AZERBAIJAN DESCENDING INTO THE THIRD WORLD AFTER A DECADE OF INDEPENDENCE

Journal of Third World Studies, Spring 2004 by Rasizade, Alec

But all this malfeasance pales in comparison with the oil smuggling scheme being perpetrated on a national scale by the presidential family, which holds virtual monopoly on the export, as well as domestic distribution, of petroleum production. President Aliev's brother Jalal Aliev owns the national gas-stations cartel called Azpetrol. Ilham Aliev, whom his father appointed vice-president of SOCAR (State oil Company of Azerbaijan Republic), controls every shipment of crude oil produced by the national monopoly. According to Georgian government statistics, every year SOCAR exports via the Georgian Black Sea ports of Batumi and Poti about 6.5 million tons more crude oil than is officially reported by Azeri government. These unreported shipments bring into the pockets of presidential clan around $1 billion annually.17

The existence of such illicit shipments has been confirmed, as a well known fact, by senior executives of all American oil companies operating in Azerbaijan in our private conversations in Baku last year. They said that SOGAR has never been "independently audited," that it manages the country's oil -related receipts through the opaque National oil Fund created in 2001 and accountable only to the president of the republic, instead of through the country's central bank as required by law.

It is unclear whether the local graft suggests a correlation to the behavior of our corporate investors in the region, who are subject to the US Foreign Corrupt Practices Act of 1977. A recent study conducted by the European Bank for Reconstruction and Development confirms these allegations. According to the study, 25% of foreign firms doing business in Kazakhstan reported frequent solicitations for bribes and kickbacks. In Azerbaijan, 80% of companies reported systematic extortion and complained of incessant delays and unlawful charges requested to move business matters along. The EBRD study concluded that corruption incurs an unofficial "tax" of sorts on business ventures operating in Azerbaijan, averaging at 10% of companies' annual revenue.18

I have never heard of any investigation by the US Department of justice into such practices in the Caucasus, which are customary in dealings with local authorities. Such an ingrained graft and cronyism permeates the whole political and social fabric of those nations, plaguing the nascent Caucasian democracies. Democracy means more than free elections; it cannot flourish in countries where hardly ever anyone goes to jail for stealing from the public till or draining the foreign aid. Corrupt governments, no matter what they say and how friendly to us they are, only invite popular unrest, often with nationalization of foreign oil concessions. Yet the justice Department allows the Foreign Corrupt Practices Act to lay dormant in the case of Azerbaijan as we learn more that American investors were misled on the amount of Caspian oil reserves.

Take the case of British Bank, which has recently ceased its operations in Azerbaijan. When I was visiting Baku last winter, its officials held a press conference to declare that the bank has stopped its activity in Azerbaijan. The bank had deposits from local residents worth $50 million and was the second largest after the International Bank of Azerbaijan, and ranked first among foreign banks there.