October is my annual Classic Monster Movie month tribute. I recognize it is not yet October but I wanted to begin a bit early this year as September saw the passing of Basil Gogos. He was the prime illustrator for the magazine Famous Monsters of Filmland, one of my two favorite magazines of my childhood and teenaged years (in case you were wondering, the other was Mad Magazine). According to his New York Times (NYT) obituary “Gogos produced dozens of covers for the horror magazine Famous Monsters of Filmland over more than 20 years. Many looked as if Mr. Gogos had invited the monsters into his studio, where he meticulously lighted them and bathed them in brilliant hues.”

Gogos created many of his paintings from black-and-white still photographs of films made at various studios. Most of his classic creations came from Universal Pictures, which started making monster movies in the 1920s. Some of Gogos most superlative creations include the “bug-eyed King Kong with his mouth agape; the Creature From the Black Lagoon as a red-lipped, amphibious humanoid; Lon Chaney in “London After Midnight” as a top-hatted ghoul with blood dropping from his mouth; and Mr. Karloff as the intense, wrinkled, fez-wearing Ardath Bey in “The Mummy” (1932).”

However, for my money his finest achievement, was his haunting drawing of Karloff as Frankenstein’s Monster, appearing in 1969. The Gogos cover appeared as a part of the magazine’s tribute to Karloff who had died shortly before the issue hit the magazine stands. Gogos’ obit correctly noted that he “imbued Frankenstein’s monster with notable compassion.” Gogos once said of Karloff “A superb facial structure with nicely chiseled planes, deeply sunken eye sockets, high cheekbones, with one side of his jawbone deeper than the other — pure drama.”

Gogos and his innate humanity for Frankenstein’s Monster and all his other creations were lacking earlier this week, when the Department of Justice (DOJ) rocked the National Collegiate Athletic Association (NCAA) and college basketball with an indictment of several college assistant coaches, former Vice President (VP) from the shoe company Adidas, sports agents and financial advisors in a massive corruption scandal. Michael McCain, writing in Si.com, stated “On Tuesday, amateurism entered the crosshairs of multiple federal prosecutions. Ten individuals with deep ties to “big time” college sports have been arrested in three related cases that could rock the foundations of college sports.”

The charges related to paying bribes to college coaches, financial advisors and assorted other hanger-oners as well as high school athletes to steer them towards universities under contract to the shoe company Adidas. According to the DOJ Press Release, “The charges in the Complaints result from a scheme involving bribery, corruption, and fraud in intercollegiate athletics. Since 2015, the U.S. Attorney’s Office for the Southern District of New York and the FBI have been investigating the criminal influence of money on coaches and student-athletes who participate in intercollegiate basketball governed by the NCAA. The investigation has revealed two related schemes. In the first scheme (the “Coach Bribery Scheme”), athlete advisors – including financial advisors and business managers, among others – allegedly paid bribes to assistant and associate head basketball coaches at NCAA Division I universities, and sometimes directly to student-athletes at those universities, facilitated by the coaches. In exchange for the bribes, the coaches agreed to pressure and exert influence over student-athletes under their control to retain the services of the bribe-payors once the athletes entered the National Basketball Association (“NBA”).

In the second scheme (the “Company-1 Scheme”), athlete advisors working with high-level Company-1 employees, allegedly paid bribes to student-athletes playing at, or bound for, NCAA Division I universities, and to the families of such athletes. These bribes were paid in exchange for a commitment by the athletes to matriculate at a specific university sponsored by Company-1, and a promise to ultimately sign agreements to be represented by the bribe-payors once the athletes entered the NBA.”

We have not yet heard from the defendants. However, as McCain noted, they will probably argue that “their conduct merely constituted “business as usual” behavior in 21st Century American college sports. It is no secret bribes have taken place in big-time college sports for years—decades, really. The defendants could assert they could not have “intended” to commit a crime if they engaged in commonplace conduct that, while technically in violation of NCAA rules, often goes without detection.” [Sounds familiar to the FCPA practitioner.]

