VZCZCXYZ0000
PP RUEHWEB

DE RUEHTA #0919/01 1010343
ZNY CCCCC ZZH
P 110343Z APR 07
FM AMEMBASSY ASTANA
TO SECSTATE WASHDC PRIORITY 9048

Wednesday, 11 April 2007, 03:43
C O N F I D E N T I A L ASTANA 000919 
SIPDIS 
SIPDIS 
DEPT FOR SCA/CEN (M. O’MARA) 
EO 12958 DECL: 04/10/2017 
TAGS EINV, ENRG, KZ 
SUBJECT: KAZAKHSTAN: BAKER HUGHES SEEKS TO LIMIT FALLOUT 
FROM FCPA CASE
REF: 06 ASTANA 90
Classified By: Amb. John Ordway, reasons 1.4 (B) and (D).

¶1. (U) This cable contains an action request. Please see request for guidance, para. 9.

¶2. (SBU) Summary: A Foreign Corrupt Practices Act case involving malfeasance by U.S. oil technology and services firm Baker Hughes in Kazakhstan will soon be settled, revealing details of bribes paid by the firm’s local representatives. Baker Hughes representatives are in Astana to brief Prime Minister Masimov on the case before it becomes public, in hopes of limiting the negative impact on the firm’s ability to work in Kazakhstan. In order to minimize the damage from the case to U.S. investors and the bilateral relationship, post believes it would be helpful to inform the Kazakhstani government that the U.S. government authorized Baker Hughes’ representatives to brief them in advance of the settlement, and to share the text of the decision once it is issued. End summary.

¶3. (SBU) The Ambassador met with Alan R. Crain, Senior Vice President and General Counsel of Baker Hughes Incorporated, and Amb. Beth Jones, Executive Vice President of APCO Worldwide, on April 10 in Astana to discuss a Foreign Corrupt Practices Act (FCPA) case involving Baker Hughes’ work in Kazakhstan. Crain and Jones informed the Ambassador that they would meet with Prime Minister Masimov later that day to brief him on the upcoming U.S. court decision in the case. They had met with Masimov on January 9 to inform him that legal proceedings were underway in the U.S., and now planned to share the details. They stated that the Department of Justice and the SEC had authorized both meetings.

¶4. (SBU) Crain told the Ambassador that a former employee of Baker Hughes filed a report with the SEC in August 2003 detailing alleged malfeasance in several overseas subsidiaries, including Kazakhstan.XXXXXXXXXXXX

¶5. (SBU) Four separate incidents were discovered during the internal investigation, the second of which is the basis of the legal proceedings currently underway in the U.S.:

-- 1998-1999: Baker Hughes retained an agent at the direction of an executive of KazTransOil and made commission payments of $1.1 million to the agent from July 1998 to April 1999.

-- 2000-2003: An agent was hired in September 2000 for an oil services contract for the Karachaganak field. The company retained the agent at the urging of Roy Fearnley, a Baker Hughes employee in Kazakhstan and a citizen of the UK. The company was awarded the Karachaganak contract in October 2000. From May 2001 to November 2003, the company made commission payments to the agent’s London bank account of $4.1 million.

-- 2002: The company authorized payments for an option to lease a parcel of land. It was aware that an executive of the Kazakhstani national oil company could have an interest in the company that owned the land, and that the land was controlled by the principal of the company’s agent for the Karachaganak project.

-- 2000: A $9,000 payment was made to a company where a Kazakhstani individual served as director, in exchange for his procuring import licenses. The individual may have been a government official.
¶6. (C) Crain and Jones stressed that the investigation to date has not shown that any of the money from the Karachaganak incident went to Kazakhstani government officials. The “money trail” ends with the agent hired in September 2000, a UK citizen who is the son of Lord Kissin. XXXXXXXXXXXX

¶7. (SBU) Crain expects the U.S. court to issue a settlement agreement on the FCPA case as early as next week. He expressed satisfaction with the agreement reached with the SEC and DOJ, which will require a Baker Hughes subsidiary to enter into a plea agreement on bribery charges and pay a “substantial” fine. The parent company will agree to a two-year deferred prosecution agreement. Crain commented that this was more favorable than the standard three-year agreement offered by the SEC, which he attributed to Baker Hughes’ cooperation with the SEC, its thorough internal investigation, and its new, extremely strict compliance program.

¶8. (SBU) Jones and Crain said that their goal in briefing PM Masimov was to demonstrate the respect that Baker Hughes as an investor has for Kazakhstan and its laws, and thereby ensure that the firm will still be able to operate here and that its employees will not face harassment. They will also emphasize the fact that the investigation centered on commercial malfeasance and did not reveal the involvement of any high-ranking Kazakhstani government officials. After the Masimov meeting took place, Jones contacted the Ambassador to relay Masimov’s request that the Embassy convey the court decision as soon as it is released.

¶9. (SBU) Request for guidance: Post requests Department’s authorization to confirm to the Kazakhstani government that the SEC and DOJ authorized Baker Hughes to share the details of the upcoming court decision. Post also seeks guidance on whether it would be appropriate for the Embassy to convey the court decision to PM Masimov once it is made public. ORDWAY