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Telecom Giant Nears Settlements on Massive Uzbek Corruption Probe

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Crossroads Asia

Telecom Giant Nears Settlements on Massive Uzbek Corruption Probe

VimpelCom says that it would “acknowledge certain violations” if the settlements are finalized.

Telecom Giant Nears Settlements on Massive Uzbek Corruption Probe
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VimpelCom’s massive corruption scandal might be winding to a conclusion. The company says it has reached prospective settlements with a trio of agencies currently probing its dealings in the Uzbek telecom market. VimpelCom–Amsterdam-based, Bermuda-incorporated–is a large telecommunications company with dealings in Russia, Ukraine, Italy, and elsewhere. It is Russia’s third-largest wireless provider. Russian billionaire Mikhail Fridman owns a controlling stake, just under 48 percent, through the investment company which he heads.

In an end of the year report to shareholders, released on February 17, VimpelCom says it has reached prospective settlements with the U.S. Department of Justice (DOJ), the U.S. Securities and Exchange Commission (SEC) and the Dutch Public Prosecution Service (OM). Under the settlements, should they be approved and finalized, VimpelCom would “acknowledge certain violations of the U.S. Foreign Corrupt Practices Act and relevant Dutch laws and pay fines and disgorgements to the SEC, DOJ and OM, with those financial penalties within the previously disclosed provision for that purpose.”

In November, VimpelCom said it had set aside $900 million to cover whatever settlements might result from the company’s discussions with the SEC, DOJ and OM. Bloomberg reported in November that VimpelCom was “in talks to pay about $775 million — a near record — to settle U.S. allegations it paid bribes in Uzbekistan to win business, according to three people familiar with the matter.”

Last July, the DOJ won the right to seize $300 million the department says were paid as bribes by VimpelCom and MTS, a Russian mobile phone operator, to an unnamed relative of the Uzbek president (called “Government Official A” in the case) through a series of shell companies, including Takilant. It’s widely believed that “Government Official A” is Gulnara Karimova, daughter of President Islam Karimov, as Karimova has been tied to Takilant. Takilant features in other corruption cases–most notably the Swedish probe into TeliaSonera’s own troubled dealings with the Uzbek telecom market. TeliaSonera is working to extricate itself from the Eurasian market entirely.

In March 2015, the Organized Crime and Corruption Reporting Project (OCCRP), reported that Karimova had received more than $1 billion in payments and shares from various telecommunications companies. Meanwhile, they wrote, “telecom users in her impoverished country pay among the highest rates in the world for mobile phone service.” The OCCRP’s impressive investigation of Karimova details the rise and fall of Uzbekistan’s “prodigal daughter,” a “virtual princess” who now faces corruption and extortion charges at home as her criminal empire abroad comes to light.

Another note in VimpelCom’s fourth quarter report repeats the October announcement that Telenor, a Norwegian telecom company which holds a minority stake in VimpelCom, was working on divesting itself. “As VimpelCom moves forward with its recently announced new business strategy, it will work with Telenor to ensure a successful divestiture of its stake,” the report says.

Telenor put out a brief press release acknowledging VimpelCom’s progress toward a settlement and the company’s stress that the deals are not final nor guaranteed. Telenor, which as noted above is trying to separate itself from VimpelCom, said, “Corruption is unacceptable, and Telenor takes it very seriously that VimpelCom now seems to acknowledge certain violations of the US. Foreign Corrupt Practices Act and relevant Dutch Laws.”

The Wall Street Journal reported that a settlement between VimpelCom and various agencies “could be a good omen” for Telenor. Meanwhile, Bloomberg reports that VimpelCom’s shares rose slighting in response to the news but that sales had dropped 29 percent, in dollar terms, in 2015.

Update: Shortly after this article was published, news broke that VimpelCom settled with the DOJ to pay $795 million and make various admissions of corrupt dealings. You can read the release here.