Last week we reported here about the civil suit filed in the U.S. District Court in D.C. by Colorado-based oilman Jack Grynberg, 76, against BP, Statoil and British Gas, along with some of their current or former top executives. The core allegation is that the defendants, without Grynberg's knowledge and using some of his money, bribed officials in Kazakhstan in order to win oil rights for joint ventures in which Grynberg had an interest.
A friend sent us a copy of Grynberg's complaint. It alleges facts which, if true, would violate the Foreign Corrupt Practices Act. Because there is no private right of action under the FCPA, we asked in our prior post whether the Department of Justice would investigate Grynberg's allegations. After reading his complaint, the answer must be yes.
What follow are excerpts from Grynberg's pleading. We've omitted the paragraph numbers that appear in the original document and we've split up some longer sections for the sake of readability. But all of the language between our lines is taken directly from the complaint.
This is a lot more text than we usually post at one go. But it's fascinating material and extremely unusual. Normally, allegations about international public corruption and violations of the FCPA come only from the Department of Justice and the Securities and Exchange Commission. This story, however, is told by an industry insider who's also an alleged victim.
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COME NOW the Plaintiffs, Jack J. Grynberg (“Grynberg”), Grynberg Production Corporation, a Texas corporation (“GPC Texas”), Grynberg Production Corporation, a Colorado corporation (“GPC Colorado”) and Pricaspian Development Corporation, a Texas corporation (“PDC”), collectively, the “Grynberg Plaintiffs,” through their undersigned counsel and for their Complaint against Defendants B.P. P.L.C. (“BP”), BP Corp North America Inc., StatoilHydro ASA (“StatoilHydro”), John Browne (“Browne”), Anthony Hayward (“Hayward”), Peter Sutherland (“Sutherland”), Helge Lund (“Lund”), British Gas (“BG”) and Eivind Reiten (“Reiten”), respectfully allege as follows:
This is a case about Statoil’s, BP’s and BG’s role -- and the role of its executive leadership – in a massive scheme involving illegal bribes paid to various top officials of the Government of Kazakhstan by several oil companies, and the scheme to cover up those bribes from public disclosure through a series of misrepresentations. There have been many victims of these bribes and their cover up – beginning with the People of Kazakhstan who have been denied their right to the benefits of the resources extracted from their land and the right to the honest services of their governmental officials of the bribes and the cover-up. The Grynberg Plaintiffs are another group of victims.
The Grynberg Plaintiffs comprise a small petroleum exploration, development and production consortium, who have engaged in honest and fully transparent business dealings in Kazakhstan and elsewhere since the late 1980’s. Plaintiffs contracted with larger oil companies to help them explore and develop Kazakhstan’s vast oil and natural gas potential. But some of the larger oil companies cut their own deal with the Kazakhstan Government to squeeze the Grynberg Plaintiffs out of Kazakhstan, using the Grynberg Plaintiffs’ confidential, proprietary, and extremely valuable, geological and geophysical information.
Settlement agreements were ultimately reached between Plaintiffs and the larger companies, whereby the larger companies bore express duties to account for net profits in the Pricaspian Sedimentary Basin of offshore and onshore northwestern Kazakhstan, also known as the Area of Mutual Interest (“AMI”), and pay Plaintiffs a portion of those net profits, and implied duties to engage honest business practices including transparent accounting and refraining from foreign corrupt practices.
This lawsuit arises from the Grynberg Plaintiffs’ discovery that Defendants have engaged in criminal bribery schemes, and in attempting to cover up those bribes, have lied to the Plaintiffs, withheld evidence, with trickery have attempted to force Plaintiffs, without their knowledge, consent or approval, to pay a portion of those illegal bribes out of the profits that the corporate Plaintiffs should have shared in, thereby harming Plaintiffs’ hard-earned and well-justified reputation as a crusader against bribery and other corruption within the petroleum industry.
Grynberg has a long history of resisting and exposing the corruption in the petroleum industry. In April of 1995, Grynberg filed a series of False Claims Act qui tam lawsuits in his capacity as a Realtor for the United States and Native Americans, including Civ. No. 95-725 (TFH), District Court, District of Columbia, U.S. ex rel. Jack J. Grynberg v. Alaska Pipeline Co. et al., and Case No. 1999MDL1293, U.S. District Court, Casper, Wyoming, Natural Gas Royalties Qui Tam Litigation. Both were filed in accordance with the False Claims Act, 18 U.S.C. § 3729 et seq. In all, Grynberg has expended in excess of twenty million dollars ($20,000,000.00) on attorney’s fees, court costs and expenses.
The above mentioned qui tam lawsuits, against 66 and subsequently enlarged to 305 corporate Defendants in the natural gas industry, challenged the mismeasurement of the volume and wrongful analysis of the heating content of natural gas causing substantial underpayments of royalties to the United States and Native Americans. Grynberg’s lawsuits allege that those Defendants are responsible for under-measuring the volume and wrongly analyzing the heating content of natural gas produced from mineral property interests owned by the United States and Native Americans, and artificially inflating net-back charges using improper valuation and transactions with non-arm’s length affiliates, to reduce royalties owed to the United States and to Native Americans.
