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The price of oil International Eurasian Institute for Economic and Political Research Forum The price of oil What was Mobil up in Kazahstan and Russia? The New Yorker, July 9, 2001 Seymour M.HERSH The fall of 1997, an international businessman named Farhat Tabbah filed suit in London against three American businessmen, the oil minister of Kazakhstan, and a subsidiary of the Mobil Corporation. He charged that they had cheated him out of millions of dollars in commissions on what was to have been a ten-year swap of oil between Kazakhstan and Iran. Mobil and the other defendants denied the allegations and successfully moved to suppress all Tabbah's affidavits and supporting documentation. A few months after Tabbah filed his lawsuit, he flew to the United States and gave his account of the swap plan to federal authorities. He also turned over several file drawers of documents, including internal Mobil faxes and memos, to agents of the United States Customs Service. Mobil conducted an investigation into its own actions and its potential liabilities. (American oil companies are forbidden by federal sanctions law from trading with Iran or facilitating such trades without a license from the Treasury Department.) That investigation, which lasted more than a year and was assisted by Patton Boggs, a Washington taw firm, found evidence that J. Bryan Williams III, a senior executive in charge of many of the company's overseas crude-oil transactions, may have facilitated the planned Iranian oil swap. Williams was one of the three businessmen named in Tabbah's suit. Mobil’s senior management, however, then in the process of negotiating a merger with Exxon, concluded that there was no need to report this evidence to the Securities and Exchange Commission or to stockholders. Bryan Williams retired quietly in early 1998, at the age of fifty-eight, and, the next year, Mobil and Exxon merged to form Exxon Mobil, the world's largest and most powerful publicly traded oil company. Mobil investigators also uncovered an array of unseemly business dealings that took place in Russia and Kazakhstan in the mid-nineties. More than a billion dollars of Mobil's cash was paid to Russian companies in unorthodox transactions; questionable accounting practices were followed: and multimillion-dollar transfers were made that, as a Patton Boggs report put it in one case, "did not have any apparent valid business purpose." The investigators' working papers and summary reports, many of which were obtained for this article, suggest that Mobil's activities' in Russia and Kazakhstan were not driven entirely by a desire for quick profit. The company also had a strategic goal: access to Kazakhstan’s rich Tengiz oil field. Tabbah's court papers and the internal Mobil documents gathered for this account provide an unparalleled view of a major American oil company's dealings in the former Soviet Union. They raise questions about the company's decisions to enter deals that ultimately benefitted powerful figures in the region, including President Nursultan Nazarbayev, of Kazakhstan, and former Prime Minister Viktor Chernomyrdin, of Russia. A federal grand jury in Washington has been hearing evidence on the swap allegations, along with allegations of money laundering and bribery, since last year. Before a second grand jury, in New York, Mobil and other American oil companies that do business in Kazakhstan were being questioned about possible violations of the Foreign Corrupt Practices Act. Under the F.C.P.A., which was passed in 1977, it is unlawful for any American to bribe foreign officials, either directly or through an agent, "for the purpose of obtaining or retaining business." Exxon Mobil has refused to permit any of its employees to be interviewed for this account, and has asked former Mobil employees not to cooperate. The company has stated that it was not involved in the swap, did not own any of the oil that was swapped, and did not authorise any employees to participate in the planning and execution of the swap. Bryan Williams refused to be interviewed, but, in a written statement, he denied any involvement in the swap. Williams also declared that Mobil had approved all the deals and contracts he worked on. When The New York sent details of the allegations to Exxon Mobil for comment, an outside attorney, Martin London, responded on the company's behalf, stating that many of the allegations were "erroneous,'' and that "the broad theme of your attack on Mobil's business integrity is both incorrect and actionable." It would be "inappropriate" for Exxon Mobil to discuss the allegations specifically, London wrote, because "there are on going grand july investigations relating to the matters addressed in your letter." The oil industry has long used swapping as a way to reduce the cost of transporting crude oil, by pipeline or other means, to refineries. The arrangement also provides a way to get oil from remote oil fields and isolated nations, such as Kazakhstan, to market. In a swap, the title to oil in one location is transferred to oil of an equivalent value that may be hundreds, or even thousands of miles away. Because of the potential for abuse in such complicated transactions, major oil companies carefully monitor and record their swaps. "Its extremely rare for a legitimate company to play pricing games in a transfer," said Thomas Stauffer, a retired economics professor at Harvard and Georgetown who specializes in oil and taxation issues. "But in the Third World — and especially in places like Kazakhstan - it's an invitation to corruption. You can hide a lot of sins in an oil swap. Title to oil in any tanker might change a dozen times before it gets to port." Such sins include oil laundering - concealing an illegal source of oil—and sanctions busting. "Oil is oil." Stauffer said. "It can be sold in any given market at any time." Men like Marc Rich, the fugitive financier who was pardoned by President Clinton in January, have earned hundreds of millions of dollars over the years by brokering oil deals with pariah nations such as Iran and the former regime in South Africa. In Mobil's case, the company's in-house investigators came to