U.S. v. Giffen, S1 03 CR.404(WHP).

• Decision Date: 02 July 2004
• Docket Number: No. S1 03 CR.404(WHP).,S1 03 CR.404(WHP).
• Citation: 326 F.Supp.2d 497
• Parties: UNITED STATES OF AMERICA v. James H. GIFFEN, Defendant.
• Court: U.S. District Court — Southern District of New York

326 F.Supp.2d 497

UNITED STATES OF AMERICA v. James H. GIFFEN, Defendant.

No. S1 03 CR.404(WHP).

United States District Court, S.D. New York.

July 2, 2004.

Philip Urofsky, U.S. Department of Justice, Washington, D.C., Special Counsel for International Litigation Fraud Section.

Steven M. Cohen, William J. Schwartz, Scott J. Pashman, Matthew E. Beck, Kevin D. Galbraith, Kronish, Lieb, Weiner & Hellman LLP, New York, New York, for Defendant.

MEMORANDUM AND ORDER

PAULEY, District Judge.

The defendant, James H. Giffen ("Defendant" or "Giffen"), moves to dismiss portions of the 62-count indictment¹ against him. The indictment charges Giffen with making unlawful payments totaling more than $78 million to Nurlan Balgimaev, the former Prime Minister and Oil Minister of the Republic of Kazakhstan, and Nursultan Nazarbaev, the current President of Kazakhstan (collectively, "senior Kazakh officials")² in violation of the Foreign Corrupt Practices Act (the "FCPA"), 15 U.S.C. § 78dd-2 et seq., mail and wire fraud statutes, 18 U.S.C. §§ 1341, 1343, 1346, money laundering statutes, 18 U.S.C. §§ 1956, 1957, and the federal income tax laws. 26 U.S.C. §§ 7206, 7212.

Giffen moves to dismiss: (1) Counts One through Fifty-Nine on the ground that they are precluded by the act of state doctrine; and (2) those portions of Counts Fifteen through Twenty-Three that allege a scheme to deprive the citizens of Kazakhstan of the honest services of their government officials.³

For the reasons set forth below, Giffen's motion to dismiss is granted in part and denied in part.

BACKGROUND

The indictment alleges that between 1995 and 1999, Giffen made unlawful payments totaling $78 million to senior Kazakh officials to obtain business for his New York-headquartered company Mercator Corporation ("Mercator").⁴ (Ind.¶¶ 2-6.) From the business obtained by Mercator, Giffen directed millions of dollars in unreported compensation to a Mobil Oil executive, a Mercator employee and himself. (Ind.¶¶ 64, 98, 100-01, 107-12.) The Indictment alleges a series of complex financial transactions that enabled Mercator to conceal illicit payments to the senior Kazakh officials. (Ind.¶¶ 18-25, 28-29, 34-40, 44-46, 50-51, 53-58.)

Kazakhstan, formerly a republic within the Soviet Union, became a sovereign nation in 1991. (Ind.¶ 1.) Kazakhstan has vast oil and gas reserves, which are the property of the Kazakh government. (Ind.¶ 1.) Since its independence, Kazakhstan has sold rights to its oil and gas reserves to international oil companies. (Ind.¶ 1.) The Kazakh government hired Mercator to advise it regarding these oil and gas transactions. (Ind.¶ 2.)

The indictment alleges that on or about August 1, 1995, Giffen was named a Counselor to the President of Kazakhstan. (Ind.¶ 3.) The Counselor position was a semi-official title that enabled Giffen to effect numerous oil and gas transactions. (Ind.¶ 3.)⁵ In December 1994, Mercator entered into an agreement with the Kazakh Ministry of Oil and Gas Industries to assist the Ministry in developing a strategy for foreign investment in Kazakhstan's natural resources. (Ind.¶ 4.) The agreement further provided that Mercator would receive substantial success fees if the oil and gas transactions were completed. (Ind.¶ 4.)

Between 1995 and 2000, Mercator received nearly $67 million in success fees from the Kazakh government (Ind.¶ 5.) for its work on the Tengiz oil fields (Ind.¶¶ 12-25), the Karachaganak oil and gas fields (Ind.¶¶ 26-29), the Caspian Pipeline (Ind.¶¶ 30-40), the Karachaganak Production Sharing Agreement (Ind.¶¶ 41-46), the Offshore Kazakhstan International Operating Company (Ind.¶¶ 47-51), and the Kazakhoil transactions (Ind.¶¶ 52-58).

Apart from Mercator's success fees on these transactions, Giffen deposited approximately $70 million into escrow accounts at Banque Indosuez and its successor, Credit Agricole Indosuez, located in Switzerland. (Ind.¶ 5.) According to the indictment, Giffen then diverted these escrow monies into the Swiss bank accounts of several different offshore entities to conceal the fact that they were benefiting the senior Kazakh officials. (Ind.¶¶ 5, 19, 20, 44, 46, 51, 56-58.)

In total, the Government contends that Giffen funneled more than $78 million in cash and luxury items to the senior Kazakh officials for their personal benefit. (Ind.¶ 5.) For example, Giffen purportedly paid $36,000 of Balgimbaev's personal bills (Ind.¶ 59), and gifted an $80,000 speedboat to Nazarbaev. (Ind.¶¶ 60-63.) According to the indictment, the senior Kazakh officials had the power to help obtain and retain "lucrative business as advisors and counselors to the government of Kazakhstan." (Ind.¶ 6.) The illegal payments thus ensured that Giffen and Mercator "remained in a position from which they could divert large sums from oil transactions into accounts for the benefit of senior Kazakh officials and Giffen personally." (Ind.¶ 6.)

