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VimpelCom Securities Fraud Case Largely Gets Past The Motion To Dismiss Stage

Judicial Decision

It’s as predictable as the sun rising in the east. In the aftermath of a Foreign Corrupt Practices Act enforcement action (and in some instances after mere FCPA scrutiny is disclosed) a plaintiffs’ lawyer representing a shareholder and working on a contingent fee basis files a securities fraud class action against the company and/or its executives.

Given the legal framework relevant to such actions (that is heightened pleading requirements as well as the Private Securities Litigation Reform Act) few of these actions actually get past the motion to dismiss stage.

Yet, recently a securities class action against VimpelCom (which recently changed its name to VEON Ltd.) did largely get past the motion to dismiss stage. Yet, even in this egregious instance of corporate bribery (see here and here for the prior posts), several of the plaintiffs’ allegations were deemed not viable.

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Potpourri

Potpourri

Disgraceful, scrutiny alerts, resource alert, for the reading stack, and for your consideration.  It’s all here in a potpourri edition of FCPA Professor.

Disgraceful

It’s a disgraceful practice.

A for-profit business invites a high-ranking DOJ official to its private event in which people have to pay to hear the public official speak.

It’s a disgraceful practice.

The for-profit company treats the DOJ official’s comments as if they own his words and then put the words behind a paywall.

Andrew Weissmann, the DOJ’s fraud section chief, recently spoke at GIR Live, an event hosted by a private for-profit company. According to this teaser post Weissmann spoke about issues of public concern including “how the department will factor in compliance, how it intends to reward those that self-report, and how it aims to increase transparency around resolutions and declinations.”

I requested a transcript of Mr. Weissmann’s remarks from the DOJ press office and was told: “[Mr. Weissmann] did not prepare formal remarks but spoke from notes, so I don’t have anything to provide. You’re welcome to check with the event organizers to see if they have a recording of it.”

Thankfully, Carlos Ayres was at the event and publicly posted a summary of Mr. Weisssmann’s remarks on the FCPAmericas website. According to his post:

“Weissmann said that the DOJ will publish in the next weeks a list of questions that companies can expect to be asked when being assessed by the DOJ’s new compliance consultant.”

“Weissmann said that the DOJ will shed more light on declination decisions in the short term, publishing related data with aggregate information.”

“Weissmann stated that DOJ will make an effort to complete cases for companies that self-report within one year.”

Thank you Mr. Ayres for your public service in sharing the comments of a high-ranking DOJ official on matters of public concern.

Scrutiny Alerts

HSBC Holdings

The company recently disclosed:

“Hiring practices investigation

The US Securities and Exchange Commission (the ‘SEC’) is investigating multiple financial institutions, including HSBC, in relation to hiring practices of candidates referred by or related to government officials or employees of state-owned enterprises in AsiaPacific. HSBC has received various requests for information and is cooperating with the SEC’s investigation. Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.”

Novartis

The Swiss company, which qualifies as an issuer under the FCPA, was recently the focus of news reports. According to this article:

“South Korean authorities raided Novartis offices in search of evidence the company provided bribes to local doctors, according to media reports. The Seoul Western District Prosecutors’ Office confiscated various documents, including account books, in order to determine whether rebates the drug maker offered physicians may have actually been bribes.”

Mondelēz International, Inc.

Approximately five years ago (see here for the prior post), Kraft Foods disclosed FCPA scrutiny resulting from its acquisition of Cadbury in connection with a manufacturing facility in India.  Kraft, now known as Mondelēz International, Inc., recently disclosed:

“As we previously disclosed, on February 1, 2011, we received a subpoena from the SEC in connection with an investigation under the FCPA, primarily related to a facility in India that we acquired in the Cadbury acquisition. The subpoena primarily requests information regarding dealings with Indian governmental agencies and officials to obtain approvals related to the operation of that facility. We are continuing to cooperate with the U.S. and Indian governments in their investigations of these matters, including through ongoing meetings with the U.S. government to discuss potential conclusion of the U.S. government investigation. On February 11, 2016, we received a “Wells” notice from the SEC indicating that the staff has made a preliminary determination to recommend that the SEC file an enforcement action against us for violations of the books and records and internal controls provisions of the Exchange Act in connection with the investigation. We intend to make a submission to the staff of the SEC in response to the notice.”

So-called Wells Notices are rare in the FCPA context for the simple reason that few issuers actually publicly push back against the SEC.  See here for an example of a company that prevailed against the SEC after receiving a Wells Notice.

Key Energy Services

The company has been under FCPA scrutiny since Spring 2014 and continues to bleed cash in connection with its scrutiny. In this recent filing, the company disclosed $2.7 million “related to” its FCPA scrutiny.

Sweet Group

The U.K. Serious Fraud Office recently announced:

“Construction and professional services company Sweett Group PLC was … sentenced and ordered to pay £2.25 million as a result of a conviction arising from a Serious Fraud Office investigation into its activities in the United Arab Emirates. The company pleaded guilty in December 2015 to a charge of failing to prevent an act of bribery intended to secure and retain a contract with Al Ain Ahlia Insurance Company (AAAI), contrary to Section 7(1)(b) of the Bribery Act 2010. The relevant conduct occurred between 1 December 2012 and 1 December 2015.”

In the release, David Green (Director of the SFO) stated:

“Acts of bribery by UK companies significantly damage this country’s commercial reputation. This conviction and punishment, the SFO’s first under section 7 of the Bribery Act, sends a strong message that UK companies must take full responsibility for the actions of their employees and in their commercial activities act in accordance with the law.”

As further noted in the release:

“His Honour Judge Beddoe described the offence as a system failure and said that the offending was patently committed over a period of time. Referring to Section 7 of the Bribery Act 2010 and to Sweett’s ignorance of its subsidiary’s actions , HHJ Bedoe said:

The whole point of section 7 is to impose a duty on those running such companies throughout the world properly to supervise them. Rogue elements can only operate in this way – and operate for so long – because of a failure properly to supervise what they are doing and the way they are doing it.

The SFO’s investigation into Sweett Group PLC, which commenced on 14 July 2014, uncovered that its subsidiary company, Cyril Sweett International Limited had made corrupt payments to Khaled Al Badie, the Vice Chairman of the Board and Chairman of the Real Estate and Investment Committee of AAAI to secure the award of a contract with AAAI for the building of the Rotana Hotel in Abu Dhabi. The amount is broken down as £1.4m in fine, £851,152.23 in confiscation. Additionally, £95,031.97 in costs were awarded to the SFO.”