believe that the proposed swap between Kazakhstan and Iran was but one element in a complex of seemingly high-risk business deals that were devised by Bryan Williams. The investigation also led to the two other Americans named in Tabbah’s suit: James H. Giffen, a New York merchant banker and adviser to Kazakhstan's President Nazarbayev; and Friedhelm Eronat, a businessman who often acted on behalf of Mobil overseas. The business dealings and friendships among the three men date back many years, and they have done billions of dollars'worth of deals worldwide. The three might never have become the focus of grand-jury scrutiny if they hadn't fallen out with Farhat Tabbah. I-GETT1NG IN Kazakhstan and the other former Soviet Republics in the Caspian Sea region (Uzbekistan, Azerbaijan, and Turkmenistan) have become notorious for exploitation, corruption, and seemingly bottomless fields of oil whose bounty seldom benefits the average citizen. Almaty, the business capital of Kazakhstan, still has the stolid look, the unemployment, and the pollution of the Soviet days, despite a decade of increasing oil and gas production. Close to the Presidential palace, however, two new luxury hotels have been built for the foreign businessmen drawn by the country's natural resources. The Tengiz oil field is one of the most important finds since Alaskas’s Prudhoe Bay, in 1968. The Soviets tried to develop it in the nineteen-eighties, but instead triggered a gigantic blowout and a fire that burned for a year, with a column of flame six hundred feet high. Tengiz was not put into systematic production until the early nineteen-nineties, when newly independent Kazakhstan sold a half interest in the field to Chevron, the American oil company. Tengiz's output has steadily expanded since then. "It's a geologist's dream—the sort of field you see once in a generation," Edward C. Chow, a retired Chevron executive, said. "It's a mother of an oil field, and we still don't know how much oil is in it." Bryan Williams turned out to be crucial to Mobil's efforts to get into Tengiz. As executive vice-president of Mobil Sales and Supply, he bought crude oil from oil companies controlled by foreign governments. A lawyer turned oil man, Williams had graduated from the University of North Carolina and New York University Law School and spent several years at Shearman & Sterling, a prominent New York firm. In the early nineteen-seventies, he joined Mobil. His first major assignment was in Saudi Arabia,where Lucio A. Noto, who later became Mobil's C.E.O., was in charge of company operations. At Mobil, Williams was respected by his peers for his ability, his panache, and his daring. One retired Mobil senior executive said he was widely known as a "cowboy"—a high-flier in a high-flying business. International spot-market crude-oil prices are extremely volatile—the price of oil varies constantly from country to country—and narrow profit margins can change within minutes, necessitating snap judgements. It was accepted at Mobil that successful oilmen like Williams needed autonomy, with no second-guessing, as they routinely committed millions in the hunt for profits. Williams repaid the trust with smart deals. He consistently produced high profits, former Mobil officials told me, and eventually became a favorite of Noto. "Noto and Bryan were close," Don Voelte, a former vice-president who left Mobil in 1997, recalled. Although Williams reported not directly to Noto but to the head of sales at Mobil headquarters, Voelte said that "Bryan was the go-to guy in the international trading area." Noto would "always chastise other Mobil folks, saying, 'Just go to Bryan. He knows how to handle these things. " Another Mobil insider tells of a high-level meeting at which Noto singled out Williams as "the only entrepreneur in the whole business." To get into Tengiz, Mobil needed the help of James Giffen, who represented the Kazakh government. (Giffen was identified in press reports last summer as a target of a federal investigation into corruption and money laundering.) Giffen grew up in Stockton, California, where his father ran a men's-clothing store. He graduated from the U.C.L.A. law school in 1965 and spent eleven years with the Armco Steel Corporation, which struggled during the Cold War to gain export approval for the sale of oil-drilling equipment and steel goods to the Soviet Union. In the mid-eighties, Giffen set up a banking company called Mercator, based in New York City. He was bras, intelligent, and eager to make money. "I never had any evidence that he was anything more than a smart operator. "Jack F.Matlock.Jr., who was the U.S. Ambassador to the Soviet Union from 1987 to 1991, recalled. "He was always working for No. 1 - Jim Giffen. But I could understand that. I didn't detect anything irregular." Giffen spent years cultivating senior officials of the Communist Party, such as Nursultan Nazarbayev, who was the Party's rising star in Kazakhstan. In the late eighties Nazarbayev, a former street worker and engineer, became First Secretary of the Kazakh Communist Party. After the Soviet collapse, in 1991, he won the Presidency of the country. Giffen then became an important Presidential adviser. Nazarbayev's regime was quick to cooperate with the first Bush Administration's plans to denuclearize the break-away Soviet republics; more than a thousand warheads that had been deployed by the Kremlin in Kazakhstan at the height of the Cold War were sent back to Russia, without incident. The Clinton Administration's initial approach was to emphasize the building of democratic institutions - a largely futile effort - but it soon turned to security issues, such as reducing drug trafficking. Diplomacy concentrated for the most part on providing opportunities for American oil companies seeking to do business in Kazakhstan, and on plans to build pipelines that would allow the new republics to deliver their oil) and natural gas directly to the West by way of a Black Sea port in Turkey, thus bypassing both Russia, to the north, and Iran, to the south. American intelligence officials say that Nazarbayev has misappropriated hundreds of millions of dollars. He has also shared generously the perquisites of his