Last week the DOJ and SEC settled the third installment in a trilogy of cases arising from “an almost $1 billion bribery scheme that reached the highest echelons of the Uzbekistan government and was orchestrated by some of the largest telecommunications companies in the world,” according to Manhattan U.S. Attorney Geoffery Berman. The firms are: Mobile TeleSystems PJSC, a Russian telecom firm whose shares were listed on the NYSE; Telia Company AB, a multinational telecommunications firm based in Sweden whose shares were listed on NASDAQ; and MimpelCom, a mobile telecommunications firm organized under the laws of Bermuda based in Moscow, Russia until 2010 when it moved to Amsterdam whose shares were listed on NASDAQ. The resolution of those cases to date have resulted in nearly $2.5 billion of payments to prosecutors and regulators by those involved as detailed below.
In the Matter of Mobile TeleSystems PJSC, Adm. Proc. File No. 85261 (March 6, 2019):
The action names as Respondent the Russian telecom firm whose shares are listed on the NYSE. Over an eight year period beginning in 2004 the firm paid about $420 million in bribes to enter and secure work in Uzbekistan. The payments were made using a variety of devices including equity transactions with government officials, sham contracts and charitable contributions or sponsorships. The payments were disguised in the books and records of the firm. During the period the illicit payments resulted in over $2.4 billion in revenue. The Order alleged violations of Exchange Act Sections 30A, 13(b)(2)(A) and 13(b)(2)(b). The firm will pay a civil penalty of $100,000,000. A monitor was installed. The Commission acknowledged the cooperation of the firm.
The company also settled with the DOJ. The firm entered into a deferred prosecution agreement while subsidiary Kolorit Dizayn Ink LLC pleaded guilty to conspiracy to violate the bribery and books and records provisions of the FCPA. Under the terms of the agreement an $850 million criminal penalty will be paid. The $100 million SEC penalty will be credited against that amount.
An indictment was returned charging Gulnara Karimova, the daughter of the President of Uzbekistan, who solicited the bribes, and Bekhzod Akhmedov, a former government executive. Ms. Karimova was charged with one count of conspiracy to commit money laundering. Mr. Akhmedov was charged with one count of conspiracy to violate the FCPA, two counts of violating the FCPA and one count of conspiracy to commit money laundering. U.S. v. Karimova (S.D.N.Y. Filed March 6, 2019). The case is pending.
In the Matter of Telia Company AB, Adm. Proc. File No. 3-18195 (Sept. 21, 2017).
Telia Company AB, a multinational telecommunications firm based in Sweden, and its majority-owned subsidiary, Coscom LLC, settled anti-corruption charges with the DOJ and the Prosecution Service of the Netherlands or PPS, and the parent settled FCPA charges with the SEC. In total the firm agreed to pay $965,773,946. U.S. v. Telia Co., No. 1:17-cr-60581 (S.D.N.Y. Filed Sept. 20, 2017);
Telia, whose shares were traded on NASDAQ prior to 2005, was a U.S. issuer until September 5, 2007 when its application to deregister its shares became effective. In 2006 the firm sought to expand into the Eurasia telecommunications market, including Uzbekistan. At the time Coscom was a Uzbek telecommunications operator owned by a U.S. firm. Telia acquired the firm in 2007.
The telecommunications industry in Uzbekistan was highly regulated. The Communications and Information Agency of Uzbekistan or ACI controlled the industry. Private parties could not purchase licenses, frequencies, channels or number blocks in the country. Official A was a government official in the country who exerted significant influence and could cause public officials to take actions that would benefit the company.
Senior managers at Telia understood that they needed to negotiate with Official A to acquire Coscom within the Uzbek market. By the end of 2007 Telia and Official A executed a series of agreements which, in effect permitted the company to acquire a controlling interest in Coscom and gave Official A minority stake for $50 million. The Official also received a put option to sell the interest back in 2010 for $85 million. In connection with the transaction the Official arranged for COSCO to acquire 3G licenses, 50 1800 MHz frequencies, an internet services license and number blocks, although under the law these transactions should not have occurred. The next year Telia acquired additional numbers to expand it network.
In 2010 the Official caused the partial exercise of the put option. Telia paid the Official $220 million for his interest. In the same year the firm paid the Official $55 million in connection with the acquisition of 4G licenses and the acquisition of a fiber-optic lease. In each instance the transactions were run through Official A’s firm which supposedly supplied services. These were essentially sham transactions. Overall Telia obtained revenues of over $2.5 billion in return for the bribes paid while paying Official A at least $330 million in bribes.
To resolve the matter with the DOJ, Telia entered into a deferred prosecution agreement, agreeing to pay a criminal penalty of $274,603,972. This included a $500,000 criminal fine and $40 million in criminal forfeiture the firm paid on behalf of Coscom which pleaded guilty to one count of conspiring to violate the anti-bribery provisions of the FCPA. The firm also agreed to pay PPS $274 million.
To settle with the SEC Telia consented to the entry of a cease and desist order based on Sections 30A and 13(b)(2)(B) of the Exchange Act. The firm also agreed to pay disgorgement of $457,000,000. The $40,000,000 paid to the DOJ as forfeiture will be credited against that amount.
SEC v. Vimpelcom Ltd. (S.D.N.Y. Filed February 18, 2016):
This is an FCPA action resolved by the DOJ, the SEC and the Public Prosecution Service of the Netherlands or the Openbaar Ministrie, known as the OM, with total payments of $795,326,398.40.
MimpelCom is organized under the laws of Bermuda but was based in Moscow, Russia until 2010 when it moved to Amsterdam, the Netherlands. Its shares are traded on NASDAQ. The firm is a global provider of telecommunications services. Unitel LLC is a wholly-owned subsidiary that provides mobile telecommunication services in Uzbekistan. The subsidiary entered that market in 2006 through mergers.
From 2006 through 2012 the company offered and paid bribes through a business partner to a government official in Uzbekistan. During the period at least $114 million in improper payments were made to obtain and retain business which generated more than $2.5 billion in revenues for the company.
Typically, the payments were made through sham contracts. In some instances they were also channeled through charitable contributions. The Commission’s complaint alleged violations of Exchange Act Sections 30A, 13(b)(2)(A) and 13(b)(2)(B). To resolve the Commission’s action the company consented to the entry of an order prohibiting future violations of the Sections cited in the complaint. The company also agreed to retain an independent monitor and to pay disgorgement and prejudgment interest of $167.5 million.
To resolve the criminal charges with the DOJ Unitel pleaded guilty to a one-count criminal information which charged the company with a conspiracy to violate the anti-bribery provisions of the FCPA. The parent corporation entered into a deferred prosecution agreement. The criminal information charged conspiracy to violate the anti-bribery and books and records provisions of the FCPA as well as the internal control provisions. The firm agreed to pay a criminal penalty of $230,163,199.20, including a $40 million criminal forfeiture. As part of the agreement the company will implement rigorous internal controls and retain a compliance monitor for three years. The penalty reflected a 45% reduction off the bottom of the Sentencing Guideline range which reflected the cooperation of the company once the investigation began as well as the fact that the firm did not self-report. The DOJ also instituted related forfeiture actions, seeking $850 million. Finally, the company paid a criminal penalty to the OM of $230,163,199.20 along with disgorgement and prejudgment interest equal to the amount paid to the SEC.
Overall the firms paid about $2.5 billion to resolve the FCPA charges. The charges against the individuals in the Mobile TeleSystems case are in litigation.