Maxwell Technologies

In 2011, Maxwell Technologies (a California-based manufacturer of energy storage and power delivery products) resolved parallel DOJ and SEC FCPA enforcement actions concerning alleged business conduct in China by agreeing to pay approximately $14 million. The company recently disclosed:

“In January 2011, we reached settlements with the SEC and the U.S. Department of Justice (“DOJ”) with respect to charges asserted by the SEC and DOJ relating to the anti-bribery, books and records, internal controls, and disclosure provisions of the U.S. Foreign Corrupt Practices Act (“FCPA”) and other securities laws violations. We paid the monetary penalties under these settlements in installments such that all monetary penalties were paid in full by January 2013. With respect to the DOJ charges, a judgment of dismissal was issued in the U.S. District Court for the Southern District of California on March 28, 2014.

On October 15, 2013, we received an informal notice from the DOJ that an indictment against the former Senior Vice President and General Manager of our Swiss subsidiary had been filed in the United States District Court for the Southern District of California. The indictment is against the individual, a former officer, and not against the Company and we do not foresee that further penalties or fines could be assessed against us as a corporate entity for this matter. However, we may be required throughout the term of the action to advance the legal fees and costs incurred by the individual defendant and to incur other financial obligations. While we maintain directors’ and officers’ insurance policies which are intended to cover legal expenses related to our indemnification obligations in situations such as these, we cannot determine if and to what extent the insurance policy will cover the legal fees for this matter. Accordingly, the legal fees that may be incurred by us in defending this former officer could have a material impact on our financial condition and results of operation.

Swiss Bribery Matter

In August 2013, our Swiss subsidiary was served with a search warrant from the Swiss federal prosecutor’s office. At the end of the search, the Swiss federal prosecutor presented us with a listing of the materials gathered by the representatives and then removed the materials from our premises for keeping at the prosecutor’s office. Based upon the our exposure to the case, we believe this action to be related to the same or similar facts and circumstances as the FCPA action previously settled with the SEC and the DOJ. During initial discussions, the Swiss prosecutor has acknowledged both the existence of our deferred prosecution agreement (“DPA”) with the DOJ and our cooperation efforts thereunder, both of which should have a positive impact on discussions going forward. Additionally, other than the activities previously reviewed in conjunction with the SEC and DOJ matters under the FCPA, we have no reason to believe that additional facts or circumstances are under review by the Swiss authorities. In late March 2015, we were informed that the Swiss prosecutor intended to inform the parties in April 2015 as to whether the prosecutor’s office would bring charges or abandon the proceedings. However, to date, the Swiss prosecutor has not issued its formal decision. At this stage in the investigation, we are currently unable to determine the extent to which we will be subject to fines in accordance with Swiss bribery laws and what additional expenses will be incurred in order to defend this matter. As such, we cannot determine whether there is a reasonable possibility that a loss will be incurred nor can we estimate the range of any such potential loss. Accordingly, we have not accrued an amount for any potential loss associated with this action, but an adverse result could have a material adverse impact on our financial condition and results of operation.”

As noted here by Wall Street Journal – Risk & Compliance Journal, in the same disclosure Maxwell disclosed approximately $2.4 million in FCPA professional fees and expenses in 2015.

Resource Alert

As highlighted here, Stanford Law School and Sullivan & Cromwell recently announced the launch of an FCPA clearinghouse –  “a public database that aggregates and curates source documents and provides analytic tools related to enforcement of the Foreign Corrupt Practices Act (FCPA).”

For the Reading Stack

An informative read here in Bloomberg Law from John Cunningham and Geoff Martin (both of Baker & McKenzie) titled “Casting a Wider Net: Conspiracy Charges in FCPA Cases.”

Another informative read here in the New York Times regarding the DOJ’s Kleptocracy Asset Recovery Initiative.

For Your Consideration

Did U.S. involvement in Afghanistan result in more corruption? Did the U.S. fail to conduct adequate due diligence on intermediaries (a frequent FCPA enforcement theory against companies)? NPR explores the issue here.

Issues To Consider From The VimpelCom Enforcement Action

IssuesThis prior post went in-depth into the recent Foreign Corrupt Practices Act enforcement action against VimpelCom (and a related entity) that resulted in a net $397.5 million FCPA settlement – the 5th largest FCPA settlement amount of all-time (see here for the current top-ten list).

This post highlights additional issues to consider.

Did VimpelCom Get Off Too Lightly?

The resolution documents contain numerous allegations about VimpelCom executive officers as well as various VimpelCom corporate committees that were engaged in the improper conduct. The allegations in the VimpelCom action are egregious and paint a picture of a culture of corruption at VimpelCom with high-level executives seeking legal cover at nearly every turn to facilitate the alleged bribery scheme.

Yet VimpelCom was offered a DPA, notwithstanding the fact that it did not voluntarily disclosure.

During last week’s conference call announcing the VimpelCom enforcement action (see here for the transcript), Assistant Attorney General Leslie Caldwell was asked why VimpelCom was offered a DPA while Unitel LLC, a business entity headquartered and incorporated in Uzbekistan, was required to plead guilty. Caldwell generally stated that this resulted from the fact that most of the alleged improper conduct was engaged in Unitel, not VimpelCom.

Having read the DOJ’s resolution documents, I question how Ms. Cadlwell could have made this statement as the documents contain numerous allegations about VimpelCom executive officers as well as various VimpelCom corporate committees that were engaged in the improper conduct. Again, the allegations in this case are egregious and paint a picture of a culture of corruption at VimpelCom with high-level executives seeking legal cover at nearly every turn to facilitate the alleged bribery scheme.

The 2010 article “The Facade of FCPA Enforcement” highlights various pillars that contribute to the facade of FCPA enforcement including how seemingly clear-cut instances of corporate bribery, per the government’s own allegations, are resolved without actual prosecuted anti-bribery violations.

VimpelCom joins other corporate FCPA enforcement actions such as BizJet International, Daimler AG and Siemens AG that also involved egregious instances of corporate bribery, yet did not result in actual prosecuted anti-bribery violations.

Was the Unitel Criminal Charge Even Viable?

A former high-ranking DOJ FCPA enforcement attorney once explained to me that the corporate FCPA resolution process often begins in reverse where the DOJ and the company agree on the end result (i.e., which corporate entity will accept responsibility) and then the negotiating parties work backwards to craft a resolution document that will be acceptable to both parties.

Indeed, the “sausage making” metaphor rightly applies to certain DOJ corporate FCPA enforcement actions as the alleged conduct at issue is “sliced and diced” in a way to yield resolution documents that avoid the potential collateral consequence of debarment from government contracting, both in the United States and elsewhere, as well as other negative collateral consequences.

When it comes to this topic, the issue in the VimpelCom enforcement action is not whether egregious bribery took place, again as stated above, it surely did. Rather the issue is the form of the resolution and whether the Unitel criminal charge was even viable.