office (as he defined them) with his immediate family. His eldest daughter, Dariga, controls the national television network, and a son-in-law is the president of a state oil-and-gas pipeline. The country has not prospered under Nazarbayev's rule. Social conditions have deteriorated steadily; per-capita G.N.P. is just thirteen hundred dollars a year. The nation is also burdened with an external debt of more than eight billion dollars, and with a huge and rapidly growing level of capital flight: a fifth of the country's total money supply is now stashed in Swiss banks. Nonetheless, Nazarbayev has been viewed by many in Washington not as a despot but as a charismatic political leader who could hold his nation together. According to William Courtney, who was the first American Ambassador to Kazakhstan, Nazarbayev became "more authoritarian as his power grew, and came to depend on Jim Giffen more and more." By 1995, Courtney says, "Nazarbayev had inserted Giffen as an indispensable go-between for some key projects." In the late nineteen-eighties, Given had helped Chevron buy into the Tengiz field. But a new president of Chevrons overseas division, Richard Matzke, decided not to deal further with Giffen, and Chevron's relationships inside Kazakhstan quickly soured. Matzke is said to have proudly told one colleague that his company "didn't pay a nickel in middlemen's fees after getting into Tengiz. However, Giffen subsequently demanded a "success" fee and received it - seven and a half cents per barrel of Chevron's share of the Tengiz oil. It earned him millions of dollars in royalties - at least three million last year alone. More and more, Kazakhstan insiders told me, Giffen's power became tied to his ability to help Nazarbayev and his government cronies, including Nurlan Balgymbayev, the oil-and-gas minister, benefit from the oil business. Balgymbayev, who was named as a defendant in Tabbah's suit, began his career, in the nineteen-seventies, as an engineer in the Soviet oil fields. He became friendly in those years with Viktor Chernomyrdin and the other men who created Gazprom, the powerful Russian energy consortium. In 1994, after an unhappy year with Chevron, Balgymbayev was appointed Kazakhstan's oil-and-gas minister. He routinely told foreign oil companies seeking to do business in Kazakhstan that any prospective deal had to involve Giffen and Macerator, which had offices there. Dan White, a former ARCO executive, said that when, in late 1995 he arrived to open an ARCO office in the former Soviet Union a senior American diplomat in Kazakhstan told him, "The best way to get what you want is to see Giffen." One afternoon, White happened to encounter the Kazakh oil minister in a hotel lobby. They exchanged a few pleasantries, and then Balgymbayev raced off to the airport. At that moment, White recalled, "the fellow next to him says, 'I'm Jim Giffen" and told him, "Dan, nobody gets to Balgymbayev without coming through me." Giffen paused. White told me, and said, "You know, this is a strange place here. A lot of people carry guns, and bad things happen to people." Giffen's ties to President Nazarbayev are not limited to the oil business. He now advises Kazakhstan on economic planning, investments, health care, and education. Yet he has been careful, over the years, to maintain contact with the C.I.A., the F.B.I., and various American officials. "He saw a fair amount of us and always debriefed us," Ambassador Courtney said. "My personal take is that Jim was trying to be a law-abiding middleman. I encouraged him to register as a foreign agent"—with the Justice Department, as Americans acting on behalf of foreign governments are generally required to do - "but he wanted to stay away from that." (Giffen denies that the conversations with White and with the Ambassador took place). II-GENTLEMEN'S AGREEMENT Cash from Mobil began flowing into the former Soviet Union in the early nineties, at a time when the region was burdened with enormous debt and rampant corruption: it was not an easy time for foreign businessmen. Mobil's early goal was to establish contacts and find out what it took to do business in Russia and other former Soviet states. One immediate realization was that men like James Ciffen, with their connections, could make the difference between success and failure. Mobil began negotiating the purchase of a stake in the Tengiz field in 1995. The middleman in the deal was Giffen. When I asked a former Mobil executive why the company chose to work with Giffen, he told me, "Giffen was a promoter. He brought investors in. He took the risks. He was agile and nimble, and had a small company with tremendous capitalization when needed. He was his own man, well positioned to bring people to the table." In the fall of 1995, Lucio Noto, by then Mobil's C.E.O., and a few senior executives flew Giffen and President Nazarbayev on a company jet to a resort in Nassau, in the Bahamas, to discuss what Mobil needed to do to get into Tengiz. One of the Mobil executives at the meeting told me that, while on the island, he and his colleagues joked about how upset Chevron's Richard Matzke must have been upon learning that his company might have to share Tengiz with another American company. "Matzke's anger added to the pleasure," the executive said, with a laugh. A Mobil employee who took part in the discussions in Nassau said that the Kazakhs made a series of extraordinary demands, seeking, among other things, a new Gulfstream jet aircraft for Nazarbayev, funds for tennis courts at his home, and four trucks with satellite dishes to be used by his daughter's television network. Don Voelte, who became involved in the Tengiz negotiations in early 1996, confirmed that Nazarbayev had asked for the airplane. "We said absolutely no way," Voelte said. It is not known how Mobil reacted to the other requests. (In a statement for this article, a Mobil spokesman said that the Tengiz purchase was "subject to extensive review . . . with regard to the Foreign Corrupt Practices Act." and that the company was "not then and is not now aware of any illegal payments.") Demands for tennis courts were part of the shabby routine of doing business in the former Soviet Union. President