I continue my exploration of the Telia Company AB (Telia) Foreign Corrupt Practices Act (FCPA) enforcement action and the parallel actions. Today I will consider the individuals who have been criminally indicted in Sweden and the Board of Directors. The Telia resolution documents included a Securities and Exchange Commission (SEC) Cease and Desist Order (SEC Order), with the Department of Justice (DOJ) issuing an Information (Telia Information) and a Deferred Prosecution Agreement (DPA) for Telia and an Information (Coscom Information) and a Plea Agreement for Coscom LLC (Coscom).

One thing clear from this enforcement action is that this case was not something a best practices compliance program could have prevented. You literally had the former chief executive of the organization, Lars Nyberg, personally involved in the decisions to pay bribes to get the telecom licenses and other benefits received by Telia.

Here the executive was made specifically aware that the initial agreement would be with a foreign official who controlled the telecom market in Uzbekistan. As early as March 2007, this information was communicated to the Telia Board of Directors as well. During the negotiation process, Telia executives and Board were made aware of the foreign officials “relation to the proposed investment.” However, by July 2007 Telia executives deleted references in Board presentations about the foreign official involvement as a local partner. Of course, there is no record of the Board doing its job and asking questions about the local partner.

Even more damning was a Memo from an outside legal advisor on the status of ongoing negotiations. This legal advisor counseled Telia to take the US entity involved in the fraud Coscom, “out of the US structure for a couple of reasons including the FCPA.” Not only did Telia senior management know its actions were illegal but the legal counsel advised them of FCPA involvement with the structure proposed. Indeed, lower level executives “who executed the corrupt transaction complained to certain TELIA management, including Executive A, about how the Coscom executive’s honor had been “spoiled” by the company when he was directed to make the “illegal transaction” to “our local partner[’]s lia[i]son in the lobby of [a hotel] here in Tashkent.””

In January 2010, the shell company which held the put option, Takilant, controlled by Karimova, exercised that option. It sold back its 26% interest to Telia, for “$220 million for this interest, a 340 percent increase over the approximately $50 million Government Official A paid through Takilant to acquire the interest in 2007 and far more than the minimum $85 million option exercise price in December 2007. Telia also agreed to adjust the put option for Takilant’s remaining 6 percent interest in COSCOM to a minimum price of $50 million, which was later increased to $75 million.”

The senior executive obtained Telia Board approval for this transaction. He submitted a Memo to the Board which noted in part “[t]he objective is to maintain a good relationship with [the Shell Company] and extend the period they stay as a shareholder as long as possible,” noting that the Shell Company could assist with currency conversion issues and with “the assurance of renewal of licenses including a new LTE license . .” Once again, the Board wholly failed in its compliance oversight responsibility.

In 2010, Telia desired to expand its Uzbek operations through 4G services. However rather than making a bribe payment through the shell corporation as before, Telia entered into a sham Consulting Contract with a third-party vendor for the benefit of companies controlled by Karimova, who assisted Coscom in acquiring certain 4G/LTE licenses/frequencies in the 2500-2700 MHz bandwidths. There were multiple red flags raised in this Consulting Contract but the SEC Order specifically noted “the 4G license that COSCOM was issued was repudiated by Telia’s primary competitor in Uzbekistan and whose Uzbek country manager again negotiated for Government Official A.” There was never any evidence of services provided under this sham Consulting Contract. Telia paid $55MM under this Consulting Contract for the 4G licenses and later added another $15MM for the acquisition of a fiber-optic lease agreement. 

In these transactions, and once again the senior executive presented Memoranda to the Board about the purpose and structure of these financial arrangements, it was explained that the foreign official had a high debt load with one company so the $55MM would go to pay down debt in a company controlled by the foreign official. In this instance, the senior executive was required to misrepresent payment had been made directly to the Uzbek government for the licenses and reported same to the Telia Board.

After the DOJ and SEC announced their settlements, Radio Free Europe reported Swedish prosecutors have charged three former executives from the Telia Company, including  former chief executive Nyberg, head of Eurasia Tero Kivisaari and an un-named third co-defendant, with corruption paying large sums of money to Takilant, a Gibraltar-based company associated with Gulnara Karimova, one of the daughters of Uzbekistan’s late authoritarian leader, in return for a mobile-phone license. Chief Prosecutor Gunnar Stetler said “The payments indicate Telia effectively paid “a downright bribe” to ensure it received the license from Uzbek authorities.” Stetler was quoted in The Local as saying, “Nyberg had good opportunities to stop this and must have realized there was a situation of bribery.” Most interestingly all three were unrepentant, denying the charges against them.

I say most interestingly because former chief executive Nyberg seemingly admitted paying bribes in an interview with the Financial Times (FT) back in 2012 that “It is always simpler to have an opinion five years after … What we did then was the general practice”. He went on to add that it was “within the law.” Rather amazingly he also claimed Telia had tried to determine the beneficial ownership of the shell companies involved in the bribery schemes but claimed that the company was not able to do so.

 

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, 2017

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