Corporate

The Burgeoning Uzbekistan Telecommunication Investigations

 This article was reprinted with permission from FCPA Professor

For approximately two years, Dutch telecommunications company VimpelCom  and Swedish telecommunications company TeliaSonera have been under scrutiny concerning its business practices in Uzbekistan (see here and here prior posts).

The scrutiny has sort of flown under the radar, but recent events suggest that the scrutiny, as well as related scrutiny of other companies, may be on par with arguably the most high profile instance of multi-company FCPA scrutiny (the 2009 – 2012 enforcement actions against KBR/ Halliburton, Snamprogetti / ENI, Technip, JGC Corp. and Marubeni all in connection with the Bonny Island natural gas project in Nigeria – with the exception of Marubeni all of these enforcement actions are in the top 8 in terms of overall settlement amounts).

Recently, VimpelCom, a company with shares traded on NASDAQ, disclosed:

“As previously disclosed, the U.S. Securities and Exchange Commission (“SEC”), the U.S. Department of Justice (“DOJ”), and the Dutch Public Prosecution Service (Openbaar Ministerie) (“OM”) are conducting investigations relating primarily to VimpelCom Ltd.’s (the “Company” or “VimpelCom”) business in Uzbekistan and prior dealings with Takilant Ltd. As announced in February of 2015, the Company has been exploring resolution of the Company’s potential liabilities. The Company continues to cooperate with the authorities. Based on its ongoing assessment of the investigation during the third quarter of 2015, the Company will make a provision in the amount of US$900 million in its third quarter financial statements. The discussions with the authorities are ongoing and, until concluded, there can be no certainty as to the final cost to the Company of any such resolution or the nature, likelihood or timing of a definitive resolution. At this time, the Company will make no further comments on the ongoing discussions.”

The amount mentioned in the disclosure caught many by surprise.

The disclosure amount is a bit ambiguous. For instance, does it refer to a settlement amount (and if so how will it be apportioned between U.S. and Dutch authorities)? Likewise, does the disclosure amount refer to pre-enforcement action professional fees and expenses (often the largest financial hit to a company under FCPA scrutiny) and/or expected post-enforcement action professional fees and expenses?

Regardless, it would appear that a future FCPA enforcement action against VimpelCom is likely to land on the top ten list of FCPA settlement amounts.

What is certain is that days after the above announcement, plaintiffs lawyers came out of the woodwork and filed class action securities fraud complaints (see herehere, and here).

As to TeliaSonera, a company with ADRs registered with the SEC, since 2013 the company has been conducting a review of its operations in Uzbekistan as well as other Eurasia countries including Azerbaijan.

VimpelCom and TeliaSonera are not the only telecommunications under scrutiny.

Russia-based Mobile TeleSystems PJSC, a company with shares traded on the New York Stock Exchange, has also been FCPA scrutiny in connection with Uzbekistan business and recently disclosed:

“[A]s the Company had previously disclosed, the US Department of Justice (DOJ) and the SEC are conducting an investigation into MTS’s business activities in Uzbekistan. In addition, MTS publicly confirmed that it had been referenced in a civil forfeiture complaint, filed by the DOJ, directed at certain assets of an unnamed Uzbek government official. The complaint alleges that MTS made corrupt payments to gain access to the Uzbek telecommunications market. The Complaint alleges among other things that MTS and certain other parties made corrupt payments to the unnamed Uzbek official to assist MTS entering and operating in the Uzbekistan telecommunications market. The Complaint is solely directed towards assets held by the unnamed Uzbek official, and none of MTS’s assets are affected by the Complaint. Recent announcements with regard to Uzbekistan by MTS’s peers in the market have naturally raised questions among stakeholders and partners to MTS’s management. At this time, MTS can reiterate that it is cooperating with the investigation, and it is too early to draw any conclusions based on the experiences of others in the Uzbekistan market. As there have yet been no new developments, MTS can make no further comment or provide new information.”

Last, but certainly not least, Norway-based Telenor recently announced that its CEO has resigned and that it is divesting its ownership interest in VimpelCom. Shortly thereafter the company disclosed:

“On 14 March 2014 VimpelCom announced that the company was under investigation by US and Dutch authorities for its operations in Uzbekistan. Telenor Group has status as witness in these investigations and has cooperated with the investigating authorities. As a witness, Telenor has shared all requested information, and interviews have been conducted with relevant persons in Telenor. Telenor Group sees VimpelCom’s announcement today as a serious development that significantly increases our concerns in relation to the potential outcome of the still ongoing investigations. Telenor Group has a financial participation with an economic stake of 33 per cent in VimpelCom. In its financial reporting, Telenor includes VimpelCom as an associated company.”

The above disclosure was thereafter followed by this disclosure from Telenor:

Telenor Board of Directors has assigned Deloitte Advokatfirma AS (Deloitte) to perform a review of Telenor’s handling and oversight of the minority ownership in VimpelCom. The review will focus on Telenor’s handling of its ownership in VimpelCom which covers the Telenor nominees on the VimpelCom Supervisory Board and Telenor’s follow-up as a shareholder. In addition the review will cover actions and decisions by Telenor nominees and Telenor employees in relation to VimpelCom’s investment in Uzbekistan. The review will assess facts and identify learning points for future governance and organization of Telenor’s ownerships. This would cover both the formal governance structure and the practical handling of the ownerships. The review will cover the period from 2005 until this date. The conclusions and recommendations of the review will be made public.”

What interest does the U.S. have in investigating alleged bribery of Uzbekistan officials or family members by Dutch, Swedish, Russian and Norwegian telecom companies?

Probably as much interest as the U.S. had in investigating and bringing enforcement actions against Dutch, Italian, French and Japanese companies for bribing Nigerian officials in the Bonny Island, Nigeria enforcement actions.

 Read more articles on the FCPA by Mike Koehler at FCPA Professor.

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