The University of Louisville has taken a very particular black eye already as one recruit to the school was allegedly offered $100,000 paid through Adidas. The fallout was swift with both the Head Coach and Athletic Director being put on administrative leave, both claiming no knowledge of anything about anything. At least two recruits have pulled out from their commitments to the school.

There is another Foreign Corrupt Practices Act (FCPA) angle as some of the charges include a Travel Act component. This is based on the Travel Act shoe-horning of a federal crime on a state law violation where the actions are inter-state. So, for instance, Auburn University assistant Chuck Person was charged in violating Alabama state law on commercial bribery which says that a person commits commercial bribery if he “Confers, or agrees or offers to confer, any benefit upon any employee or agent without the consent of the latter’s employer or principal, with intent to improperly influence his conduct in relation to his employer’s or principal’s affairs;” [emphasis mine – but that is a pretty low bar]. There have been FCPA charges based on state commercial anti-bribery laws.

The next FCPA angle is around internal controls. Recall that the FCPA has a requirement for effective internal controls and accurate books and records. Adidas needs to determine its exposure in these areas. More than Adidas may be at risk as it was reported that Nike received a subpoena today. It would not be much of a stretch for other apparel companies to receive similar subpoenas.

I know that many of you are shocked, just shocked to find out that college athletes were paid. Nonetheless, I am certain that every university will want this scandal to go away as quickly as possible. The longer this case hangs around the more pillars will fall.

 

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

I have spent the past few blog posts reviewing the many lessons that can be garnered by the compliance practitioner from the Telia Company AB (Telia) Foreign Corrupt Practices Act (FCPA) resolution. However, there is one additional follow on from the Department of Justice (DOJ) initiative that has not received as much attention but may be as significant as the settlement itself in the long run; that is the forfeiture action brought by the DOJ under the Kleptocracy Asset Recovery Initiative (the “Act”).

The DOJ Press Release announcing the Telia resolution stated the following:

“The resolution, reached in coordination with the SEC and authorities in the Netherlands, marks the second such resolution by a major international telecommunications provider for bribery in Uzbekistan.  On Feb. 18, 2016, Amsterdam-based VimpelCom Limited and its Uzbek subsidiary, Unitel LLC, also entered into resolutions with the Department of Justice and admitted to a conspiracy to make more than $114 million in bribery payments to the same Uzbek government official between 2006 and 2012.  The investigation has thus far yielded a combined total of over $1.76 billion in global fines and disgorgement, including over $500 million in criminal penalties to the Department of Justice.  In related actions, the Department has also filed civil complaints seeking the forfeiture of more than $850 million held in bank accounts in Switzerland, Belgium, Luxembourg and Ireland, which constitute bribe payments made by VimpelCom, Telia and a third telecommunications company, or funds involved in the laundering of those corrupt payments, to the Uzbek official.”

The FCPA Blog reported “a federal judge in New York said the DOJ could seize $300 million allegedly linked to the Uzbek telecoms bribery scandal. In a July 9 ruling, U.S. District Judge Andrew Carter allowed the DOJ to impound the funds held by Bank of New York Mellon Corp. in Ireland, Luxembourg, and Belgium, and in accounts at Clearstream Banking SA linked to the companies in Luxembourg.”

The New York Times (NYT) reported, in an article entitled “The Kleptocrats’ Millions, that the DOJ has brought some 25 cases under the Act against 20 foreign officials. While these suits are mainly in the US, the Telia matter is significant because the DOJ has focused on the international dimension of the money laundering and corruption involved.

Scott Patterson and David Gauthier-Villars, writing in a Wall Street Journal (WSJ) article entitled “U.S. Seeks to Seize $1 Billion in Telecom Probe”, noted that in addition to the bribes paid out by Telia, there were at least two other international telecom companies who “funneled hundreds of millions of dollars to businesses controlled by Gulnara Karimova, the elder daughter of Uzbek President Islam Karimov, in an effort to secure wireless frequencies and other deals in that country, according to court documents and people with direct knowledge of the probe.” [VimpelCom Ltd and Mobile TeleSystems PJSC of Russia]

