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Next Up – Telia As DOJ And SEC Announce Contemplated $483 Million Net FCPA Enforcement Action

telia

This recent post asked: what will September bring and noted that with history as a guide likely notable FCPA enforcement actions.

This 2015 post highlighted the burgeoning Uzbekistan telecommunication investigations involving Dutch telecom company VimpleCom, Swedish telecom company TeliaSonera, and Russia-based Mobile TeleSystems.

As highlighted here, in February 2016 VimpelCom resolved a net $397.5 million FCPA enforcement action and as highlighted below yesterday the DOJ and SEC announced a contemplated $483 million net FCPA enforcement against against Telia (after accounting for various credits and deductions for contemplated Swedish and Dutch enforcement actions) – the 5th largest net FCPA settlement of all-time.

The conduct in the Telia enforcement action concerns the same type of conduct at issue in the VimpelCom enforcement action – namely that Telia directly and indirectly through various third parties made bribe payments to an Uzbekistan foreign official to obtain necessary approvals from the Uzbek Agency for Communications and Information and be allowed to obtain and retain Uzbek telecommunications business.”

Between 2002 and 2007 Telia had shares traded on a U.S. exchange.

Like the VimpelCom enforcement action, the Telia enforcement action alleges executive management conduct including certain attempts to structure business transactions in Uzbekistan in ways to evade the FCPA.

As highlighted below the Telia enforcement action included:

  • a DOJ component: (i) criminal charges against an indirect subsidiary in Uzbekistan (Coscom LLC) resolved via a plea agreement; and (ii) criminal charges against Telia resolved via a deferred prosecution agreement. After accounting for various credits and deductions for contemplated Swedish and Dutch enforcement actions, the contemplated net DOJ settlement amount is approximately $275 million.
  • an SEC component finding violations of the FCPA’s anti-bribery provisions and internal controls provisions via an administrative cease and desist order. After accounting for various credits and deductions for contemplated Swedish and Dutch enforcement actions, the contemplated net SEC settlement is approximately $208 million in disgorgement.

DOJ

The Coscom LLC criminal information and Telia criminal information allege the same core conduct and thus are separately set forth below.

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

“Telia, Executive A [a high-ranking executive of Telia who had authority over TELIA’s Eurasian Business Area] and Coscom [an indirect subsidiary headquartered and incorporated in Uzbekistan that Telia began operating its mobile telecommunications business in Uzbekistan] conspired with others to make approximately $331 million in corrupt payments to the Foreign Official [an Uzbek government official, and a relative of a high-ranking Uzbek government official, with influence over decisions made by the Uzbek Agency for Communications and Information (“UzACI”) – this individual has been widely reported to be Gulnara Karimova] in exchange for the Foreign Official’s agreement to expand Telia’s and Coscom’s share of Uzbekistan’s telecommunications market. Executive A and certain management and employees within Telia and affiliated entities (hereinafter referred to singularly and collectively as “certain Telia management”) and certain management and employees of Coscom (hereinafter referred to singularly and collectively as “certain Coscom management”) understood that they had to regularly pay the Foreign Official millions of dollars in order to enter the Uzbek telecommunications market and continue to operate there. As a result of its corrupt conduct, Telia’s pecuniary gain was approximately $457 million from its Uzbek telecommunications operations.

[…] Telia took the following corrupt actions and made the following corrupt payments, totaling approximately $331,200,000, to benefit the Foreign Official in order to enter and continue to operate in Uzbekistan:

a. First, before entering the Uzbek market, Executive A and certain Telia management understood that Telia was required to enter into a corrupt partnership with the Foreign Official in order to operate in Uzbekistan. Certain Telia management negotiated the terms of the corrupt partnership with Associate B [a chief executive at one of Coscom’s primary competitors in Uzbekistan who also represented the Shell Company [a company incorporated in Gibraltar that was beneficially owned by the Foreign Official] and the Foreign Official in their business dealings with Telia and its subsidiaries, including Coscom, who represented the Foreign Official.