Nazarbayev's real problem was obtaining Russia's good will, and that of Viktor Chernomyrdin, who has been cited by American intelligence agencies as being responsible for the diversion of many millions of dollars in state money. Despite a modest government salary, Chernomyrdin is a billionaire today— one of the ten wealthiest men in Russia. He had been the oil-and-gas minister in the Soviet era, and he made the transition to capitalism as the mastermind of Gazprom. In 1992, he became President Boris Yeltsin's Prime Minister, but he continued to maintain an active interest in oil. He controlled Russia's pipeline system, and, since ail pipelines out of Kazakhstan went through Russia, he was able to keep the Kazakhs dependent on him by putting limits on the amount of oil that they could pipe out, by setting high tariffs, and by siphoning off a percentage of the oil into the Russian domestic market- Any effort by Mobil to buy into the Tengiz field would require his blessing. In 1995, Bryan Williams set in motion -La confounding business deal involving Kazakhstan and Russia. Its overriding result seemed to be to benefit—at Mobil's expense—Viktor Chernomyrdin. At the center of the deal was a project to transport liquid condensate (a natural-gas by-product) by pipeline from Kazakhstan's Karachaganak field, near the Russian border, to processing plants in and around Orenburg, a town in southern Russia, just over the border from Kazakhstan. Earlier in his career, Chernomyrdin had been an engineer and the director of one of the Orenburg plants. After the collapse of Communism, in -1991, he and his family obtained a controlling interest in the plant. By the mid-nineteen-nineties, the aging plant, which was dependent on outside suppliers for raw materials, was barely functioning. Mobil, through Williams, came to the rescue. It did so with the help of Friedhelm Eronat. As a businessman and oil trader, Eronat has managed to amass a substantial fortune—he recently bought a four-and-a-half-million-dollar home in London's Carlyle Square—while keeping a low profile. Those who know him describe him as tall, well-spoken, and personable, with striking jet-black hair. He loves to talk about the oil business-"He's a kommersant" one oilman told me, using the Russian word for a businessman. Eronat's personal history is unclear. He was born in 1953. Germany was listed as his country of birth on his U.S. passport (in the mid-nineties, he apparently held at least two passports, one from the United States and one from Greece), but he has told some of his oil-business acquaintances that he is a native of Austria and that his father spent twenty years as an overseas employee of Mobil. He studied production management and oil engineering at Nicholls State University, in Louisiana, and graduated in 1975. In the nineteen-eighties, Eronat began doing business with Bryan Williams and Mobil in Nigeria, and he worked closely with Williams over the next dozen years. Eronat controls or acts on behalf of at least six companies that engaged in oil trading in the Persian Gulf, the former Soviet Union, and Africa. Wlliam advanced the Orenburg deal by financing a company known as Vaeko Europe Limited, which Eronat controlled. The plan was that Vaeko, using Mobil's money, would pay the Kazakhs for raw materials and send them on to the Russians; the Russians were to send refined products back for resale. Vaeko Europe would be repaid, and Mobil theoretically would recoup its investment, with the profits. But Mobil documents from the internal inquiry indicate that more oil went from Kazakhstan to Russia than came back— much more. The facilities that Chernomyrdin's family controlled reaped enormous profits, presumably, since they did not pay the Kazakhs in full for the raw materials they processed and sold elsewhere. The money Mobil had ^ put into Vaeko disappeared. A Mobil document fixed the loss. as of October, 1997, at seventy-six million dollars. James Giffen was directly involved. In December of 1996, Williams, writing on Mobil! Sales and Supply stationery. with a copy to Eronat, told a colleague in Mobil's office to draft a "side letter" and "get it to Jim Gitten." The letter was to deal with Karachaganak and the delivery of inventory. "You do not need to include any condition." Williams added, "since that is part of the gentlemen's agreement." The letter did not specify which agreement, and which gentlemen, Williams was referring to. The contract Mobil had in the Orenburg deal was with Vaeko Europe, the company controlled by Eronat, and not with the processing plants, and thus the company's sole legal claim for the lost millions was against Eronat. But going after Eronat posed risks. Eronat knew much more about his and Williams's dealings in the former Soviet Union than did most senior executives at Mobil. In an interview last fall, one of Eronat s lawyers told me that he had warned Jerry R. Bidinger, the senior Mobil lawyer on the investigating team, that Mobil "did not want Eronat as an adversary." Eronat himself told Mobil during the internal investigation, one official said, that "it was always understood that the debt would never be collected." The Orenburg losses were noticed by financial analysts at Mobil's headquarters, in Fairfax, Virginia, but they didn't take their concerns to the C.E.O. "These accountants went to Williams and said 'What's going on?' a former company officer recalled. "He said Noto knew all about it and had approved it." Nothing more was done. The losses soon became known throughout headquarters. "It wasn't that the money was lost but the specifics of how it was handled that shook Fairfax up, "Don Volt, the former Mobil vice-president, told me. "When I ran into Bryan and said, 'What happened?' he said the Russian mafia had got hold of it, and it was gone." Mobil’s lawyers eventually concluded, according to one internal summary, that "Mobil had long-term projects and interests—Tengiz—in mind when it entered this transaction." There is also evidence in Mobil's files that the company's top executives had been told that the Orenburg deal was deeply flawed. In late 1998, Mobil’s lawyers prepared a memorandum for Noto, suggesting that the Kazakh leadership had a personal stake: "Karachaganak is a delicate matter for high Kazakh officials, particularly Mr. Balgymbayev." The Russian processing plants, the memorandum said, "are run, controlled or influenced by a number of... political. personal, familial and, to some extent, even criminal interests." Mobil concluded its negotiations for the Tengiz oil field on May 3. 