We are on post IV of a five-part exploration of the recent the Department of Justice (DOJ) and Securities Exchange Commission (SEC) resolution of a Foreign Corrupt Practices Act (FCPA) enforcement action against the Russian telecom company, Mobile TeleSystems PJSC (MTS). The FCPA enforcement action came in at $850 million which makes it Number 3 in the Top 10 of all-time FCPA settlements. This series is examining the background facts of the case and provides a detailed review of the bribery schemes involved, the compliance failures of MTS and its actions during the investigation which contributed to the size of the penalty, the individual criminal prosecutions brought as a part of this action, the asset forfeiture actions filed by the DOJ by persons involved in this case and the key lessons learned by the compliance practitioner.

Today I look at the individual indictments, which charged Gulnara Karimova, daughter of the former President of Uzbekistan, with one count of conspiracy to commit money laundering and Bekhzod Akhmedov, a former MTS executive based in Uzbekistan with FCPA violations of one count of conspiracy to violate the FCPA, two counts of violating the FCPA, and one count of conspiracy to commit money laundering.

The companies and players:

1. MTS;
2. Uzdunrobita FE LLC (Uzdunrobita) which became a subsidiary of MTS in 2004;
3. Gulnara Karimova, daughter of the former President of Uzbekistan and Bekhzod Akhmedov, a former MTS executive based in Uzbekistan;
4. Kolorit Dizayn Ink, (Kolorit) a Uzbeki advertising agency bought by Uzdunrobita;
5. Swisdorn Ltd. and Takilant Ltd., both shell companies owned or controlled by Karimova.

US Attorney Geoffrey S. Berman of the Southern District of New York, said in the DOJ Press Release, “This is 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. By funneling multimillion-dollar bribe payments through the U.S. financial system, the companies and individual defendants corruptly tried to tip the global economy in their favor and line their own pockets. But they are now paying the price. Today, my Office and our law enforcement partners are sending a bold, unequivocal message that the U.S. financial system is not in business to enable foreign bribery or money laundering. This Office stands ready to prevent, prosecute, and penalize foreign corrupt practices wherever in the world we find them.”

The indictment discussed the three companies who paid bribes to Karimova, who then laundered the money on the international stage. They were VimpelCom Ltd. (now VEON Ltd.), Telia Company AB (formerly TeliaSonera AB) (Telia) and MTS. The schemes Karimova used were so similar as to be almost identical. The only thing that changed was the name of the company she was shaking down money from in her march towards receiving over $1 billion in ill-gotten payments.

VimpelCom

In the VimpelCom matter, Karimova held in interest in an Uzbeki company Buztel GSM. VimpelCom purchased Buztel and another Uzbeki company Unitel LLC to enter the Uzbeki telecom market. After payments of some $260 million for these two companies, Karimova received a 7% interest in the new company for which she sold the shares back to VimpelCom to for another $60 million. In addition to these initial amounts VimpelCom paid out over another $100 million in bribes to Karimova for 3G and 4G licenses, for bogus claims of consulting, through resellers and through currency exchange mechanisms.

Telia

According to the Indictment, Telia paid over $331 million to Karimova over just three years. It began with the purchase of a US company which held licenses to do telecom business in Uzbekistan. The purchase was of an entity called Coscom LLC and Telia paid $30 million to Karimova, with Karimova retaining a 26% interest in Coscom. Karimova kept an exclusive put option to sell this interest back to Telia, which she later exercised to the tune of $220 million. The remaining monies were paid for 3G licenses, sham consulting contracts and just plain old unattached bribe payments which Karimova extorted out of Telia by threatening to pull their license to do business in Uzbekistan. 

MTS

Karimova used the same bribery schemes to shake down MTS. She extorted monies when MTS entered the Uzbeki market by receiving some 6X the amount paid by the US entity which held the telecom license to do business in Uzbekistan. She retained an interest in the company and held a unilateral put call which she exercised for an amount far above the fair market value of the company. Yet Karimova did not sit still with her schemes as she required MTS to purchase another Uzbeki entity which was not in the telecom space to secure another bribe of $40 million.

There was another scheme present in the MTS matter which was present in the VimpelCom matter, but not the Telia matter. The Order characterized it as “Currency Conversion Transactions” and in the FCPA enforcement action brought by the SEC it was characterized as ‘books and records’ violation. However, it was more fully fleshed out in the VimpelCom enforcement action. The scheme went like this: the local Uzbeki telecom entity subsidiary would enter into equipment purchase contracts denominated in US dollars. Due to restrictions on the conversion of Uzbek soums into US dollars, the local Uzbeki telecom entity could not convert enough currency to pay its equipment vendors. In order to make its payments under the contracts, the local Uzbeki telecom entity would enter into debt reassignment and equipment purchase agreements with 3^rd-party companies who agreed to pay the required amounts of US dollars to pay the local Uzbeki telecom entity’s vendors. These companies were either controlled by or made the payments to Karimova.

Akhmedov was the facilitator through all of these bribery schemes, acting as the representative of Karimova and at least in the case of MTS, serving as an executive of the Uzbeki subsidiary of MTS. There was nothing to indicate that Akhmedov held any government position, so he was charged with both money laundering and FCPA violations. Rather amazingly and conveniently for US jurisdictional questions, he routed bribe payments through the US banking system.

Why are these indictments so significant? Assistant Attorney General Benczkowski summarized the actions of Karimova in the DOJ Press Release, stating, “Gulnara Karimova stands accused of exploiting her official position to solicit and accept more than $865 million in bribes from three publicly traded telecom companies, and then laundering those bribes through the U.S. financial system. The indictment and corporate resolution announced today, together with two prior corporate resolutions involving bribes allegedly paid to Karimova, demonstrate the Department’s comprehensive approach to foreign corruption: we will aggressively pursue both corrupt foreign officials and the companies and individuals who bribe them in order to gain unfair business advantages, and we will do everything we can to keep the proceeds of that corruption out of the U.S. financial system.” Additionally, the DOJ has brought civil forfeiture actions under the Kleptocracy Asset Recovery Initiative for over $850 million of Karimova’s ill-gotten gains.

But more than bringing Karimova and Akhmedov to justice, it once again demonstrates the US leadership in the fight against international bribery and corruption. Swedish courts could not or would not convict Telia Company executives who either paid the bribes to Karimova, facilitated the payments to her or overrode internal controls to make the payments. Do you really think the Russian government would prosecute a company for engaging in bribery and corruption? It is only the US government, in the form of the DOJ, which has both the will and cache to bring such individual prosecutions on the international stage.

Tomorrow, I will wrap up with lessons learned for the compliance practitioner.

Mike Volkov and myself did a special FCPA Compliance Reportbonus episode on the MTS settlement and Karimova indictment. Check it out for a full discussion of the matter.

References and Resources:

1. MTS Deferred Prosecution Agreement (DPA);
2. MTS Criminal Information (MTS Information);
3. SEC Cease and Desist Order (Order);
4. Karimova and Akhmedov Indictment (Indictment);
5. Kolorit Dizayn Ink LLC Plea Agreement (Plea Agreement);
6. Kolorit Dizayn Ink Information (Kolorit Information);
7. The DOJ Press Release;and
8. The SEC Press Release.

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