FCPA InvestigationsIn what can only be termed a stunning resolution, last week the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) announced a resolution of a long-standing Foreign Corrupt Practices Act (FCPA) probe into the Dutch telecom giant VimpelCom Ltd. (VimpelCom) for a spectacular, long-standing bribery scheme for the company to garner the rights to the mobile communications business in Uzbekistan. The multiple bribery schemes used appear to have been approved at the highest levels of the company and should provide a wealth of case studies on bribery schemes for the compliance professional going forward.

According to the DOJ Press Release, VimpelCom the world’s sixth-largest telecommunications company and its wholly owned Uzbek subsidiary, LLC Unitel (Unitel) conspired to violate the FCPA by paying more than $114 million in bribes to a government official in Uzbekistan. Unitel pled guilty today to one criminal count of conspiracy to violate the FCPA. The DOJ entered into a Deferred Prosecution Agreement (DPA) with VimpelCom, who agreed to pay a total criminal penalty of $230.1million, including $40 million in criminal forfeiture.  VimpelCom further agreed to implement rigorous internal controls, retain a compliance monitor for a term of three years, and cooperate fully with the Government.

The Press Release also stated, “In related proceedings, VimpelCom reached a settlement with the U.S. Securities and Exchange Commission (“SEC”) and the Public Prosecution Service of the Netherlands (“PPS”). Under the terms of its resolution with the SEC, VimpelCom agreed to pay $375 million in disgorgement of profits and prejudgment interest. VimpelCom agreed to pay the PPS a criminal penalty of $230,163,199.20, yielding a total criminal penalty of $460,326,398.40, and a global resolution amount of more than $835 million. SDNY and the DOJ agreed under the DPA to credit the criminal penalty paid to PPS, and the SEC separately agreed to credit the forfeiture amount paid to the United States. Thus, the total of U.S. criminal and regulatory penalties paid by VimpelCom is $795,326,398.40.”

In addition to the large fine and cooperation between multiple US government enforcement and investigatory bodies, there was significant involvement from overseas anti-corruption units, regulatory bodies and enforcement agencies. Preet Bharara, the US Attorney for the Southern District of New York (SDNY), and Leslie R. Caldwell, the Assistant Attorney General for the Criminal Division of the DOJ, both thanked the efforts of the US and International agencies for their assistance “in concluding the matter.”

The overall bribery scheme involved VimpelCom purchasing Unitel as an entrée into the Uzbekistan market. Contemporaneously with the acquisition of Unitel, which did have a legitimate business purpose, VimpelCom acquired another Uzbeki entitiy LLC Barkie Uzbekistan Telecom (Butzel) that was at least partially owned by an Uzbeki government official who had control or influence upon telecom regulation in the county. This foreign official hid their interest through a shell company that was known to VimpelCom. VimpelCom did not articulate a legitimate business reason for the Butzel deal.

After the acquisitions, Unitel funded its bribes to the Uzbeki government official through a variety of mechanisms, which I will explore more in upcoming blog posts. The Box Score summary (in honor of pitchers and catchers reporting to Spring Training last week) is as follows:

Bribery Scheme Amount of Bribe Paid Time Frame
Fraudulent Buy-Out $37.5MM March, 2007
Cash for 3G network $25MM November, 2011
Fake Consulting Invoices $2MM

$30MM

2008

2011

Fake Reseller Payments $10MM

$10MM

2011

2013

Total $114.5MM

Separately the SEC identified $38MM in charitable donations which had no adequate internal controls in place to determine if the donations were legitimate or violations of the FCPA.

Yet the company also engaged in an intentional program to falsify its books and records intended to conceal the bribe payments from its outside counsel which was asked to bless certain transactions as well as regulators who might ask difficult or troubling questions for some of the bribery schemes going forward. As set out in the VimpelCom Information these false books and records included, payments funneled through a shell corporation owned by the foreign officials and included the following bribery mechanisms:

  1. The bribe related to the partnership agreement in which Shell Company first purchased and then sold an indirect equity interest in Unitel was falsely recorded in VIMPELCOM’s consolidated books and records as the receipt of loan proceeds in 2007 to be repaid in 2009 and secured by shares in a VIMPELCOM subsidiary.
  2. The bribe related to the acquisition of 3G frequencies in 2007 was falsely recorded in VIMPELCOM’s consolidated books and records as the acquisition of an intangible asset, namely 3G frequencies, and as consulting expenses.
  3. The bribe in 2008 was falsely recorded in VIMPELCOM’s consolidated books and records as “submission and support documentation packages seeking assignment of 24 channels to Unitel” and treated as an acquisition of an intangible asset and consulting services.
  4. The bribe related to consultancy services associated with the acquisition of 4G frequencies in 2011 was falsely recorded in VIMPELCOM’s consolidated books and recorded as “consulting services” and treated as consulting services and as an acquisition of an intangible asset, namely 4G frequencies. Additionally bribes paid through a reseller “were falsely recorded in VIMPELCOM’S consolidated books and records as “professional services” expenses.

Interestingly there was no mention of how the case came to the DOJ or SEC. In Unitel’s criminal plea, there was no credit given for self-disclosure so it can only be assumed it came to the US government’s attention in some other manner. Apparently there were other telecom companies in on the bribery scheme in Uzbekistan as well. The DOJ Press Release noted, that it has “also filed a civil complaint today seeking forfeiture of $550 million held in Swiss bank accounts which represent proceeds of illegal bribes paid, or property involved in the laundering of those payments, to the Uzbek official by VimpelCom and two other telecommunications companies operating in Uzbekistan. A previous complaint filed by DOJ seeks $300 million in proceeds of illegal bribes paid, or property involved in the laundering of those payments, by these companies to the same Uzbek official. In that case, on January 11, 2016, United States District Judge Andrew L. Carter, Jr. entered a partial default judgment against all potential claimants other than the Republic of Uzbekistan. As alleged in the two complaints, the telecommunications companies paid $850 million in bribes to the Uzbek official to obtain and retain the ability to do business in Uzbekistan.”

Over the next few blogs posts, I will be exploring each of the bribery schemes and internal fraud engaged in by both Unitel and VimpelCom employees, managers, executives and board members which allowed this corruption to flourish for so long. The last word is probably best said by VimpelCom’s parent, the Norwegian company Telenor Group, who in turn is owned 54% by the government of Norway. Telenor is reportedly trying to divest its interest in VimpelCom. Indeed.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016

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