1996. The final price was just over a billion dollars, and bought Mobil a twenty-five-per-cent share in Tengiz-chevroil, or T.C.O., the consortium that managed Tengiz. Chevron maintained its fifty-per-cent investment in the Held. leaving the Kazakhs with twenty-five per cent; both Mobil and Chevron set up offices in Almaty to market the oil. Tengiz now produces well over a billion dollars in crude-oil revenues each year. Edward Chow, the former Chevron executive, told me that Kazakhstan's willingness to let another American company buy into the Tengiz field without competitive bidding surprised insiders in the oil business, given the strong interest of European oil companies. It is clear that James Giffen had an influential role in advising the Kazakh government on Mobils purchase, and had every reason to anticipate earning a huge fee for his banking company, Mercator, in doing so. Forty-one million dollars of Mobil's billion-dollar payment eventually went to Mercator. In June of 1995,however, according to a document from Tabbah's court papers, Macerator had quietly signed a partnership agreement with one of Friedhelm Eronat's companies providing for the two companies to share any fees from the sale of stakes in Tengiz and other oil-and-gas fields in Kazakhstan. It could not be learned what Eronat did to justify his share of the Tengiz money. Mobil participants in the Tengiz negotiations worried constantly about the possibility of payments going astray. Don Voelte told me that the company was concerned that the purchase payments it was sending to the Kazakh government via Swiss banks might be diverted for personal use by the Kazakh leaders. "It would be easy," he said. "That was our nightmare scenario— that the money would end up in the wrong hands. That scared us to death. You wonder and speculate, but you just don't know." Paul Soane, a retired Mobil vice-president who helped negotiate the final purchase price of Tengiz, recalled that the company's lawyers reviewed the wire transfers with "a fine-tooth comb to insure that everything we were doing was perfectly legal." Mobil's responsibility ended at that point. Soane said. "We confirmed that the accounts designated by the Kazakhstan government were in fact Kazakhstan government accounts. Beyond that, what could we do? Who the hell are we to question the Kazakhstan government's choice of banks? Once the money leaves Mobil and enters Kazakhstan government accounts, we have no way of determining where it goes." Former Prime Minister Akezhan Kazhegeldin, who was Nazarbayev's political rival and is now living in exile in London, and who directs the opposition against him from there, told me that by the end of 1997. when he left office, Mobil had paid between $550 million and $600 million of the total Tengiz purchase price, but that only $350 million had actually reached the Kazakh treasury. Kazhegeldin said that he did not know what happened to the remaining Mobil bank transfers. But, he said, "I know the money never came in." Similarly, in July, 1997, the Financial Times described unnamed Kazakhstan government officials as saying that "it has proved impossible to pinpoint" the final destination of five hundred million dollars of Mobil’s Tengiz payment. The money, which amounted to three per cent of Kazakhstan's gross domestic product, "did not make it into the Kazakh budget," the newspaper reported. III-THE SWAP According to Farhat Tabbah's complaint, plaint, it was Friedhelm Eronat who first spoke to him about a swap of oil between Kazakhstan and Iran. on February 12, 1996. Eronat's pitch was provocative. Eronat assured him. Tab-bah said, that he and Giffen had "great influence with ministers in the government of the State of Kazakhstan." A ten-year, multibillion-dollar oil swap involving Kazakhstan. Iran and Mobil were on the table. According to Tabbah, Eronat claimed that Bryan Williams had designated him to represent Mobil) in the negotiations. Tabbah was an obvious choice as a middleman. He and Eronat had known each other for a tong time and shared office space. Tabai, a naturalized British subject who was born fifty years ago into a prominent family in Jordan, operates several trading companies from offices in Amman and in London's Mayfair district. In the past decade, he has worked for himself or as an agent in Africa, the Middle East, and Russia for firms such as Siemens and Babcock International. He also has extensive business ties to Iran and Iraq. His friends include two former high-level American intelligence officials, who describe him as a reliable businessman. His enemies include the men he named in connection with the Iranian oil swap, who describe him as an angry, bitter man, a liar, and a thief, driven by a personal vendetta. Kazakhstan's desire to swap oil with Iran was widely known in the oil industry. Kazakhstan's only ports are on the Caspian Sea, which has no route by water to the ocean, whereas Iran can ship oil south through the Persian Gulf and on to the Indian Ocean. In May, 1995, however, the Clinton Administration had issued an executive order strengthening the sanctions against Iran. Under the executive order, American companies were prohibited from trading with Iran, which included any involvement in a swap. without a license from the Treasury Department. Kazakhstan had had on-and-off swap talks with Iran, but they intensified after Mobil bought into T.C.O., the Tengiz consortium. In the documents and contracts that passed between the two countries in the next months. Mobil was not named as a party. Instead, Munay-Impex, a state-owned Kazakh oil company, agreed to the swap with the National Iranian Oil Company, or NIOC. Oil from Tengiz would be sent by rail to the Kazakh port of Aktau, on the Caspian Sea. It would then be blended with oil from Buzachi. a field that was owned solely by the Kazakh government, and