The Kleptocracy squad, created within the Federal Bureau of Investigations (FBI) to investigate and prosecute corruption cases, has begun to bear fruit. At the time this initiative was announced by former US Attorney General Eric Holder, he said, “This morning, I am pleased to announce the creation of a dedicated Kleptocracy squad within the FBI. This specialized unit will partner with our Asset Forfeiture and Money Laundering Section to aggressively investigate and prosecute corruption cases — not only in Ukraine, but around the world. The squad of about a dozen personnel will consist of case agents and forensic analysts who are capable of unraveling the intricate money laundering transactions commonly employed by kleptocrats. Their sophisticated work will be supported by deputy marshals from the United States Marshals Service and analysts from FinCEN, which is our financial intelligence unit. And this new initiative will provide the United States with increased capacity to respond rapidly to political crises as they arise — so we can help prevent stolen assets from being dissipated or secreted away by deposed regimes.”

In the NYT article Kenneth Hurwitz, a senior legal officer with the Open Society Justice Initiative, was quoted as saying, “No one is confident that this will work perfectly. But that’s still better than if the U.S. didn’t try.” Former Assistant Attorney General Leslie R. Caldwell was also quoted in the same article for the following, “We’ve gotten a lot of forfeiture orders that have limited their ability to get their hands on their assets. And that’s still significant.”

The person at the heart of both the Telia and VimpelCom corruption scandals, Gulnara Karimova is currently reported to have been under house arrest in Uzbekistan since 2014. Last December she was interviewed for 23 hours by Swiss prosecutors. They interviewed her regarding efforts by the Swiss government to recover some suspect “800 million Swiss francs ($793 million) seized in Switzerland” which are believed to be “the spoils of Ms. Karimova’s alleged corrupt practices with global telecoms companies.”

As most people understand, the FCPA is a supply side law that focuses on the conduct of the bribe-payor. However through the Kleptocracy Asset Recovery Initiative, the DOJ is able to focus some of its efforts on the bribe-receiver. Any initiative or successful effort to take back the ill-gotten gains of the bribe-receivers is a plus in my book.

Tomorrow I will wrap up this series with the lessons to be learned from the Telia FCPA enforcement action.

 

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

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

Over the next few blog posts, I will be exploring the resolution and what lessons the compliance practitioner can draw from the Telia Company Foreign Corrupt Practices Act, (FCPA) enforcement action, the parallel actions and what it may portend for FCPA enforcement going forward under the Department of Justice (DOJ). Today I will consider the bribery schemes involved in the matter as they will provide a compliance practitioner a guide of some things to watch out for going forward. The resolution documents included a Securities and Exchange Commission (SEC) Cease and Desist Order (SEC Order), with the DOJ issuing an Information (Telia Information) and a Deferred Prosecution Agreement (DPA) for Telia Company (Telia), an Information (Coscom Information) and a Plea Agreement for Coscom LLC (Coscom).

The breadth and scope of Telia’s illegal conduct was about as far-ranging as one could imagine. It went right up to the top of the organization as the SEC Order noted involvement from the former Chief Executive Officer (CEO) of the company, former senior executives and the former Board of Directors. There were various un-named parties involved including US based consultants.

2007 Cooperation Agreement

The Telia Information explains that in July 2007, Telia began steps to enter the Uzbek telecom market. At this initial juncture, Telia understood that they had to regularly pay Gulnara Karimova, the eldest daughter of the late Uzbek President Islam Karimov, “millions of dollars in order to enter the Uzbek telecommunications market and continue to operate there.” This Uzbek government official was later identified as Ganara. This requirement to engage in corruption was explained to Telia management. In August 2007, a Cooperation Agreement was signed by a representative of Karimova and Telia. The Cooperation Agreement set forth basic terms that later would be formalized as part of a later Shareholders Agreement, including that Karimova would contribute $30MM and telecom licenses, frequencies and number blocks. She would have a put option at an uplift, with the original uplift was to be $85MM. This was significantly increased for reasons not explained in the settlement documents. [A put option is a device which gives the owner of a put the right, but not the obligation, to sell an asset, at a specified price, by a predetermined date to a given party. The term “put” comes from the fact that the owner has the right to “put up for sale” of the interest]. Here Karimova was given the right to sell her 26% ownership in Coscom back to Telia, which was part of the bribe payment.

