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Washington Turmoil Roils Global Oil Markets

Washington Turmoil Roils Global Oil Markets

Turmoil in the United States…

John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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Washington Turf Wars

Washington’s bureaucratic turf wars are a dismal reality of politics in Beltwayistan, but are now threatening national policy, as competing agendas threaten policies extending far beyond the continental U.S.

In two of the most notable recent examples, the Kazakh “Giffengate” corruption case and attempts to extradite notorious “Lord of War” Viktor Bout to the United States, eager federal officials in both cases are running up against other government elements content to let both cases lie fallow, notably the CIA and Pentagon.

The controversies, schizophrenic as they are, shed a bright light into the darker corners of federal realpolitic, pitting the pragmatists against a younger generation of Elliot Nesses. In the end, the eventual casualty is Washington’s relentlessly self-proclaimed image abroad as a “nation of laws.” Giffen has already essentially walked, and many are betting that similarly, Bout will likely not face American justice.

The two cases provide a microcosm of Washington’s contradictory agendas, where one federal agency trods upon the  toes of another.  While little is certain, as the country observes the 9th anniversary of the 9/11 attacks, the Pentagon and CIA in the name of national security have more clout than ever before, and eager beaver Department of Justice attorneys and Drug Enforcement Agency agents are about to have their wings clipped due to CIA and Pentagon modesty about their achievements.


A not inconsiderable aspect of “Kazakhgate” is the fact that that the U.S. Attorney’s office for the Southern District of New York, the most prestigious federal prosecutor’s job outside Washington, has proven a notable launch pad for subsequent political careers. In 1983, Rudolph W. Giuliani was appointed U.S. Attorney for the Southern District of New York, where he prosecuted drug dealers, organized and white-collar crime and government corruption.

As his biography on http://www.nyc.gov/html/records/rwg/html/bio.html notes admiringly, “Few U.S. Attorneys in history can match his record of 4,152 convictions with only 25 reversals.” On 30 January 2009, a New York Times article labeled the office, “A Steppingstone for Law’s Best and Brightest.”

Other notable alumni of the Southern District of New York include Thomas E. Dewey, Governor of New York and Republican presidential candidate in 1944 and 1948 and more recently, former United States Attorney General Michael B. Mukasey and former FBI director Louis Freeh.

Giffen was arrested in 2003 at John F. Kennedy International Airport in New York while attempting to board a plane to Paris and subsequently charged by the U.S. Attorney office for the Southern District of New York with violating the 1974 Foreign Corrupt Practices Act and money laundering. Charges included creating Swiss bank accounts and transferring $20 million, covering tuition at exclusive boarding schools for Kazakh officials’ family members along with purchasing millions of dollars in jewelry.

For the U.S. Attorney office for the Southern District of New York legal eagles, the case seemed a slam dunk, with Giffen’s pelt a glittering trophy on the way to future political greatness.

Enter Giffen’s background and legal team. Inside the Beltway, word was that if Giffen was not a long-time CIA employee, then he was certainly a long-time agency asset, whose career of interacting with the Soviet and post-Soviet officials extended back to Gorbachev. Kazakhstan officially maintained that the charges had nothing to do with their country as they concerned a U.S. citizen.

Playing hardball, Giffen's lawyers asserted that Giffen was acting with the full knowledge and approval of the U.S. government, whom he kept apprised of all his actions, providing a valuable window into the Eurasian post-Soviet space. When his lawyers requested “discovery” access to classified information from the CIA to back up his claims for his trial, alarm bells rang throughout Langley. For Giffen, the stakes were immense, as he faced up to 88 years in prison if found guilty on all charges.

Adding to the CIA’s nervousness, Giffen could spill beans well beyond post-Soviet incipient Caspian hydrocarbon deals and border U.S. foreign policy initiatives.

According to a February 1991 top secret report by Vadim Zagladin, a high-ranking Soviet official and close advisor to USSR General Secretary Mikhail Gorbachev and recently released by the Gorbachev Foundation Archive, “On 14 February, I met with Jim Giffen… Giffen informed me, in strict confidence, that he has just finished one of his regular trips to Iran. He goes there on instructions from Bush and Scowcroft, trying to improve U.S.-Iranian relations.”

On 6 August Giffen pled guilty to a misdemeanor tax violation and a minor bribery count against his company, Mercator, and now faces a maximum of six months in prison and a fine when Judge William Pauley sentences him on 19 November.