As highlighted above, Unitel is a business entity headquartered and incorporated in Uzbekistan. In “FCPA-speak” it is thus a “person other than an issuer or domestic concern” under dd-3 and can only be subject to the FCPA’s anti-bribery provisions to the extent “while in the territory of the United States, [there is corrupt] use of the mails or any means or instrumentality of interstate commerce” in furtherance of a bribery scheme.

While the Unitel criminal information does contain allegations regarding “use of the mails or any means or instrumentality of interstate commerce,” is does not contain any “while in the territory of the U.S.” allegations. Perhaps because of this, Unitel was not charged under dd-3, but rather charged with conspiracy (18 USC 371) to violate the FCPA’s anti-bribery provisions and the information specifically cites dd-1 (the statutory prong applicable to issuers).

The problem with this enforcement theory is that it conflicts with the recent decision in U.S. v. Hoskins (and other decisions both in the FCPA context and otherwise) which hold that a person can not be charged with conspiring to violate a statutory provision that substantively does not apply to the person.

Where Should the Money Go?

This is not so much a legal question, but a policy question that can be asked in connection with FCPA enforcement actions against foreign companies.

Even though the global settlement announced last week involved a Dutch component, the fact remains that net $397.5 million is going into the U.S. treasury because a Bermuda company that was headquartered in Moscow, Russia until 2010 when it moved its headquarters to Amsterdam, the Netherlands (VimpelCom) and an Uzbek entity (Unitel) bribed Uzbek officials.

Against this backdrop, I will repeat what I stated in this 2010 speech: when a non-U.S. company allegedly bribes non U.S. officials, I don’t know exactly where the money should go, but I am pretty sure the best answer is not the U.S. treasury.

Root Causes

An analysis of root causes in FCPA enforcement actions is not meant to excuse the conduct at issue, but rather to better understand why the conduct took place.

The root cause of the VimpelCom enforcement action appears to be that pursuant to local law, or at the very least local practice, VimpelCom needed a local partner in Uzbekistan in order to enter that market. The rest, as they say, is set forth in the resolution documents.

This again demonstrates that trade barriers and distortions are often the root causes of bribery and a reduction in bribery will not be achieved without a reduction in trade barriers and distortions.

In-Depth On VimpelCom

VimpelComThis post goes in-depth regarding yesterday’s FCPA enforcement action against VimpelCom (and a related entity) and summarizes the approximate 120 pages of resolution documents.

As highlighted in this previous post, The net $397.5 million U.S. portion of the settlement is the 5th largest FCPA settlement amount of all-time (see here for the current top-ten list).

The resolution documents contain numerous allegations about VimpelCom executive officers as well as various VimpelCom corporate committees that were engaged in the improper conduct. The allegations in the VimpelCom action are egregious and paint a picture of a culture of corruption at VimpelCom with high-level executives seeking legal cover at nearly every turn to facilitate the alleged bribery scheme.

DOJ

Unitel Criminal Information

The conduct at issue centers on  the Uzbek Agency for Communications and Information (“UzACI”), described as an Uzbek governmental entity authorized to regulate operations and formulate state policy in the sphere of communication, information, and the use of radio spectrum in Uzbekistan. According to the information,UzACI was a “department,” “agency,” and “instrumentality” of a foreign government under the FCPA.

The “foreign official” is described as follows: an individual whose identity is known to the United States, who was an Uzbek government official and a close relative of a high-ranking Uzbek government official. Foreign Official had influence over decisions made by UzACI.

Under the heading “Overview of the Corruption Scheme,” the information alleges:

“VimpelCom and UNITEL conspired with others to provide over $114 million in bribes in exchange for Foreign Official’s understood influence over decisions made by UzACI concerning Uzbekistan’s telecommunications market. VimpelCom and UNITEL officials understood that they had to regularly pay Foreign Official millions of dollars in order to continue to obtain necessary UzACI approvals and be allowed to obtain and retain Uzbek telecommunications business.

The conspiracy to make corrupt payments to Foreign Official occurred in stages:

a. First, before entering the Uzbek market, certain VimpelCom management understood that they were required to have Foreign Official as a “local partner” to conduct business in Uzbekistan. As part of its efforts to enter the market, VimpelCom paid $60 million to acquire Buztel, a company in which certain VimpelCom management knew that Foreign Official held an indirect interest via Shell Company [described as a company incorporated in Gibraltar that was beneficially owned by Foreign Official] because certain VimpelCom management knew that the acquisition of Buztel likely would facilitate VimpelCom’s acquisition of Unitel LLC and enable the company to conduct business in Uzbekistan.

b. Second, in 2006, VimpelCom and UNITEL corruptly entered into a lucrative partnership agreement with Foreign Official’s front company, Shell Company, in which Shell Company would obtain an indirect ownership interest in UNITEL that VimpelCom would later repurchase at a guaranteed profit. The true purpose of this agreement was to pay a $37.5 million bribe to Foreign Official in exchange for Foreign Official permitting VimpelCom and UNITEL to conduct business in Uzbekistan.

c. Third, VimpelCom, through a subsidiary, corruptly entered into a contract with Shell Company purportedly to obtain 3G frequencies in 2007. Certain VimpelCom management caused a $25 million bribe to be paid to Foreign Official via Shell Company so that Foreign Official would help UNITEL obtain these valuable telecommunications assets and permit it to conduct business in Uzbekistan.

d. Fourth, VimpelCom, directly or through a subsidiary, knowingly entered into fake consulting contracts with Shell Company for $2 million in 2008 and $30 million in 2011; in both cases, Shell Company did no real work to justify the large consulting fees. The corrupt purpose of these contracts was to provide Foreign Official with approximately $32 million in exchange for valuable telecommunications assets and to allow UNITEL to continue to conduct business in Uzbekistan.

e. Finally, VimpelCom and UNITEL made $20 million in bribe payments to Foreign Official in 2011 and 2012 through purposefully non-transparent transactions with purported “reseller” companies. Through these transactions with reseller companies, VimpelCom and UNITEL made and concealed corrupt payments to Foreign Official through Shell Company, which allowed UNITEL to continue to conduct business in Uzbekistan.

Certain VimpelCom and UNITEL management used U.S.-based email accounts to communicate with others and effectuate the scheme. In addition, VimpelCom and UNITEL each made numerous corrupt payments that were executed through transactions into and out of correspondent bank accounts at financial institutions in New York, New York.”