transported by tanker to the northern Iranian town of Neka. to be refined and delivered to Tehran for use there. In return for the Kazakh oil, crude oil of an equivalent value from Iranian fields close by the Persian Gulf, more than four hundred miles south, would be picked up by a shipper, designated by Kazakhstan, for profitable resale on the world market. None of the oil in the Kazakhstan-Iran swap would directly belong to Mobil, but U.S. sanctions law barred Americans from facilitating such a deal, even if they didn't own the oil. Tabbah claims that Eronat wanted him to be one of the facilitators. He was to arrange the first stage of the shipping—to Neka—and an Iranian visa for Eronat. and was to introduce him to the right people in Iran. Tabbah says Eronat told him that he would be paid a fee or commission on each barrel of swapped oil; the exact terms were to be agreed upon later. According to Tabbah's affidavit. Eronat assured Tabbah and two colleagues that Fulton International Limited, the trading company Tabbah was associated with, would receive a letter of appointment from Mobil signed by Bryan Williams. A copy of a fax on letterhead from Mobil's headquarters, dated February 26, 1996—two weeks after Tabbah says he met with Eronat— and signed by Williams, was obtained independently for this account. In it, Williams sets out "my Company's wish to engage the services of Fulton International Ltd. to supply consultancy and operations support in connection with activities that are to be specified." The request was conditional. Williams added, on the involvement of a certain Fulton aide with experience in the former Soviet Union "to undertake the work we intend to pass to you." In Tabbah's view. Mobil] was in. (Williams denies that this letter had anything to do with the swap.) Tabbah's most important contact in Tehran was Kambiz Salehi, an Iranian businessman who, as a teen-ager, had participated in the 1979 uprising against the Shah. Under the Khomeini government, Salehi had worked for the Ministry of Oil and then set up a successful engineering business in Tehran. In a lengthy affidavit prepared in support of Tabbah's claim, Salehi wrote. "As I had been a revolutionary since age ten. the government and its advisers saw me as part of themselves, and I am trusted by them." In early 1996, Salehi said, Tabbah came to see him about the swap. Although Tabbah was a family friend, Salehi expected to profit from the deal. "I expressly discussed about what would be in it for me," he wrote. He says he arranged a visa for Eronat and then met him at the Tehran airport on February 26, 1996 (the same day that Willimas sent his fax engaging Fulton International's services). A delegation of officials from the Kazakh Ministry of Oil, headed by Nurlan Balgymbayev. Had arrived as well, for a meeting with their Iranian counterparts. In his affidavit, Salehi says he went directly to Hashemi Rafsanjani, the President of Iran, to insure that API, an Italian shipping company with ties to Mobil, was nominated to be the over-alt operator for the swaps. Biagio Cinelli, the managing director of API, had worked with Eronat and Williams before, and had done business for Mobil in Africa and Europe since the nineteen-eighties. In May, 1996, Salehi wrote, he accompanied Eronat and Cinelli to their first negotiating session with Dr. Ghanimi Fard, the director of international affairs at NIOC, at the company offices in Tehran. According to Salehi, "Eronat: was representing himself as Mobil's representative, and every half hour or so Eronat would report back to Bryan Williams, of Mobil, and would also on occasion telephone James Giffen, of Mercator." Ghanimi Fard, interviewed by telephone at the NIOC offices in London, confirmed that an American had attended the meeting with Cinelli, but was unable to recall his name. Ghanimi Fard did remember that the American "was introduced to me as being from Mobil" and had given him a business card with Mobil's name on it. "Once in the first meeting, they were telling us that Mobil was not in because of the sanctions, and it'd be better to do it through API—API was there to solve the problem." Cinelli, asked about the meeting, said that he made many trips to Tehran. Asked if he knew Eronat, he responded, testily. "Why should I say yes or no?" Salehi wrote that when he asked Eronat for a written commitment from Mobil on how much he would be paid. Eronat told him, "Mobil cannot give it because of sanctions and so forth, but I can give it. I am 'Mr. Mobil.'" Mobil denies that Eronat was the company's agent in the swap, as does Williams. "We never admitted to any dealings with Tabbah in the swap," a company employee told me. "We have deals with Eronat s companies, and if he wants to do a swap that's his business." However, the in-house investigation found evidence that Eronat's business was also Mobil's business, especially at critical points in the swap talks. When Eronat was meeting with the Iranians. Williams asked a subordinate at Mobil headquarters, in Virginia, to fax a chemical analysis of the Tengiz crude to Eronat's room at the Esteghlal Grand Hotel, in Tehran. Williams also acknowledged to the investigators that he had twice offered comments on an early draft of the Iran-Kazakhstan swap contract. He had done so not because Mobil had any financial interest in the swap, he explained, but simply because of his "friendship and business relationship" with Eronat. While Eronat was allegedly communicating with Williams, Giffen coordinated other aspects of the negotiations on behalf of the Kazakh leadership, receiving updates by fax and telecom on pricing and other issues as the negotiations proceeded. Giffen brought something else to the swap talks: bonhomie. He was famous for providing the best Scotch and the most exotic party gifts to the Kazakh leaders. One consultant who was hired by Giffen during Nazarbayev's 1998 Presidential reelection campaign told me that Giffen spent hundreds of thousands of dollars on gifts. Salehi says he got a firsthand glimpse of the largesse. He wrote that while he and Giffen were waiting for a flight to Almaty Giffen showed him "a watch which he said was a Patek Philippe costing thirty-five thousand dollars