Insiders believe that Giffen strolled because of the Classified Information Procedures Act (CIPA), enacted in 1980, as CIPA’s procedural protections prevent the unnecessary disclosure of classified information. According to Abbe Lowell, head of the white collar crime practice at Washington’s McDermott Will law firm, CIPA’s terms mean that “embarrassing” cases canbe made to vanish.

In a masterpiece of lawyerly understatement Lowell noted, “Today, under CIPA, there is still the inherent pressure on the intelligence community to decide if any prosecution that may result in the disclosure of classified information is worth the leak or offence it wants to prosecute.”


If the federal case against Giffen collapsed like a soufflé, then the Bout case threatens to cover zealous DEA and DOJ Washington apparatchiks with more egg on their faces than an Iowa battery chicken farm salmonella recall.

The arrest of 41 year-old Viktor Anatol’evich Bout in Bangkok on 6 March 2008 as a result of a DEA sting has the potential for creating many Maalox moments - for the Pentagon - which freely used his services in both Iraq and Afghanistan. Despite Bout’s initial incarceration period of two weeks, which could supposedly be extended a maximum of seven times, he has languished in Bangkok’s notorious Klong Prem prison ever since his arrest.

According to the U.S. indictment, Bout allegedly offered to supply weapons to people he thought were representatives of the Colombian Revolutionary Armed Forces of Colombia (FARC) rebels. Bout’s arrest was truly a multinational effort, involving not only the US Drug Enforcement Agency and the Royal Thai Police, but elements from the Romanian Border Police, the Romanian Prosecutor's Office Attached to the High Court of Cassation and Justice, the Korps Politie Curacao of the Netherlands Antilles and the Danish National Police Security Services.

The day after his detention, the U.S. Department of Justice charged Bout with conspiracy to provide material support or resources to a designated foreign terrorist organization, conspiring to kill Americans, conspiring to kill U.S. officers or employees and conspiring to acquire and use an anti-aircraft missile.

Adding to Washington’s sense of imminent victory in the extradition case, federal agents scored a coup when on 10 March in Manhattan district court federal agents arraigned Bout's associate, Andrei (Andrew) Smulian, who was arrested along with Bout in Thailand, but agreed to extradition. Smulian was charged with conspiring to provide material support to a designated foreign terrorist organization.

During his career Bout was an equal opportunity purveyor of carnage, reportedly supplying former Eastern bloc weaponry to 17 African countries, al-Qaida, Afghanistan's Northern Alliance and subsequently the Taliban, Hezbollah, Libya’s Muammar el-Qaddafi and the Philippines' Abu Sayyaf militant group, among others.

But it was Africa that proved his most lucrative field, where his client list eventually included factions in Angola, Cameroon, the Central African Republic, the DRC, Equatorial Guinea, Kenya, Liberia, Libya, Congo-Brazzaville, Rwanda, Sierra Leone, South Africa, Sudan, Swaziland and Uganda.

The scale of Bout's various enterprises was startling; one Russian media source reported that in the aftermath of the post-Soviet economic chaos in the Ukraine, Bout and his associates purloined a third of Ukraine's Soviet-era arsenal and sold it on the global market for $49 million.
Additional U.S. charges against Bout were filed in February, including illegal purchase of aircraft, wire fraud and money laundering.

The only fly in the ointment of this roseate picture of U.S. determination to bring Bout to justice is that the Pentagon freely used his services in both Iraq and Afghanistan. Beginning in 2003, Bout's 60 aircraft and 300 pilots and personnel provided Pentagon officials with "plausible deniability" in case one is downed, causing far less of a PR ruckus than if insurgents downed U.S. military aircraft. Bout’s airline, British Gulf, flew massive amounts of material into Baghdad International airport for the U.S. occupation forces.

Quoted in Stars & Stripes in July 2004, commander of the U.S. Transportation Command, Air Force General John Handy noted, "As we fly around, we are repeatedly shot at, with manpads (man-portable air defense systems), small arms, and triple-A (anti-aircraft artillery)."
Bout's U.S. air operations included establishing Air Cess Inc. in Miami in September 1997 until the company was dissolved in September 2001. His agent, Richard Ammar Chichakli said that after 9/11 Bout organized three flights transporting U.S. military personnel to Afghanistan, but gave no further details.