b. On or about July 4, 2007, Telia UTA entered into a cooperation agreement with Associate B, who signed the agreement on behalf of the “Uzbek Partner.” The “Uzbek Partner” was defined in the agreement as Associate B “or his nominee,” though Executive A and certain Telia management knew Associate B was acting on behalf of the Foreign Official. The cooperation agreement set forth basic terms that later would be formalized as part of a Shareholders Agreement, including that the “Uzbek Partner” would receive a net balance of $30 million and shares of Telia Uzbek, the 99.97% owner of Coscom, with the option to sell the shares back to Telia UTA at a substantial profit for the Foreign Official.

c. Soon after the cooperation agreement was signed, in or around August 2007, Executive A and certain Telia management authorized a corrupt bribe payment of approximately $2 million to be made by certain Coscom management to Associate B for the benefit of the Foreign Official.

d. In or around December 2007, Telia acquired 3G frequencies for Coscom through a payment to the Shell Company of $80 million. In or around the same time, a TELIA subsidiary entered into a corrupt Shareholders Agreement with the Shell Company whereby the Shell Company acquired an indirect 26% ownership interest in Coscom for $50 million, with the right for the Shell Company to exercise an option to sell shares back at a substantial profit. The net result of these transactions was that Telia made, through the Shell Company, a $30 million bribe payment to the Foreign Official and transferred an indirect 26% ownership interest in Coscom to the Foreign Official, along with a valuable put option, as contemplated in the July 4, 2007, cooperation agreement, which Executive A and certain TELIA management understood was necessary for Telia to enter the Uzbek telecom market.

e. In or around September 2008, Telia Uzbek paid a $9.2 million bribe to the Shell Company to benefit the Foreign Official and facilitate Coscom’s acquisition of a number series and network codes, as well as to continue to conduct business in Uzbekistan.

f. In or around February 2010, Executive A and certain Telia management authorized a $220 million bribe payment to the Shell Company to benefit the Foreign Official in order to continue its telecom business in Uzbekistan, after the Shell Company exercised its option under the Shareholder Agreement to sell back 20% of its 26% ownership interest in Coscom.

g. In or around April and May 2010, Telia Uzbek entered into a series of agreements through which Telia Uzbek agreed to pay $15 million to a third-party vendor to assume a debt owed by a Swiss company that Executive A and certain Telia management knew was beneficially owned by the Foreign Official. Shortly thereafter, Telia forgave the debt owed by the Foreign Official’s Swiss company in order to benefit the Foreign Official. In return for this bribe, the Foreign Official enabled Coscom to obtain certain 4G frequencies and continue to do business in Uzbekistan.”

As to a U.S. nexus, the information alleges:

“During Telia’s entry to the Uzbek telecommunications market, Telia and its subsidiaries used both U.S. citizens and U.S. companies (collectively “Telia agents”) to aid in establishing a corrupt relationship with the Foreign Official. Each Telia agent was a “domestic concern” as that term is used in the FCPA.

Certain Telia management and Telia agents used U.S.-based email accounts to communicate with others and effectuate the scheme. In addition, Telia and Coscom made and caused to be made, numerous corrupt payments that were routed through transactions into and out of correspondent bank accounts at financial institutions in New York, New York.

During Telia’s entry to the Uzbek telecommunications market, at least one Telia executive sent emails in furtherance of the corrupt scheme “while in the territory of the United States” as that term is used in the FCPA.”

The information next alleges certain attempts by Telia management to evade the FCPA:

“In materials for a June 11, 2007 board meeting created by certain Telia management, including Executive A, about the acquisition, they took care to avoid any reference to the partnership with the Foreign Official. Instead, the Foreign Official’s involvement was referred to only as a “strong local group who owns [Uzbek Bank], a leading bank in Uzbekistan and with business interests in various industries.”

On or about June 11, 2007, the Telia board of directors approved the acquisition with the condition “that a partnership agreement is signed with a suitable local partner no later than simultaneously with the transaction documents . . . .”