Based on these allegations, the indictment charges Giffen with numerous federal crimes, including, inter alia, (i) conspiracy to violate the FCPA and substantive FCPA crimes; (ii) conspiracy to defraud Kazakhstan of "tens of millions of dollars" and substantive counts of mail and wire fraud; and (iii) conspiracy to participate in a scheme to "deprive the citizens of Kazakhstan of their intangible right to the honest services of their political leaders" and substantive counts of mail and wire fraud. (Ind.¶¶ 66-125.)

DISCUSSION

On a motion to dismiss, the allegations of the indictment are accepted as true. See United States v. Nat'l Dairy Prods. Corp., 372 U.S. 29, 33 n. 2, 83 S.Ct. 594, 9 L.Ed.2d 561 (1963); Boyce Motor Lines, Inc. v. United States, 342 U.S. 337, 343 n. 16, 72 S.Ct. 329, 96 L.Ed. 367 (1952); United States v. Goldberg, 756 F.2d 949, 950 (2d Cir.1985). "Contrary assertions of fact by the defendant[] will not be considered." Goldberg, 756 F.2d at 950 (citing United States v. Von Barta, 635 F.2d 999, 1002 (2d Cir.1980)).

I. Foreign Corrupt Practices Act

The FCPA makes it illegal for an individual or company in the United States to make illicit payments to a foreign official to cause that foreign official to assist in obtaining or retaining business for the payor. See 15 U.S.C. § 78dd-2(a).

Congress enacted the FCPA in 1977 to criminalize bribery of foreign officials by domestic corporations. See United States v. Castle, 925 F.2d 831, 834-35 (5th Cir.1991). The FCPA was amended in 1998 to implement the Organization of Economic Cooperation and Development ("OECD") Convention on Combating Bribery of Foreign Public Officials in International Business Transactions ("OECD Convention"). See In re Grand Jury Subpoena dated August 9, 2000, 218 F.Supp.2d 544, 550 (S.D.N.Y.2002); United States v. Kay, 359 F.3d 738, 750 (5th Cir.2004). The 1998 amendments expanded FCPA coverage to all persons, defined as American citizens, nationals or residents, or American corporations. See OECD Convention, art. 1(1); see also In re Grand Jury, 218 F.Supp.2d at 550.

Despite the FCPA's prohibition on bribery of foreign officials, an exception exists for "facilitating" payments to "expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official." 15 U.S.C. § 78dd-2(b); see also Kay, 359 F.3d at 750. The term "routine governmental action," however, does not extend to decisions by a foreign official to award new business or continue business with a particular contractor. See 15 U.S.C. § 78dd-2(h)(4)(B); see also Kay, 359 F.3d at 750-51.

In his motion, Giffen does not dispute the FCPA's applicability to the actions charged in the indictment. Accepting those allegations as true, the illicit payments to senior Kazakh officials were for the sole purpose of obtaining and retaining business for Mercator. Giffen does not argue that the $78 million was a "facilitating" payment. Nor could the alleged payments be characterized as "facilitating" a routine governmental action because, as alleged in the indictment, they were primarily intended to influence the senior Kazakh officials to award new business to Mercator. See generally W.S. Kirkpatrick & Co., Inc. v. Envt'l. Tectonics Corp., Int'l, 493 U.S. 400, 409-10, 110 S.Ct. 701, 107 L.Ed.2d 816 (1990) (applying the FCPA where defendant bribed Nigerian officials to obtain a construction contract from the Nigerian government).

II. Act of State Doctrine

Giffen argues that Counts One through Fifty-Nine should be dismissed because they are barred by the act of state doctrine.

A. Applicable Legal Standards

"[T]he act of state doctrine ... `precludes the courts of this country from inquiring into the validity of the Public acts a recognized foreign sovereign power committed within its own territory.'" Alfred Dunhill of London v. Republic of Cuba, 425 U.S. 682, 706, 96 S.Ct. 1854, 48 L.Ed.2d 301 (1976) (quoting Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 401, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964)); accord W.S. Kirkpatrick, 493 U.S. at 405, 110 S.Ct. 701. "Act of state issues only arise when a court must decide — that is, when the outcome of the case turns upon — the effect of official action by a foreign sovereign." W.S. Kirkpatrick, 493 U.S. at 406, 110 S.Ct. 701 (emphasis in original). While a United States court may question the wisdom of a foreign sovereign act, it may not rule on its legality or validity. W.S. Kirkpatrick, 493 U.S. at 406-07, 110 S.Ct. 701. As such, the act of state doctrine requires a court to deem the "acts of foreign sovereigns taken within their own jurisdictions" as lawful and valid. W.S. Kirkpatrick, 493 U.S. at 409, 110 S.Ct. 701.

"The major underpinning of the act of state doctrine is the policy of foreclosing court adjudications involving the legality of acts of foreign states on their own soil that might embarrass the Executive Branch of our Government in the conduct of our foreign relations." Alfred Dunhill, 425 U.S. at 697, 96 S.Ct. 1854; see...