Next the information alleges how VimpelCom entered the Uzbek market and how company leaders sought legal cover in doing so. Specifically, the information alleges:

“In 2005, as part of a plan of expansion into the CIS region, VimpelCom sought to acquire an Uzbek telecommunications company. Two companies under consideration for acquisition were Unitel LLC, the second largest operator in Uzbekistan with approximately 300,000 subscribers, and Buztel, which was a much smaller operator with only 2,500 subscribers. Although there was a sound business case for purchasing Unitel LLC alone, VimpelCom ultimately purchased Buztel, as well. Certain VimpelCom management knew that Foreign Official held an indirect interest in Buztel, and that purchasing Buztel would ensure Foreign Official’s support for VimpelCom’s entry into the Uzbek telecommunications market.

As reflected in the minutes of a December 13, 2005 VimpelCom Finance Committee meeting, certain VimpelCom management explained that “due to certain political reasons (and this message should be taken by us as is), Buztel should be considered as an entry ticket into [the] Uzbekistan market and the buyer of Buztel would be considered a preferred buyer of Unitel.” Certain VimpelCom management explained that it was “more important to follow the political requirements suggested for entry into the market versus [the] questionable risk of acquisition of Unitel as [a] standalone” and VimpelCom would be “in opposition to a very powerful opponent and bring [the] threat of revocation of licenses after the acquisition of Unitel [as a] stand-alone.”

According to minutes of the meeting, a VimpelCom Finance Committee member questioned the wisdom of purchasing Buztel when Unitel LLC was of a size sufficient for nation-wide coverage and when the $60 million purchase price for Buztel could be better spent developing Unitel LLC’s network. The minutes reflect that same member also “expressed concern on the structure of the deal and FCPA issues” and noted “that if [VimpelCom] goes into this deal under this structure and if the structure violates the FCPA picture, [VimpelCom’s] name could be damaged.”

The Finance Committee voted to move forward with the acquisition process with the understanding that VimpelCom’s board should consider whether to “enter Uzbekistan through acquisitions of both Buztel (as a condition of entry into the market) and Unitel, . . . provided, however, that all issues related to FCPA should be resolved” or “to bid for Unitel only with understanding that potentially it may be more expensive and is connected with risks of business development without [the] local partner.”

During a December 14, 2005 VimpelCom board meeting, the likelihood of corruption was further discussed. For example, certain VimpelCom management explained that Foreign Official was actively influencing and interfering with Buztel’s operations because of Foreign Official’s ownership interest in the company. Certain VimpelCom management added that Foreign Official appeared to have control and influence over the purchase price for Unitel LLC. Certain VimpelCom management also warned that there could be a falling out with the local partner if VimpelCom only purchased Unitel LLC that would make it difficult, if not impossible, to operate in Uzbekistan. Concerns were raised about doing business with Foreign Official and the dangers associated with the Buztel transaction, and there was a recognition that a thorough analysis was needed to ensure that the Buztel payment was not merely a corrupt pretext for other services and favors. There were also numerous requests to ensure that the deal complied with the FCPA. Ultimately, VimpelCom’s board approved the acquisitions of Buztel and Unitel LLC, with a condition that FCPA analysis from an international law firm be provided to VimpelCom.

VimpelCom’s management then sought FCPA advice that could be used to satisfy the board’s requirement while allowing VimpelCom to proceed with a knowingly corrupt deal. Despite the known risks of Foreign Official’s involvement in Buztel, certain VimpelCom management obtained FCPA legal opinions from an international law firm supporting the acquisition of Unitel LLC and Buztel; however, certain VimpelCom management did not disclose to the law firm Foreign Official’s known association with Buztel. As a result, the legal opinion did not address the critical issue identified by the VimpelCom board as a prerequisite to the acquisition. Certain VimpelCom management limited the law firm’s FCPA review of the transaction to ensure that the legal opinion would be favorable.

Having obtained a limited FCPA legal opinion designed to ostensibly satisfy the board’s requirement, certain VimpelCom management then proceeded with the Buztel acquisition and corrupt entry into the Uzbek market. VimpelCom, through subsidiaries, purchased Buztel for approximately $60 million on or about January 18, 2006 and Unitel LLC for approximately $200 million on or about February 10, 2006, along with the assumption of some debt.”

Next, the information alleges how VimpelCom again sought legal cover in entering a local partnership with the Shell Company controlled by the “foreign official.”

“As VimpelCom entered the Uzbek market through the acquisitions of Unitel LLC and Buztel, certain VimpelCom management learned that VimpelCom would be required to enter into a partnership with Shell Company, which was ultimately controlled by Foreign Official, in order to conceal corrupt payments to Foreign Official in exchange for Foreign Official’s support to allow VimpelCom and UNITEL to do business in Uzbekistan.

VimpelCom structured the partnership agreement to hide the bribe payments to Foreign Official. Under the deal, Shell Company obtained an indirect interest of approximately 9 7% in UNITEL for $20 million, and Shell Company received an option to sell its shares back to UNITEL in 2009 for between $57.5 million and $60 million for a guaranteed net profit of at least $37.5 million. In proposing the partnership, VimpelCom justified it in part by explaining that the partner would provide the “[r]evision of the licensing agreement for the major licenses” and “transfer of frequencies,” while also noting that the direct transfer of frequencies was not allowed in Uzbekistan.

VimpelCom’s board approved the partnership on or about April 7, 2006, but its approval again was conditioned on “FCPA analysis by an international law firm” and required that the “the identity of the Partner . . . [be] presented to and approved by the Finance Committee.” VimpelCom received an FCPA opinion on the sale of the indirect interest in UNITEL to Shell Company on or about August 30, 2006. The FCPA advice VimpelCom received was not based on important details that were known to certain VimpelCom management and that certain VimpelCom management failed to provide to outside counsel, including Foreign Official’s control of Shell Company. In addition, documents, including minutes from the Finance Committee’s meeting on August 28, 2006, failed to identify the true identity of the local partner by name while noting the “extremely sensitive” nature of the issue.

On or about March 28, 2007, VimpelCom’s board unanimously approved the partnership agreement with Shell Company, and the deal progressed as planned. Associate A [the information alleges that Associate A was Foreign Official’s close associate and that when Shell Company was incorporated in 2004, Associate A was twenty years old and became Shell Company’s purported sole owner and director] signed the agreement on behalf of Shell Company as the “Director,” and on or about June 12, 2007, Shell Company transferred $20 million from its Latvian bank account to VimpelCom’s bank account. Less than three years later, in or around September 2009, Shell Company exercised its guaranteed option to have VimpelCom’s subsidiary repurchase Shell Company’s shares, and VimpelCom transferred $57,500,000 from its bank account to Shell Company’s bank 10 account in Hong Kong. Both transfers were executed through transactions into and out of correspondent bank accounts at financial institutions in New York, New York.

As a result of VimpelCom’s partnership agreement and transfer of funds to Shell Company, Foreign Official made a net profit of approximately $37.5 million and VimpelCom and UNITEL were able to continue to conduct business in Uzbekistan.”

