caspian Offshore Oil Consortium. From these funds, U.S. $20,519,000 was then transferred to Giffen, who then transferred the funds to accounts in the British Virgin Islands belonging to companies registered to Nazarbayev and Balgimbaiev, according to the DOJ. The juxtaposition of these two events--the government's closing of Dat and the transactions involving Nazarbayev and Balgimbaiev--underscored the linkages between human rights and corruption.

The electoral process was also undermined. In May 1998, the Kazakh parliament adopted amendments to the Law on Elections requiring that potential candidates for elected office submit documents to the Central Electoral Commission certifying their mental health and barred from election any candidates who had been found guilty by a court of any administrative violations or of corruption. On October 7, 1998, less than a month after the last financial transaction, Nazarbayev, then fifty-eight, signed constitutional amendments that eliminated the sixty-five year age limit on officeholders, increased the president's term from five to seven years, and removed the 50 percent minimum public participation threshold for presidential elections that were part of the 1995 constitution. On October 8, 1998, Nazarbayev announced that presidential elections would be held on January 10, 1999--two years earlier than scheduled. Opposition candidates did not fare well. Three were barred from running, including former prime minister Kazhegeldin, because they had either violated administrative provisions regulating public meetings or participated in unregistered public organizations--laws that severely curtailed freedom of assembly and association. Kazhegeldin had left the government in 1997 after a dispute with Nazarbayev and emerged as the leading opposition political figure. Ultimately, Nazarbayev won the election with more than 79 percent of the vote and secured the presidency until at least 2006. However, the Organization for Security and Cooperation in Europe (OSCE) refused to send observers because the election so clearly fell far short of international standards for free and fair elections.

On July 17, 2000, Swiss authorities confirmed that they had frozen accounts connected with the DOJ and their own investigations. The Swiss investigation began in 1999 following a request by the Kazakh government to seize the accounts of former prime minister Kazhegeldin, whom it accused of tax evasion, money laundering, and abuse of office. When investigating the allegations, the Swiss found far greater sums of money held in accounts controlled by Nazarbayev. They froze those accounts and identified an account controlled by Kazhegeldin's son-in-law that held approximately U.S. $6 million. Kazhegeldin said that he had originally tried to return the money to Nazarbayev, but could not, and left it undisturbed. Kazakh government officials denied that they held foreign bank accounts altogether and denounced reports that such accounts had been identified and frozen by U.S. and Swiss authorities.

These requests underscored the Kazakh government's hostility to political opponents and its ongoing efforts to harass the most visible opposition politician, Kazhegeldin, in particular. Kazakh authorities also requested Kazhegeldin's arrest and extradition to Kazakhstan to face money laundering and abuse of office charges while he was traveling through Moscow and Italy in September 1999 and July 2000, respectively. On both occasions, Kazhegeldin was briefly detained, but released after strong protests by the international community because the charges were believed to be politically motivated and improperly used the international police system (INTERPOL). Nevertheless, questions remained about the U.S. $6 million account linked to Kazhegeldin.

In addition to pursuing political opponents abroad, Nazarbayev signed a law on July 21 to grant himself lifetime powers, including rights to remain on the powerful Kazakh Security Council, to head the parliamentary assembly of Kazakh peoples, to make national addresses on television and before parliament, to attend government meetings, to advise any future president on policy matters, and to immunity from prosecution. Opposition parliamentarians strongly criticized the law and suggested that Nazarbayev was moving towards making himself president-for-life, like his counterpart Sapurmurad Niyazov in gas-rich Turkmenistan.


On April 3, 2000, as part of a larger agreement on economic reform, the International Monetary Fund (IMF) and the Angolan government reached an agreement to monitor oil revenues, known as the "Oil Diagnostic," that would be supervised by the World Bank and implemented by KPMG, an international accounting firm that also had the Angolan central bank as a client. It was an effort by the international financial institutions to assess the percentage of government oil revenues that were deposited in the Central Bank. The Angolan budget had previously been opaque, raising concerns among multilateral financial institutions, NGOs, companies, and governments that oil revenues were being used secretly to finance arms purchases and that future oil production was mortgaged for immediate oil-backed loans. Some oil revenues bypassed the Ministry of Finance and the Central Bank and went directly to the state-owned Sociedade Nacional de Combustiveis de Angola (Sonangol) company, or to the Presidency to procure weapons. These payments being secret, they also sparked allegations of official corruption. More such allegations emerged in June 2000 when André Tarallo, former Africa director of France's Elf Aquitaine (now TotalFina-Elf), testified to French authorities investigating corruption charges against the company that the Elf Corporation had paid large sums (up to U.S. $0.40/barrel) to African leaders, including Angolan President José Eduardo dos Santos, primarily through a slush fund the company held in Liechtenstein. Dos Santos and TotalFina-Elf vigorously denied the allegations.

In this context, Angolan government attacks on the rights to freedom of expression and association undermined these and other rights and targeted journalists' efforts to ensure governmental accountability. Gustavo Costa, of the Portuguese-language newspaper Expresso, for example, was charged with defamation and slander for writing about cabinet corruption in April 1999, and on December 24, 1999 received a suspended prison sentence, was fined U.S. $508 and ordered to pay U.S. $2,000 compensation for "defaming the Chief of the Civil Office of the President, Jose Leitao." Costa's trial was closed to the public and the media, and he complained that he was pressured to reveal his sources. His lawyer lodged an appeal to the Supreme Court, but it had yet to be heard.

In September 2000, the Angolan government introduced a new press law that severely restricted freedom of expression. It prescribed sentences of two to eight years of imprisonment for any journalist who impugns the president's honor or reputation; allows the authorities the right to determine who can work as a journalist; empowers them to seize or ban publications, including foreign publications, at their discretion; and allows the arrest and detention of journalists for thirty days before charges are filed. The law also removed truth as a defense against libel involving the president or office of the president, enabling the authorities to imprison journalists who write accurate reports if these are deemed to impugn the president's honor or reputation. The law was reportedly intended to curtail increased domestic press questioning of the government following the publication of a report by a U.K.-based NGO, Global Witness, exposing the links between oil and high levels of government corruption involving President Dos Santos and his associates.

Despite such censorship, however, public dissatisfaction over government mismanagement grew in Angola; and the Economist Intelligence Unit (EIU), reported in August 2000 that "public criticism of the government has grown noticeably, particularly focusing on official corruption.... The resurgent peace movement has also been active in articulating growing exasperation with the country's political leadership over the impression that the country's enormous, and growing, oil wealth has failed to produce any tangible benefits to the general population."

The IMF/World Bank Oil Diagnostic, scheduled to run from September 2000 until late 2002, was a partial response to questions about the government's use--or misuse--of oil revenues. The success of the oil diagnostic would hinge on the quality of information provided to KPMG by the government and informed third-parties, such as the international oil companies. Yet, several weaknesses limited the agreement's effectiveness. Rather than agree to a full-scale audit of its oil revenues, Angola's government agreed to a basic agreement that would only compare projected oil revenues with the actual amount of money deposited in the central bank. The oil diagnostic would not have the capacity to trace the flow of funds out of the central bank, nor to investigate the use of any funds that were generated by oil revenues that were not deposited in the central bank, such as those previously funnelled through the Presidency or Sonangol for covert arms purchases. Further, the terms of reference and the reports of the oil diagnostic--a baseline report conducted in September, followed by quarterly updates, and a final report in late 2002--were not to be made publicly available, despite the agreement's purported aim to increase transparency and government accountability.

Human Rights Watch World Report 2000

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