which he was taking to Minister Balgymbayev as a present." (Giffen denies the story.) Giffen was also vain. "He bragged about his suits from London, bragged about his shoes from one particular shoemaker, bragged about his suite at the Dorchester," the consultant said. "He bragged about how he could force anyone to do anything. That's why he's in all this trouble now. "Giffen also bragged about his authority inside Kazakhstan, the consultant added, but he always referred to Nazarbayev as "the boss." (The consultant was interviewed at length by the F.B.I, this spring.) By the spring of 1996, word of the pending swap deal was circulating in Washington, and Clinton Administration officials began to get edgy. One government official recalled that Sheila Heslin, a National Security Council aide who dealt with Caspian energy issues, summoned Mobil executives, including Bryan Williams, to a meeting to ask them about any plans they might have to swap oil with Iran, and to remind them of the U.S. sanctions. "The Mobil people didn't react at all," the official told me. "They kept asking. 'What do you know? What do you know?'" Later, James Giffen, who was on a routine visit to Washington on behalf of the Kazakh government, was told by Heslin that the Nazarbayev government would face huge political problems with Congress and the Administration if it did a swap with Iran. Giffen quickly emphasized that it was Mobil, and not just Kazakhstan. setting up the swap. When he was reminded that Mobil could not legally participate, he tried to reassure her, according to the official, that Mobil was "smart. They'll do it through a European trader." (Giffen denies making the statements.) Soon afterward, Heslin called in Mobil executives for a second meeting. This time, she told them she had "information from a pretty good source" about the planned oil swap and its potential illegality. (When I asked Heslin to comment, she said that keeping American businessmen "up to date on U.S.policy, including the meetings with Giffen and Mobil. was a normal and routine part of my job.") Mobil was put on notice. Ann Pickard, a Mobil executive in London who attended the second meeting, later told Mobil s lawyers that she felt "blindsided" by Heslin's warning. The notes of a subsequent interview show that Pickard returned to London with instructions to "investigate" Heslin's warning. She learned, according to the notes, that Bryan Williams had set up an introduction between API, the Italian shipper, and the Kazakhs, and had done so because the Kazakh leaders "were worried that Iranians would take advantage of them" in the swap negotiation. Pickard told the investigators that the Kazakhs had "asked Mobil for help." IV-RECRIMINATIONS In May, 1996,President Nazarbayev, accompanied by his oil minister. Balgymbayev, flew to Tehran for a meeting with President Rafsanjani. and they signed protocols on transit fees. The swap deal was done, with only the technical details to be ironed out. The swap contract was summarized in a two-page memorandum prepared in December of 1996 by Peter Felter, a London lawyer who represented the Italian shipper API, the Kazakh government, and Eronat himself during the negotiations. (He still represents Eronat.) API would be given title to the Iranian crude at Kharg Island, in the Persian Gulf, and then would arrange the sale of the oil on the world market. The oil from Tengiz, Felter's memorandum stated, would represent "the Kazakh government's share in TCO"— that is, the proceeds would be paid to Kazakhstan.There was no provision in Felter's memorandum for any funds to be paid to Mobil and Chevron, the other partners in T.C.O. Even so, the pending swap put both Mobil and Chevron in a delicate position in terms of American sanctions law, and Chevron took steps to insulate itself from any allegations of illegal trading. Edward Chow, who was then manager of international affairs m Chevron's Washington office, decided to visit the N.S.C. to inform officials there of the proposed swap. "I was concerned about being involved," Chow says. "The swap was against the law. and I wanted to make sure that Chevron's hands were clean."Chow, accompanied by a company lawyer, also visited the Treasury Department, and formally advised officials there that Chevron, despite its stake in T.C.O., had nothing to do with facilitating the swap. Salehi's and Tabbah's accounts differ on the details of the proposed swap commissions, but both men became convinced that everyone but them stood to make a great deal of money. They focus on what they describe as a double cross by their American and Kazakh partners. "I couldn't believe the greed of these guys." Salehi wrote. In midsummer, Tabbah said, they were informed by Eronat that their commission would be fifteen cents a barrel each. Two months later, Tabbah said, the commission was reduced to ten cents a barrel and, subsequently, to ten cents. As they saw it, their big deal was evaporating, nickel by nickel. Salehi was enraged. According to his court statement, at a heated meeting with Giffen and Eronat he called Eronat "a fucking liar." In Salehi's words, Eronat said that "he wanted to get out of this shitty deal," stating. "I am an American. I cannot do this." Eronat was afraid, Salehi wrote, that the United States would put the Kazakhstan-Iran swap contract "under a microscope." '"The first and only swap between Kazakhstan and Iran took place in early 1997. It was reported in the trade press. But there was no mention of the rote. if any, of Mobil or of any other American player. There was again an angry confrontation over commissions, after which Tabbah told an associate that Eronat had called him "a fucking Arab." (Eronat denies using this language.) According to Tabbah, this, from an old friend, was the final blow. More than a year before the swap talks began, Tabbah and Eronat had begun sharing space in the Mayfair office suite, and they stored their files in a common area. Tabbah had access to reams of documents, faxes, and draft contracts received and sent by Eronat. Now he photocopied hundreds of pages from Eronat's files,documenting Eronat's many years of association with Giffen and Williams. Eronat recently asserted, through