The information next alleges how various VimpelCom executives and management used “contracts for fake consulting services with Shell Company in order to provide Foreign Official with approximately $32 million in exchange for valuable telecommunications assets and to allow UNITEL to continue to conduct business in Uzbekistan.” According to the indictment:

“VimpelCom did not conduct any FCPA analysis concerning this purported consulting services agreement with Shell Company. This was despite the fact that certain VimpelCom management had received a prior FCPA opinion concerning Shell Company, which explicitly excluded any FCPA analysis associated with consulting services provided by Shell Company. Moreover, during the earlier due diligence process, Shell Company had represented that “[Shell Company] does not contemplate entering into consultancy or similar agreement with VimpelCom . . . .”

The information further alleges:

“In 2011, Executive 1 [described as a high-ranking VimpelCom executive with responsibilities in the Commonwealth of Independent States (“CIS”) region, including oversight of UNITEL in Uzbekistan] conspired with Executive 2 [described as a person who worked with Executive 1 relating to VimpelCom’s business in the CIS region, including oversight of UNITEL in Uzbekistan] and others to direct an additional $30 million payment to Foreign Official through Shell Company. This $30 million bribe payment was made specifically to acquire 4G mobile communication frequencies for UNITEL, but was also part of the broader effort to enable UNITEL to continue to operate in the Uzbek telecommunications market without interference by Foreign Official.”

Regarding the 4G consulting agreement with Shell Company, the information alleges that it “caused substantial internal criticism by some VimpelCom executives, including those who were charged with approving the transaction.” According to the information:

“Certain VimpelCom management again sought an FCPA opinion from outside counsel to provide a plausible cover to go forward with the transaction. Certain VimpelCom management then failed to provide outside counsel with important information, most notably that Shell Company was known to be owned by Foreign Official, because certain VimpelCom management were willing to accept an opinion that focused on Shell Company as a third party without analyzing or addressing the nature of the transaction itself or its high dollar value.

Furthermore, the purported FCPA due diligence on Shell Company was flawed in design and execution. No in-house or outside lawyer ever directly contacted Shell Company’s purported owner, Associate A, and instead, the FCPA questionnaires purportedly designed to uncover beneficial owners and potential corruption risks were sent to intermediaries to respond. For example, on or about August 5, 2011, a VimpelCom in-house lawyer emailed FCPA questionnaires to Executive 1 to pass along “to the [Shell Company] representative to fill out.” On or about August 6, 2011, Executive 1 forwarded the FCPA questionnaires both to Executive 1’s personal email account and the personal email account of Associate B. Executive 1 also forwarded the email with the FCPA questionnaires to Executive 2 who replied: “Hardcore, of course . . . But in my opinion with the exception of the first and last names they can answer everything else.”

The information contains several allegations concerning “Witness” (a consultant functioning as a senior VimpelCom executive who was among the chief critics of the 4G consulting agreement with Shell Company). The information alleges:

“In or around August and September 2011, Witness continued to raise concerns. On or about September 2, 2011, Witness emailed a then in-house VimpelCom attorney to explain that Witness was “very concerned about this way of structuring the payment,” and Witness asked whether VimpelCom had received “any official ‘ok’ from US Governmental body/SEC . . . .” On or about September 5, 2011, Witness received a response from VimpelCom’s then in-house counsel that acknowledged that, “[t]his transaction deserves caution but on the legal side the 17 question boils down to whether there is a reasonable basis to believe that our counter-party will make illegal payments. We cannot establish conclusively that there will not be any illegal payments . . . .” VimpelCom’s then in-house counsel added, “. . . . our due diligence is our defense in the event that there is a claim against us so we have to ask ourselves whether the situation warrants additional due diligence. [We are] comfortable that additional due diligence is not warranted. We are going to monitor the process and ensure that real work is being done by the counter-party.” However, VimpelCom, including its in-house attorneys, did not thoroughly monitor the process to ensure that Shell Company performed any services. Once the FCPA opinion was obtained, VimpelCom proceeded with the deal.

The 4G consulting agreement required approvals from certain senior VimpelCom executives reviewing the transaction from their areas of expertise. After receiving repeated assurances from VimpelCom’s then in-house lawyers, in or around mid-September 2011, Witness eventually provided the sign-off for Witness’s expert area for the proposed 4G consulting agreement with Shell Company. However, Witness handwrote an unusual caveat below Witness’s signature: “This sign off is solely related to [my expert area]. My sign off confirm[s] that I have reviewed the technical [] position and approved with it.” Notably, certain other VimpelCom executives specifically limited their approval or expressed reservations before signing off on their expert areas. Executive 2 expressed no reservations before providing the necessary approval on behalf of the business unit.

Soon after providing the limited sign-off on the deal, Witness escalated the matter to the highest levels within VimpelCom management, with whom Witness met on or about September 30, 2011. However, certain VimpelCom management failed to act on Witness’s concerns and the 4G deal remained in place after the meeting.”

The information also alleges how the “reselling” process was used to facilitate the bribery scheme.  According to the information:

“Because of significant currency conversion restrictions in Uzbekistan and the inability to use Uzbek som (the Uzbek unit of currency) to obtain necessary foreign goods, UNITEL frequently entered into non-transparent transactions with purported “reseller” companies to pay foreign vendors in hard currency for the provision of goods in Uzbekistan. Typically, UNITEL would contract with a local Uzbek company in Uzbek som, and that Uzbek company’s related companies located outside of Uzbekistan would agree to pay an end supplier using the hard currency (usually, U.S. dollars). In February and March 2011, Executive 1 conspired with Executive 2 and others to take advantage of the murky reseller process to conceal a $10 million bribe to Foreign Official via Shell Company through various purported reseller transactions to Shell Company.

[…]

By using the reseller scheme, certain VimpelCom and UNITEL executives avoided additional scrutiny, including FCPA analysis, of the transactions and payments.”

Based on the above core conduct, the information charges one count of conspiracy to violate the FCPA’s anti-bribery provisions.

Unitel Plea Agreement

The plea agreements sets forth the advisory sentencing guidelines fine range of $732 million to $1.46 billion. The agreement then states:

“The parties agree that, in light of (a) the complexity of the overall dispositions with Unitel and its parent company, VimpelCom Ltd., and (b) the interrelationship among the charges and conduct underlying those dispositions, an application of the Alternative Fines Act, Title 18, United States Code, Section 3571(d), to this case would unduly complicate or prolong the sentencing process, so that the maximum fine under the Sentencing Guidelines is $500,000 as provided in Title 18, United States Code Section 3571(c)(3). The parties agree that, in light of the VimpelCom DPA, which requires VimpelCom to pay a total monetary penalty of $460,326,398.40 as a result of the misconduct committed by both VimpelCom Ltd. and the defendant, as well as the factors cited in the VimpelCom DPA, no fine should be imposed on the defendant.”