On or about June 20, 2007, certain Telia management received an update from an outside legal advisor on the “Uzbek Partner Status,” which documented the ongoing negotiations with Associate B. The update included a specific recommendation that Telia structure the acquisition so as to remove itself from U.S. jurisdiction due to the FCPA:

The relations with the Uzbek partner is [sic] rather delicate. As you know we are dealing with [Associate B], who is the general manager of [one of Coscom’s primary competitors in Uzbekistan]. Contacts [of certain Telia management] indicated that [Associate B] has the power to stri[ke] a deal on behalf of [the Foreign Official]. I attended two meetings with [Associate B] and at least at the second meeting, [Associate B] indirectly confirmed this. . . . During these meetings, [Associate B] asked [certain TELIA management] to come to [Associate B’s] office and they had rather long private meetings. . . .

We need to sign the Term Sheet and then the Option Agreement before the signing [of] the Merger Agreement with [the Acquisition Target]. This will require substantial negotiations with the Uzbek Partner. . . .

It is important to take Coscom out of US structure for a couple of reasons including the FCPA. Let’s discuss this in a telephone conversation when you are available. . . .”

Under the heading “Telia’’s Contemplation of Additional Bribe Payments and Telia’s Ongoing Relationship with the Shell Company,” the information alleges:

“On or about April 21, 2012, Telia received an anonymous complaint concerning certain Coscom management that was circulated among certain Telia management, including Executive A, alleging, among other things, that “when [Telia] took [the] Uzbekistan project, they promised 40MUSD and certain amount of stocks to the [Foreign Official]” and that the Foreign Official “was made partner for free.”

In or around September 2012, Swedish public television broadcast a documentary that exposed Telia’s corrupt dealings with the Foreign Official and the Shell Company in Uzbekistan, and caused Telia to initiate an internal investigation. Soon thereafter, the Swedish Prosecution Authority also opened an investigation into Telia’s corrupt dealings in Uzbekistan.

Notwithstanding the open investigations and public allegations of corruption, including against the Foreign Official and the Shell Company, Telia failed to sever ties with the Shell Company, and certain Telia management even considered paying more bribes to benefit the Foreign Official. For example, in or around October 2012, certain Telia management considered entering into a service agreement that would have included $20 million in payments to benefit the Foreign Official, and certain Telia management understood that efforts would have to be taken so that the agreements “won’t be signed on behalf of [the Shell Company].”].” Although such an agreement was never executed, the Shell Company did remain a minority shareholder in Telia Uzbek until in or around the fall of 2015. At that time, Dutch authorities seized the Shell Company’s shares in Telia Uzbek, which was incorporated in the Netherlands.”

Based on the above allegations, Telia is charged with conspiracy to violate the FCPA’s anti-bribery provisions and the information invokes the dd-1, dd-2 and dd-3 prongs of the FCPA. According to the information, the object of the conspiracy was “to obtain necessary UzACI approvals and be allowed to obtain and retain Uzbek telecommunications business.”

The criminal charge against Telia was resolved via this deferred prosecution agreement in which Telia “admits, accepts, and acknowledges that it is responsible under United States law for the acts of its officers, directors, employees, and agents as charged in the Information.”

The three-year DPA sets forth the following relevant considerations:

“a. the Company did not receive voluntary disclosure credit because it did not voluntarily and timely disclose;

b. the Company received full credit for its cooperation with the Fraud Section and the Office’s investigation, including conducting a thorough internal investigation; making regular factual presentations to the Fraud Section and the Office; providing to the Fraud Section and the Office all relevant facts known to it, including information about the individuals involved in the conduct …; voluntarily assisting in making former employees available for interviews in the United States; producing documents to the Fraud Section and the Office from foreign countries in ways that were consistent with relevant foreign data privacy and security laws; and collecting, analyzing, translating, and organizing voluminous evidence and information for the Fraud Section and the Office;