2007 Shareholders Agreement

The Cooperation Agreement was transformed into a Shareholders Agreement in December 2007. This Shareholders Agreement formalized the Cooperation Agreement. Telia received a license to operate a 3G network. The transfer of this license was fraudulent as the company which held the license repudiated it in favor of the Telia subsidiary Coscom. According to the SEC Order “At the time, COSCOM did not have the necessary licenses and permission from ACI to operate a 3G network, Government Official A and Telia agreed that ACI would issue the 3G licenses to a Takilant subsidiary, which then would repudiate the licenses so they would instead be issued to COSCOM. This repudiation of the 3G licenses was done to circumvent the prohibition under Uzbek law on private parties directly buying and selling telecommunications licenses, and should have raised red flags at Telia.”

The SEC Order noted additional red flags including, “the fact that (i) Government Official A’s company should not have received a 3G license from ACI since it was not a telecommunications operator; (ii) the timing of the award of licenses to Takilant only months in advance of Takilant repudiating the licenses in favor of COSCOM; (iii) the participation of the country manager of COSCOM’s primary competitor in the transaction; (iv) and the fact that the company should not have had to pay to obtain a 3G license from the government.”

For these actions, Telia made a bribe payment of $30MM to Karimova, transferred an indirect 26% ownership in Coscom, along with the put option to her as well. All of these actions were approved by the highest level of Telia management.

2008 Bribe Payment for Additional Lines

In 2008 Coscom’s growth was such that it needed additional telephone numbers to expand its subscriber network. Karimova caused additional number blocks to be granted to Coscom. Telia paid an additional $9.2MM in bribes to obtain these additional phone numbers. The company also received a “number series and network codes, as well as to continue to conduct business in Uzbekistan.”

Put Option Exercise

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.”

Sham Consulting Contract

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. 

Box Score of Bribery Payments and Benefits Received 

Date Payment Amount Payment Vehicle Benefit Received
August 2007 $2MM Associate of Karimova Cooperation Agreement
December 2007 $30MM Shell company controlled by Karimova Shareholder Agreement including transfer of 3G licenses, 50 1800 MHz frequencies, an internet services license, and number blocks
September 2008 $9.2MM Shell company controlled by Karimova Phone number series and network codes, as well as to continue to conduct business in Uzbekistan
January 2010 $220MM Shell company controlled by Karimova Put option exercise on Karimova interest in Coscom
January 2010 $75MM Shell company controlled by Karimova Purchase of additional interest in Coscom held be Karimova not transferred by put call
April 2010 Assumption of $55MM in debt Sham Consulting Contract 4G licenses
May 2010 $15MM Sham Consulting Contract Fiber-optic lease agreement

 

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

While the resolution of the Telia Company (Telia) Foreign Corrupt Practices Act (FCPA) matter has long been awaited, the results announced yesterday by the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) were stunning nonetheless. As usual, Dick Cassin at the FCPA Blog was the first to get the story out and it was so big, it took him two blog posts. (Here and here.) Over the next few blog posts, I will be exploring the resolution and what lessons the compliance practitioner can draw from the case, the parallel actions and what it may portend for FCPA enforcement going forward under the Sessions DOJ. Today I will consider the underlying facts of the settlements.

The SEC settled via a Cease and Desist Order (Order). The SEC issued a Press Release. The DOJ issued an Information (Telia Information) and a Deferred Prosecution Agreement (Telia DPA), both for Telia. The DOJ issued an Information and DPA for Coscom LLC (Coscom Information), a Plea Agreement and also issued a Press Release. The breadth and scope of Telia’s illegal conduct was about as far-ranging as one could imagine. The fines and penalties certain bore this out. The below chart lists the fines and penalty amounts identified in the settlement documents and Press Releases.