VimpelCom Information

Based on the same core conduct alleged above, VimpelCom was also charged with conspiracy to violate the FCPA’s anti-bribery and books and records provisions and a separate count of violating the FCPA’s internal controls provisions.

Under the heading “VimpelCom’s Failure to Implement and Enforce Internal Accounting Controls,” the information alleges:

“Throughout the time period of VIMPELCOM’s bribery of Foreign Official, VIMPELCOM failed to implement adequate internal accounting controls and failed to enforce the internal accounting controls it did have in place, which permitted the above-referenced bribe payments to occur without detection or remediation.

VIMPELCOM failed to implement a system for conducting, recording, and verifying due diligence on third parties, including joint venture partners, consultants, reseller companies, and suppliers to uncover their true nature, beneficial ownership, and possible corruption risks. Time and again, board members, executives, and employees of VIMPELCOM identified serious concerns with third parties, and VIMPELCOM still failed to undertake adequate due diligence.

Further, VIMPELCOM knowingly failed to require that all consulting agreements be for bona fide services, that agreed-upon payments were commensurate with the services to be performed, and that services paid for were, in fact, performed. VIMPELCOM knowingly failed to conduct meaningful auditing or testing of its consultant agreements, invoices, and payments, including those with Shell Company and, as demonstrated above, failed to conduct adequate investigations of corruption complaints. VIMPELCOM also had no policy regarding payments to bank accounts located in places where the contractual partner neither performed work nor had operations.

In 2011 and 2012, VIMPELCOM paid $20 million in bribes through singlesource decisions with reseller companies that allowed certain executives to structure nontransparent transactions. VIMPELCOM knowingly failed to implement and maintain adequate controls for approving and transacting with reseller companies and intermediaries to ensure that reseller companies were scrutinized and that single-source contracting decisions were justified. Certain VIMPELCOM and Unitel executives took advantage of these control failures to engage in transactions designed to obfuscate the actual purpose of the payments, which was to corruptly influence Foreign Official.

As a result of the facts described herein and the failures of VIMPELCOM’s management, VIMPELCOM also knowingly lacked a sufficient internal audit function to provide reasonable assurances that corporate assets were not used to make bribery payments to foreign officials and failed to enforce audit protocols or conduct adequate internal audits to detect and prevent criminal activity. As discussed above, VIMPELCOM knowingly failed to implement and enforce internal controls to keep a 2012 reseller transaction within a regularly conducted audit after Executive 2 intervened to cause its removal, thereby allowing a bribe payment to Foreign Official, through Shell Company, to go undetected.

VIMPELCOM management also knowingly failed to implement and maintain adequate controls governing processes concerning conflicts of interest. For example, certain VIMPELCOM management knew of a conflict with Associate B’s representation of Shell Company, because at the time Associate B was a chief executive of one of Unitel’s primary competitors in Uzbekistan. Moreover, Associate B requested to be contacted about work matters on a personal email account and through a pseudonym. VIMPELCOM failed to implement or enforce any meaningful policy to adequately scrutinize business deals with representatives who had such conflicts of interest or otherwise engaged in non-transparent activities.

Other failures that contributed to VIMPELCOM’s lax control environment were VIMPELCOM’s failure to enforce price thresholds that determined the required level of approval authority, failure to retain documentation of deliverables for contracts, and failure to adequately classify and obtain approvals for purported charitable contributions that were made in exchange for state-provided assets.

VIMPELCOM’s failures to implement and enforce adequate internal controls contributed to an environment where it was possible for VIMPELCOM and Unitel executives to pay Foreign Official through Shell Company over $114 million in bribes.

VIMPELCOM also had particularly severe deficiencies in its general compliance function and its anticorruption compliance policies and procedures. When VIMPELCOM entered the Uzbek market, it had no Chief Compliance Officer (“CCO”). To the extent that compliance was considered by VIMPELCOM, it was the responsibility of the legal department and was thought of as a “completeness check” that legal formalities were followed. When VIMPELCOM later did designate a CCO, whose formal title was the Head of Department of Compliance with Obligations and Disclosure of Information and Corporate Law, the junior executive selected had no background in compliance and was given no staff or support. Furthermore, all of VIMPELCOM’s compliance duties were expected to take a small fraction of the executive’s time. In fact, there was no dedicated compliance function at VIMPELCOM until 2013, and CCO was not a senior management group position until 2014.

During the duration of the conspiracy, certain high-level VIMPELCOM management knew of the FCPA, yet VIMPELCOM had little to no anticorruption compliance program, much less a program that was regularly and appropriately evaluated for effectiveness and provided appropriate incentives. VIMPELCOM’s only anticorruption policy was encapsulated in two, high-level paragraphs in VIMPELCOM’s code of conduct, which required consultation with the legal department “before providing anything of value to a government official.” In fact, VIMPELCOM’s legal department did no internal FCPA review of transactions. When corruption issues were identified in the above-mentioned cases, the subsequent “FCPA review” was seen as a “check list and a confirmation from [outside counsel].” As demonstrated above, certain VIMPELCOM management withheld crucial information in such situations in Uzbekistan from outside counsel and overly restricted the scope of FCPA opinions such that the advice given was of no value. Indeed, VIMPELCOM did not have a specific anti-corruption policy until February 2013. Training on the FCPA during the course of the corruption conspiracy, to the extent it existed at all, was inadequate and ad hoc. In short, rather than implement and enforce a strong anti-corruption ethic, VIMPELCOM sought ways to give itself plausible deniability of illegality while proceeding with business transactions known to be corrupt.”

Under the heading “Scheme to Falsify Books and Records,” the information alleges:

“Due to VIMPELCOM’s failure to implement effective internal accounting controls, VIMPELCOM, acting through certain executives and others, disguised on its books and records over $114 million in bribe payments made for the benefit of Foreign Official in exchange for VIMPELCOM and Unitel’s ability to enter and conduct business in the Uzbek telecommunications market.

Although all of VIMPELCOM’s and Unitel’s bribes to Foreign Official were funneled through Shell Company, it was part of the scheme that certain VIMPELCOM management and others used a variety of non-transparent transactions with different purported business purposes, described above, so that the payments would be inaccurately recorded as legitimate transactions. a. 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. b. 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. c. 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. d. The bribe related to consultancy services associated with the acquisition of 4G frequencies in 2011 was falsely recorded in VIMPELCOM’s consolidated books and records as “consulting services” and treated as consulting services and as an acquisition of an intangible asset, namely 4G frequencies.