The consolidated qui tam actions are currently before the U.S. Tenth Circuit Court of Appeals. Several “copy-cat” qui tam actions against the oil and natural gas industry have been filed by other whistleblowers and are progressing through the courts as well. . . .
Mr. Grynberg speaks, reads and writes fluent Russian, and was a scientific analyst in the United States Army Research and Development Command working on Soviet radioactive warfare in 1956-57. . . .
Plaintiffs Grynberg [and his companies] have engaged in the international petroleum exploration, development and production for over forty (40) years.
In the late-1980’s Grynberg, using his knowledge of Russian, personally began establishing relationships with key individuals and decision makers in the oil, natural gas and mineral exploration and production industries in the former Soviet Union, including the satellite states of Eastern Europe, and the future Caspian Sea republics, including and especially Kazakhstan. . . .
James H. Giffen (“Giffen”) was the principal and CEO of Mercator Corporation (“Mercator”), a New York corporation owned by Mr. Giffen, who had been advising the Republic of Kazakhstan throughout the 1990’s and early 2000’s in connection with various transactions related to the sale by Kazakhstan of portions of its oil and natural gas wealth.
On March 30, 2003, Giffen was arrested at Newark Airport attempting to flee the United States, served with a criminal grand jury indictment, and is now awaiting trial after posting $10,000,000.00 bail, in U.S. v. Giffen, 03-MJ-663, S.D.N.Y. (March 2003). . . . Giffen was notorious for his part of a scheme to pay off high Kazakh government officials to smooth the way for the original KCS Concession Agreement and subsequent Kazakh Government approval for the BPX/Statoil assignment of its interests to other OKIOC Concessionaires. No payment to Giffen, by any person engaged in GKOF activities, could have been for other than criminally-tainted purposes.
The Defendants BP/Statoil and BG paid their share, amounting to at least 1/7th of $84 million or $12 million of the illicit bribes attributed to Giffen’ s activities with respect to GKOF.
One prominent American oil company, Chevron, which did not participate in OKIOC consortium appears to be the exception that proves the rule. Chevron did not pay the $40 million “entrance fee,” as it has been confided by a confidential source to Plaintiff Grynberg, precisely because it was seen as an illegal bribery. Plaintiff Grynberg has signed a verification of this Complaint to confirm this information.
The Foreign Corrupt Practices Act, 15 U.S.C. §§ 78a, 78dd-1 to 78dd-3, 78ff, the Interstate and Foreign Travel to Aid Racketeering, 18 U.S.C. § 1952, and Engaging in Monetary Transactions in Proceeds from Specified Unlawful Activities, 18 U.S.C. § 1957, not only bar this type of conduct directly but at the same time compel both the corporate Plaintiffs and Jack J. Grynberg to take independent action to disassociate themselves, in their contractual capacity, from these illegal acts by the BPX/Statoil, BG, and the individual defendants.
As a forced and innocent victim in the payment of approximately $40,500,000.00 of illegal payments to foreign government officials (a percentage of which was charged to Plaintiffs), failure to take the necessary steps to seek immediate return of these funds and disavowal in such practices might potentially expose Plaintiffs to risk and costs associated with the ongoing DOJ criminal investigations against each of the oil and gas company Defendants.
Following Giffen’s criminal indictment, Grynberg sought to obtain information concerning the details of Giffen’s arrangements with various oil companies within Kazakhstan, including BP, Statoil, BG, ENI and Chevron, both informally and in the context of settlement negotiations. Defendants have asserted attorney-client privileged information, trade secrets, contractual obligations or proprietary information for BP/Statoil and BG or other consortium members and ultimately demanding the return of documents, which, more likely than not, establish unlawful, potentially criminal conduct. Defendants will also seek to use the confidentiality agreement from the Arbitration to shield information and documents relating to their activity.
Plaintiffs have nevertheless uncovered documentary evidence that at least $500,000 has been paid by BP to Giffen for so-called “expenses” believed to constitute illegal bribe payments.
Defendants BP/Statoil, moreover, have classified approximately $40 million in unspecified expenses as “production sharing fees,” while BG has denied Plaintiffs access to audit its books where similar hidden, so-called “production sharing fees” are to be found. Standard international production sharing contracts pay production sharing fees only from actual petroleum production and not before any oil and natural gas production begins. The so-called “production sharing fees” of approximately $40 million are, more likely than not, illegal bribe payments.
Given Defendants’ intransigence and misuse of confidentiality provisions, the corporate Plaintiffs and Jack J. Grynberg are compelled to take independent action, through this Complaint and to the extent confidential as detailed in the Affidavit of Jack J. Grynberg (filed under seal).
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Richard L. Cassin | 
Oil consultant James GiffenBloomberg's David Glovin is reporting that James Giffen will plead guilty to a tax-related misdemeanor today in federal court in Manhattan.