Company Criminal Fine Civil Forfeiture Amt Paid to US Amt Paid to Netherlands Amt Paid to Sweden
Telia $500MM $475MM $699MM $274MM (not yet set)
Coscom $48.6MM
Subtotal $588.6 $475MM
Total Fines and Penalties to be paid by Telia to all countries $965MM

In a separate Press Release, Telia said in part, “The information being reported by media about the terms of the resolution is not complete. Telia Company has already announced that it has taken a provision with respect to the expected financial sanctions. It is correct that we are very close to a final resolution with all authorities (SEC, DOJ and the Dutch prosecutor), but cannot comment further at this time.” Cassin reported, “The company said in April it had adjusted its “estimate of the most likely outcome of the ongoing investigations into the company’s market entry and operations in Uzbekistan to $1 billion from $1.45 billion.””

The bribery scheme involved the company illegally buying its way into the Uzbekistan telecom market through its bribery of Gulnara Karimova, the eldest daughter of the late Uzbek President Islam Karimov. Karimova was also the bribery conduit in the VimpleCom matter, resolved in February 2016. In the Telia case Karimova parlayed her providing telecom licenses and upgrades into bribe payments of over $330MM to shell companies which she controlled.

In the DOJ Press Release, Acting US Attorney Joon H. Kim stated “Telia, whose securities traded publicly in New York, corruptly built a lucrative telecommunications business in Uzbekistan, using bribe payments wired around the world through accounts here in New York City. If your securities trade on our exchanges and you use our banks to move ill-gotten money, then you have to abide by our country’s laws. Telia and Coscom refused to do so, and they have been held accountable in Manhattan federal court today.”

The SEC Press Release stated, “Telia entered the Uzbek telecommunications market by offering and paying at least $330 million in bribes to a shell company under the guise of payments for lobbying and consulting services that never actually occurred. The shell company was controlled by an Uzbek government official who was a family member of the President of Uzbekistan and in a position to exert significant influence over other Uzbek officials, causing them to take official actions to benefit Telia’s business in Uzbekistan.”

The bribes were specifically approved by the highest level of Telia, including senior executives and the Board of Directors. There was an explicit awareness that the bribery scheme would violate the FCPA, so the company tried to navigate its way out of potential FCPA liability. Clearly those efforts were lacking. I will take a deep dive into the bribery scheme in a subsequent blog post.

A couple of other initial observations are important. The first was the truly international scope of the investigation and cooperation in the enforcement action. In the DOJ Press Release it noted involvement of “PPS, the Swedish Prosecution Authority, and the Office of the Attorney General in Switzerland, as well as law enforcement colleagues in Austria, Belgium, Cyprus, France, Ireland, the Isle of Man, Latvia, Luxembourg, Norway, Switzerland, the Isle of Man, and the United Kingdom.”

The SEC Press Released acknowledged and thank the following international enforcement actions, “Dutch Openbaar Ministerie, National Authority for Investigation and Prosecution of Economic and Environmental Crime in Norway, Swedish Prosecution Authority, Office of the Attorney General in Switzerland, and Corruption Prevention and Combating Bureau in Latvia. The SEC also appreciates the assistance from regulators and law enforcement in France, Spain, and Hong Kong as well as the Financial Conduct Authority, British Virgin Islands Financial Services Commission, Cayman Islands Monetary Authority, Bermuda Monetary Authority, Cyprus Securities and Exchange Commission, and Central Bank of Ireland.” Both the IRS and Department of Homeland Security were acknowledged to have been involved. Also noted was DOJ Money Laundering and Asset Recovery Section.

The DPA laid out the calculations which led to the criminal fine and forfeiture. It was noted the company did not self-disclose but did cooperate in the investigation and provided extensive remediation. This netted the company a 25% discount off the minimum penalty as calculated under the US Sentencing Guidelines.

As to Karimova, she has been under house arrest since 2014. In 2015, the DOJ won a federal court order to impound $300 million in bank accounts linked to her. The accounts were held by Bank of New York Mellon Corp. in Ireland, Luxembourg, and Belgium, and in accounts at Clearstream Banking SA. In 2014, prosecutors in Switzerland seized about $820 million as part of a money-laundering investigation into Karimova.

The Telia FCPA enforcement action continues a key theme from 2016-international cooperation. This cooperation was in both the investigation and enforcement aspects. All-in-all a stunning result for all the prosecutors involved.

 

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