The bribes made through purported reseller transactions in 2011 and 2012 were falsely recorded in VIMPELCOM’s consolidated books and records as “professional services” expenses. VIMPELCOM also created, and caused to be created, false and backdated records to further conceal these improper payments. For example, each bribe payment was concealed by false contracts that were intended to create the appearance of legitimacy. Some of these contracts included provisions prohibiting unlawful payments, including payments that would violate the FCPA, even though certain VIMPELCOM and Unitel executives knew that the payments called for by the contracts were, in fact, bribes to Foreign Official in violation of the FCPA. At times, VIMPELCOM and Unitel executives also created false service acceptance acts, invoices, and other back-up documentation to justify supposedly legitimate business services when, in truth and in fact, those executives knew that no such work was actually performed to justify the generous payments made to Shell Company. Certain VIMPELCOM and Unitel executives also accepted plagiarized work product to falsely substantiate consulting work that was never performed.”

VimpelCom DPA

The criminal charges against VimpelCom were resolved through a DPA with a term of three years.

Under the heading “Relevant Considerations,” the DPA states:

The Offices enter into this Agreement based on the individual facts and circumstances presented by this case and the Company. Among the factors considered were the following: (a) the Company failed to self-disclose voluntarily its misconduct to the Offices after an internal investigation had been initiated and uncovered wrongdoing, and as a result the Company was not eligible for a more significant discount on the fine amount or the form of resolution; (b) the Company has provided to the Offices all relevant facts known to the Company, including information about individuals involved in the FCPA misconduct; (c) the Company received full cooperation and remediation credit of 25% for its substantial cooperation with the Offices, including-providing evidence (where not prohibited by relevant foreign data privacy and national security laws and regulations) uncovered during a previously conducted internal investigation; undertaking significant efforts to provide foreign evidence to the Offices (again where not prohibited by relevant foreign data privacy law and national security laws or regulations); conducting additional investigation independently, proactively, and as requested; voluntarily making foreign employees available for interviews; assisting with interviews of former employees; and collecting, analyzing, translating, and organizing voluminous evidence and information for the Offices (again where not prohibited by relevant foreign data privacy law and national security laws or regulations); (d) the Company received additional credit of 20% for its prompt acknowledgement of wrongdoing by Company personnel after being informed by the Offices of their criminal investigation, and the Company’s willingness to resolve promptly its criminal liability on an expedited basis; (e) the Company has engaged in extensive remediation, including terminating the employment of officers and employees when the Company determined that they were complicit in the unlawful payments or otherwise failed their responsibilities in connection with such payments; has been substantially upgrading its anti-corruption compliance program; has retained new leaders of its legal, compliance, and financial gatekeeper functions; and has committed to continue to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth in Attachment C to this Agreement; (f) despite these remedial efforts, the Company recognized the need for, and agreed to, the imposition of an independent compliance monitor, as set forth in Attachment D to this Agreement; (g) the Company has no prior criminal history; and (h) the Company has agreed to continue to cooperate with the Offices as provided below in any investigation of the Company and its officers, directors, employees, agents, and consultants relating to possible violations under investigation-by-the Offices …”.

The DPA sets forth the advisory sentencing guidelines fine range of $836 million to $1.67 billion. The DPA then states:

“The Company agrees to pay total monetary penalties in the amount of $460,326,398.40 (the “Total Criminal Penalty”), $40,000,000 of which will be paid as forfeiture … This Total Criminal Penalty is 45% below the bottom of the applicable Sentencing Guidelines fine range, which reflects a reduction of 25% for the Company’s full cooperation as permitted by relevant foreign data privacy and national security laws and regulations and a reduction of 20% for the Company’s prompt acknowledgement of wrongdoing and willingness to resolve its criminal liability on an expedited basis. The Company will pay $190,163,199.20 of-the-Total Criminal Penalty to the United States Treasury within ten (10)  business days of the sentencing by the Court of VimpelCom’s subsidiary Unitel LLC in connection with its guilty plea and plea agreement entered into simultaneously herewith, except that the parties agree that any criminal penalties that might be imposed by the Court on VimpelCom’s subsidiary Unitel LLC in connection with its guilty plea and plea agreement will be deducted from the $190,163,199.20. The Total Criminal Penalty will be offset by up to $230,163,199.20 for any criminal penalties paid to the Organization of the Public Prosecution Service of the Netherlands (“Dutch Prosecution Service”) in connection with the settlement of the Company’s potential prosecution in the Netherlands. Should any amount of such payment to the Dutch Prosecution Service be returned to the Company or any affiliated entity for any reason, then the remaining balance of the Total Criminal Penalty will be paid to the U.S. Treasury within ten (10) business days of such event. The Company and the Offices agree that this penalty is appropriate given the facts and circumstances of this case, including the Company’s prompt acknowledgment of wrongdoing, willingness to resolve its criminal liability on an expedited basis, full cooperation, and extensive remediation in this matter.”

SEC

The SEC’s settled civil complaint is based on the same core conduct alleged in the above DOJ action.

In summary fashion, the complaint alleges:

“From 2006 to at least 2012, VimpelCom offered and paid bribes to a government official in Uzbekistan in connection with its Uzbek operations. During the course of the bribery scheme, VimpelCom made or caused to be made at least $114 million in improper payments in order to obtain and retain business that generated more than $2.5 billion in revenues for VimpelCom.

These payments were primarily made through sham contracts, but were also, in certain instances, made under the guise of legitimate charitable contributions or sponsorships. These payments were improperly characterized in the books of records of VimpelCom’s subsidiaries as legitimate expenses, and consolidated in VimpelCom’s financial statements which were filed with the Commission throughout the relevant period.”

Unlike the DOJ resolution documents, the SEC complaint alleges under the heading “Payments to Charities” as follows.

“VimpelCom also made what were ostensibly charitable payments in order to improperly influence Local Partner A. In connection with corruptly influencing Local Partner A, representatives of Local Partner A directed VimpelCom to make at least $502,000 in payments to charities directly affiliated with Local Partner A.

Unitel had insufficient internal accounting controls and maintained inaccurate books and records regarding its charitable contributions. From 2009 and through 2013, Unitel provided approximately $38 million in sponsorships or charitable contributions in Uzbekistan. Despite the presence ofred flags, these transactions were not vetted to ensure that they were not improperly benefitting government officials.”

The complaint charges VimpelCom with violating the FCPA’s anti-bribery provisions, books and records provisions, and internal controls provisions.

VimpelCom’s Uzbekistan Bribery Scheme Nets $397.5 Million FCPA Enforcement Action

VimpelComThis is the first of several posts in the coming days regarding the Foreign Corrupt Practices Act and related enforcement action against VimpelCom and a related entity announced yesterday by the DOJ and SEC (see here for the DOJ release, here for the SEC release).