In 2004, as Bout’s flights into Iraq continued, the Bush administration began to press for Bout to be left off planned U.N. sanctions, in spite of French efforts at the U.N. in March 2004 to freeze his assets and act upon an outstanding Interpol warrant for his arrest.

By late 2004 however, Bout's activities had also become a liability for the Pentagon. During a 15 December 2004 Special Defense Department Briefing on Iraq Reconstruction Update a journalist asked Charlie Hess, director of the Project and Contracting Office in Iraq, about Bout.


To a question about whether the DoD had ever used Bout's services Hess replied, "I have not heard anything about that. But if you had some details, we can certainly check into it." The next month, in a January 2005 letter to Congress, then-assistant defense secretary Paul Wolfowitz admitted the Defense Department "did conduct business with companies that, in turn, subcontracted work to second-tier providers who leased aircraft owned by companies associated with Mr. Bout," ABC news reported.

Nor are only U.S. authorities nervous about what Bout might reveal – in an Oct. 2008 interview with the Russian newspaper Kommersant Bout stated, “We made more than 150 flights from the French base in Istriz to Zaire - from there they would proceed to Rwanda. We also moved the Belgian troops to Somalia and for 1.5 year we provided all transportation for the Belgian military personnel from Somalia to Belgium.”
Bout also flew cargoes for the British Ministry of Defense. Bout had UK connections dating back to at least 1999, when British gunrunner Christopher Barrett-Jolley leased Bout's aircraft to run armaments to Sudan, the DRC and other African hotspots.

In 2000, Peter Hain, Minister for Africa at the Foreign and Commonwealth Office, used MI6 reports and his parliamentary immunity publicly to name Bout as one of Angola's sanction busters.

In March 2005, according to official Civil Aviation Authority records, in one instance Britain's Ministry of Defense hired Bout's Trans Avia and Jet Line International to transport armored vehicles and a small number of British troops from RAF Brize Norton in Oxfordshire and RAF Lyneham to Kosovo, according to the Evening Standard.

The Russian government has strongly protested Bout’s innocence. One can only speculate on the media circus if the DEA and DOJ manage to extradite Bout that will occur in a the Southern District of New York, as his defense lawyers subpoena Pentagon, British, Belgian, French, Iraqi, Afghan, Eastern European and African military officials and politicians to testify under oath about their relations with Bout and his transit companies.

Michael Bagley, operations director for the Washington DC-based Global Intelligence Report, observed, “If the Bout extradition proceeds and he stands trial in the U.S., the implications are enormous. While Department of Justice and Drug Enforcement Agency officials are eager to proceed, for the U.S. the international implications involved in prosecuting Bout have the potential to disrupt relations not only with the Russian Federation, but EU allies embedded in Afghanistan as well, not to mention a number of African nations, where the Pentagon is attempting to improve relations in order to establish its AFRICOM military presence."

Interestingly, prior to his bust, Bout had never been involved in Latin American gunrunning, concentrating instead on Africa and Eurasia. Even more interestingly, despite his purported contacts with the Philippines' Abu Sayyaf Group, Bout was never apparently involved with Muslim insurgents in Thailand’s southern Satun, Songkhla, Pattani, Yala, and Narathiwat provinces for the last decade.

Bout apparently also stayed away from dealings with the Liberation Tigers of Tamil Eelam, southern Asia’s most successful insurgency until their defeat by the Sri Lankan military in May 2009. Given that the LTTE fielded not only ground forces, but had a navy and miniscule air force as well, the question arises as to why Bout would become involved in a new enterprise in the Western hemisphere for a paltry reported $5 million while overlooking much more lucrative opportunities closer to home.

As the Pentagon scrabbles to keep its NATO coalition afloat while disengaging from Iraq, it seems most unlikely that the publicity surrounding Bout’s prosecution will most certainly not be to their liking, however much the DOJ and DEA want a “win.” Oh, and don’t forget pressing the “reset” button with Russia, and the Northern Distribution Network railway link that snakes across its territory, now supplying one-third of U.S. and coalition forces in Afghanistan.

Bout in a federal courtroom? About as likely as Giffen serving 88 years. Just two more innocents slipping through the cracks of Beltwayistan’s interminable turf wars.

This article was written by John C.K. Daly for Oilprice.com

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  • Anonymous on September 16 2010 said:
    Mr. Daly delivers yet another excellent article that exposes the consequences of our “ends justifies the means” foreign intrigues where the U.S. engages with and enriches despots contrary to our foreign policy and national security interests.

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