his lawyer, that, his house had been burglarized twice at about this time, and that some of the stolen items had shown up among Tabbah's court papers. (No charges were filed, and Tabbah denies Eronats accusations.) No more oil) was swapped between Kazakhstan and Iran. Most published accounts attributed this breakdown to the difficulties posed by sulfur compounds in the blend of Tengiz and Buzachi oil, which made it difficult for the Iranians to refine. Another factor, according to Tabbah, was Kambiz Salehi. who took his complaints about not being paid to the top of the Iranian government. "Kambiz didn't get his money, and went to the Iranians and screwed the deal." Tabbah told me. Eronat was also incensed. Tabbah, who had stolen his files, was now threatening to use those papers to force Eronat and Mobil to pay him. "I went to them for a settlement." Tabbah told me. "They said it was blackmail." Tabbah eventually met with Bryan Williams,who,Tabbah says,offered to pay all his expenses plus three or four million dollars. Tabbah then insisted on more than ten times as much: forty-one million dollars, the amount he claimed he would have earned on commissions had all the swaps taken place. (This was also the precise amount that Giffen's company had been paid in the Tengiz deal.) Bryan Williams's lawyer, David Schertler, said. in a letter to The New York, that although Mobil never had a business arrangement with Tabbah, Williams had acted as an intermediary and attempted to resolve the dispute: "Mr. Tabbah said he had nothing against Mr. Williams or Mobil but that he wanted to ruin Mr. Eronat because of a personal insult. . . . During the next several hours, Mr. Tabbah made many highly emotional outbursts against Mr. Eronat." But any talk of three million dollars, Schertler wrote, came from the overwrought Tabbah: "Mr. Williams told Mr. Tabbah that neither he nor Mobil would ever pay Tabbah a cent but that he would relay his settlement demand to Mr. Eronat." On July 29th, Tabbah telephoned Williams from Washington and told him that he was meeting with his lawyer, and had decided to sue everyone: Mobil, Giffen, Eronat, and the Kazakhs. A meeting was scheduled at Tabbah's lawyer's office. Eronat was accompanied by two lawyers from Akin, Gump, Strauss,Hauer & Feld. who represented both him and Giffen. (Williams. who was invited to come. had declined. saying that the papers, and the swap. had nothing to do with him.) Many of the documents were placed on a table for Eronat and his lawyers to examine. Eronat became visibly agitated when he found a document that purported to list detail bank accounts belonging to nu companies in Switzerland. Liechtenstein, New York. Scotland, and Spain He and his lawyers then reviewed t papers in private. After they left, a secretary took count and determined that the list of bank accounts was mining. A call was made to Akin, Gump. Within a few hours, the document was returned. On being asked to comment for this article, Eronat said through a lawyer that he had "merely recovered his own document that had been stolen from him." Tabbah's threat failed: his former associates denied that he was owed anything, and they certainly had no intention of paying the full commission for a ten-year swap that had been aborted. (One Akin, Gump attorney said, “The documents made no sense,” and did not no their face provide evidence of wrongdoing.) Tabbah says that his Washington lawyer advised him not to file a civil suit in the United States, because his grievance—breach of an oral) contract to pay commissions—originated in an alleged swap agreement that apparently would have violated federal sanctions law. "He told me that you can't sue a thief for the money he stole," Tabbah recalled. "He said I had to report everything to the U.S. government. He advised me to go to the Justice Department." After some hesitation, Tabbah said, he arranged to meet with two special agents of the U.S. Customs Service. "I gave them copies of everything." he told me. By midsummer of 1997, Mobil headquarters was on full alert. There was anxiety among some executives about being closely allied with Giffen and Eronat. Notes from the Mobil investigation also express concern about putting too many documents in the hands of such "dubious individuals and their lawyers," adding that their "disclosure would serve only to expose Mobil’s inner workings and high-level judgments to avowed enemies, suspect characters and the press." On September 19,1997, in London, Tabbah sued Eronat, Williams, Giffen, their companies, and the Kazakh oil minister. Balgymbayev. Mobil moved to protect its documents from public view. In May of 1998.Mobil s lawyer in London, Ian Taylor, informed the court that "many of the documents were written by Mobil employees and sent to Mobil employees or are internal Mobil documents." and should be considered confidential. The court agreed, and ruled that Tabbah had no right to disclose the contents of Eronat's documents to any third parties. Giffen and Eronat filed counterclaims, through their companies, as did Mobil, denying Tabbah's allegations. Over the next two years, alt the parties agreed to settle the suit, without any admission of liability, thus avoiding a trial. The counterclaims also dropped away, but Tabbah was still the big loser: he was compelled to pay Eronat and the others more than five hundred thousand dollars in court costs, in part because, by attempting to tell the swap story with his initial, lengthy filings in open court, he had violated British court procedure. Tabbah also agreed to turn over to Eronat all the documents in his possession, and never to disclose the confidential information they contained. At one point during this period, Mobil's top management decided to formally seek a license from the Treasury Department to swap oil with Iran. The company withdrew its application after being unofficially advised, company executives said, that the license would be denied because the Administration's priority was to keep Iran economically isolated. Mobil also could not get a license to swap a small amount of oil between Turkmenistan and Iran. V-MOBIL AND THE MOB On May 5,1997. 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