Yesterday’s enforcement action is expected to be the first enforcement action concerning the Uzbek bribery scandal with additional enforcement actions (of similar or greater settlement amounts) against TeliaSonera and Mobile TeleSystems expected in the future.

After accounting for various credits and deductions, VimpelCom will pay $230.1 million to the DOJ, $167.5 million to the SEC, and $397.5 million to Dutch regulators. The net $397.5 million U.S. portion of the settlement is the 5th largest FCPA settlement amount of all-time (see here for the current top-ten list).

A future post will contain an in-depth overview of the U.S. VimpelCom resolution documents which total approximately 120 pages and another future post will highlight various issues to consider from the U.S. enforcement action.

DOJ

The DOJ component involved a guilty plea by Unitel LLC (an entity headquartered and incorporated in Uzbekistan which conducted VimpelCom’s mobile telecommunications business in Uzbekistan) to a criminal information charging it with conspiracy to violate the FCPA’s anti-bribery provisions.

In addition, VimpelCom (a Bermuda company that was headquartered in Moscow, Russia until 2010 when it moved its headquarters to Amsterdam, the Netherlands and which has shares traded on NASDAQ and previously the New York Stock Exchange) entered into a deferred prosecution agreement (and here) to resolve a criminal information charging it with conspiracy to violate the FCPA’s anti-bribery and books and records provisions and a separate count of violating the FCPA’s internal controls provisions.

To resolve the DOJ actions, VimpelCom agreed to pay a total criminal penalty of approximately $230.1 million, including$40 million in criminal forfeiture.

In the DOJ release, Assistant Attorney General Leslie Caldwell stated:

“These cases combine a landmark FCPA resolution for corporate bribery with one of the largest forfeiture actions we have ever brought to recover bribe proceeds from a corrupt government official. The Criminal Division’s FCPA enforcement program and our Kleptocracy Initiative are two sides of the same anti-corruption coin.  The FCPA resolution in this case is also one of the most significant coordinated international and multi-agency resolutions in the history of the FCPA, and demonstrates our commitment both to pursuing justice and to bringing about corporate reform.”

Preet Bharara (U.S. Attorney, Southern District of New York) stated:

“Today we mark the resolution of criminal charges and civil proceedings against corrupt corporate entities that made bribery a foundation of their business model. As they have admitted in court filings, VimpelCom, the world’s sixth largest telecommunications company, with securities traded in New York, and its subsidiary, Unitel, built their business in Uzbekistan on over $114 million in bribes funneled to a government official.  Those payments, falsely recorded in the company’s books and records, were then laundered through bank accounts and assets around the world, including through accounts in New York.”

Richard Weber (Chief of Internal Revenue Service-Criminal Investigation (IRS-CI) stated:

“Today’s admission of guilt by VimpelCom and Unitel to paying bribes to government officials is a victory for all who fight corruption at all levels. It also demonstrates the skill and tenacity of IRS Criminal Investigation special agents when it comes to delving underneath layers of financial transactions designed to conceal illegal payments for gain.  The global economy demands a level playing field for all.  When certain VimpelCom and Unitel executives chose to use deception in order to continue this scheme and take advantage of insider knowledge, they also chose to become criminals.  IRS-CI pledges to continue our efforts on the international stage to stop corrupt financial schemes such as this one.”

SEC

VimpelCom also agreed to resolve a settled civil complaint charging it with violating the FCPA’s anti-bribery provisions, books and records provisions, and internal controls provisions. The company resolved the complaint by agreeing to pay a total of $375 million in disgorgement of profits and prejudgment interest.

In the SEC release, Andrew Ceresney (Director of the SEC Enforcement Division) stated:

“VimpelCom made massive revenues in Uzbekistan by paying over $100 million to an official with significant influence over top leaders of the Uzbek government. These old-fashioned bribes, hidden through sham contracts and charitable contributions, left the company’s books and records riddled with inaccuracies.”

Kara Brockmeyer (Chief of the SEC Enforcement Division’s FCPA Unit) stated:

“International cooperation among regulators is critical to holding companies responsible for all facets of a bribery scheme.  This closely coordinated settlement is a product of the extraordinary efforts of the SEC, Department of Justice, and law enforcement partners around the globe to jointly pursue those who break the law to win business.”

Dutch Enforcement Action

According to the DOJ and SEC releases, VimpelCom also resolved a Public Prosecution Service of the Netherlands (OM) enforcement action by agreeing to pay a $230.1 million criminal penalty.

After accounting for various credits (for instance the SEC $375 million in disgorgement of profits and prejudgment interest was divided between the SEC and OM, the DOJ agreed to credit the penalty paid to the OM and the SEC agreed to credit the DOJ forfeiture) the net U.S. portion of the settlement amounts to $397.5 million – the 5th largest of all-time from a settlement perspective.

As noted in the SEC’s release: “the settlement requires VimpelCom to pay $167.5 million to the SEC, $230.1 million to the U.S. Department of Justice, and $397.5 million to Dutch regulators.”

Asset Recovery

Separate and distinct from the above components of the VimpelCom enforcement action, the DOJ also announced as part of its Kleptocracy Asset Recovery Initiative the filing of a civil complaint seeking the forfeiture of more than $550 million held in Swiss bank account, which allegedly constitute bribe payments made by VimpelCom and two separate telecommunications companies, or funds involved in the laundering of those payments, to the Uzbek official. As noted in the DOJ release, yesterday’s civil complaint follows an earlier civil complaint filed in June 29, 2015 which seeks forfeiture of more than $300 million.

In this release, Jean-Yves Charlier (Chief Executive Officer of VimpelCom) stated:

“Resolving this has been a top priority for VimpelCom. While this has been a very challenging experience for our business and our employees, we are pleased to have now reached settlements with the authorities. The wrongdoing, which we deeply regret, is unacceptable. We have taken, and will continue to take, strong measures to embed a culture of integrity across the group. We have significantly strengthened our internal controls and compliance program. Since the launch of the investigation, VimpelCom has appointed a new Chief Executive Officer, Chief Financial Officer, Group General Counsel, Chief Performance Officer and Group Chief Compliance Officer to drive the necessary change forward.”

As part of the settlements, […] VimpelCom has also agreed to oversight by an independent compliance monitor to promote continued, and regular, compliance enhancements across the Company and its subsidiaries. VimpelCom’s cooperation in the investigation and actions in rapidly resolving this matter, together with substantial upgrades to its compliance program, have been recognized by the authorities in the settlements.”

Yesterday VimpelCom’s Nasdaq shares closed down 1.6%.

Mark Rochon and John Davis (both of Miller Chevalier) represented the VimpelCom entities.

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