(Adds Swiss, World Bank comment)

By Michael Steen

ALMATY, May 4 (Reuters) - A frozen Swiss bank account containing $84 million that U.S. prosecutors say was intended as bribes for Kazakh officials is to be spent on projects to help poor children in Kazakhstan, U.S. and Swiss officials said.

The money is linked to a pending corruption case in the United States in which businessman James Giffen is accused of bribing three senior Kazakh officials, including President Nursultan Nazarbayev, on behalf of Western oil companies.

Nazarbayev, in power in the oil-producing Central Asian state since 1989, has said in the past that the allegation, contained in prosecution documents, that he took more than $60 million in bribes was "a set up".

Giffen has denied any wrongdoing.

U.S. Attorney for the Southern District of New York Michael J. Garcia said in a statement on Thursday that the U.S., Kazakh and Swiss governments had agreed to release the $84 million to a new foundation for poor children.

"The complaint alleges that the funds are subject to civil forfeiture as proceeds traceable to bribery and wire fraud and property involved in money laundering," the statement, posted on the U.S. Justice Department web site, said.

"The indictment against Giffen charges him with diverting tens of millions of dollars paid by oil companies for oil and gas rights in Kazakhstan and to make unlawful payments to three senior Kazakh officials."

Kazakh government officials declined immediate comment. The Swiss Foreign Ministry said the money had been frozen in 1999.

Garcia said the funds would be released, subject to court approval, to a foundation supervised by the World Bank once Kazakhstan had also set up a five-year programme "for improving public financial management" and an "action plan for transparency in the oil, gas and mining industries".

Kazakhstan has been seeking to burnish its image as politically stable country with a fast-growing economy but it has faced repeated criticism that corruption is widespread.

Last week, U.S. oilfield services company Baker Hughes Inc. <BHI.N> said one of its units had pleaded guilty to violations of the U.S. Foreign Corrupt Practices Act for payments made in 2001-2003 related to a project in Kazakhstan.

The Giffen case, sometimes dubbed "Kazakhgate", grew out of a Swiss money laundering investigation and subsequent FBI probe. The businessman was arrested in March 2003 and has been awaiting trial since.

The World Bank is to appoint a non-governmental organisation to run the foundation, which is expected to start operating within a year, World Bank country manager for Kazakhstan, Sergei Shatalov, told Reuters.

The $84 million plus accrued interest is likely to be spent on educational scholarships and small projects.

"It can be, say, improving the water supply to a rural kindergarten," Shatalov said. "Or matching a grant to build a soccer pitch somewhere... It must directly benefit children." (Additional reporting by Stephanie Nebehay in Geneva)

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