c. the Company engaged in extensive remedial measures, including terminating all individuals involved in the misconduct; terminating all individuals who had a supervisory role over those engaged in the misconduct, including every member of the Company’s board who took part in the decision to enter Uzbekistan, or failed to detect the corrupt conduct …; creating a new and robust compliance function throughout the company; implementing a comprehensive anti-corruption program; and overhauling the Company’s corporate governance structure;

d. the Company has enhanced and has committed to continuing to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth in Attachment C to [the DPA] (Corporate Compliance Program);

e. based on the Company’s remediation and the state of its compliance program, the Fraud Section and the Office determined that an independent compliance monitor was unnecessary;

f. the nature and seriousness of the offense conduct, including the large amount of bribes paid, totaling approximately $331 million, and the involvement of high-level management;

g. the Company has no prior criminal history;

h. the Company has agreed to continue to cooperate; and

i. accordingly, after considering (a) through (h) above, the Company received an aggregate discount of 25% off of the bottom of the otherwise-applicable U.S. Sentencing Guidelines fine range.”

The DPA sets forth an advisory fine range of $731.4 million to $1.46 billion. The DPA then states:

“The Company agrees to pay total monetary penalties in the amount of $548,603,972 (the “Total Criminal Penalty”), $500,000 of which will be paid as a criminal fine and $40,000,000 of which will be paid as forfeiture by the Company on behalf of its Uzbek subsidiary, Coscom LLC, as part of the subsidiary’s guilty plea. The Company will pay $274,603,972 of the Total Criminal Penalty to the United States Treasury within ten business days of the sentencing hearing by the Court of Telia’s subsidiary Coscom 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 Telia’s subsidiary Coscom LLC in connection with its guilty plea and plea agreement, including the contemplated fine of $500,000 and $40,000,000 in forfeiture, will be deducted from the $274,603,972. The Total Criminal Penalty will be offset by up to $274,000,000 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, the remaining balance of the Total Criminal Penalty will be paid to the U.S. Treasury within ten business days of such event. The Company and the Fraud Section and the Office agree that this penalty is appropriate given the facts and circumstances of this case, including the Company’s full cooperation and extensive remediation in this matter.”

As is typical in corporate FCPA enforcement actions Telia agreed to a so-called muzzle clause as follows:

“The Company expressly agrees that it shall not, through present or future attorneys, officers, directors, employees, agents or any other person authorized to speak for the Company make any public statement, in litigation or otherwise, contradicting the acceptance of responsibility by the Company set forth above or the facts described in the attached Statement of Facts.”

In this release, Acting Assistant Attorney General Kenneth Blanco stated:

“This resolution underscores the Department’s continued and unwavering commitment to robust FCPA and white-collar criminal enforcement.  It also demonstrates the Department’s cooperative posture with its foreign counterparts to stamp out international corruption and to reach fair, appropriate and coordinated resolutions. Foreign and domestic companies that pay bribes put honest companies at a disadvantage and distort the free and fair market and the rule of law.  Today’s resolution reflects the significant efforts of law enforcement, the Criminal Division and the U.S. Attorney’s Office for the Southern District of New York to bring such companies to justice, and to maintain a competitive and level playing field for companies to do business, create jobs and thrive.”

Acting U.S. Attorney Joon Kim of the Southern District of New York stated:

“Today, we announce one of the largest criminal corporate bribery and corruption resolutions ever, with penalties totaling just under a billion dollars. Swedish telecom company Telia and its Uzbek subsidiary Coscom have admitted to paying, over many years, more than $331 million in bribes to an Uzbek government official.  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.”

Chief Don Fort of Internal Revenue Service-Criminal Investigation stated:

“Today marks the second resolution of proceedings against corporate entities who have engaged in a global bribery scheme of government officials. It also further demonstrates the dedication we have to identifying illegal financial transactions being used for bribery in the international community.  It is important that the global economy remain on a fair playing field and IRS-CI will remain committed in our efforts to dismantle these kinds of corrupt financial schemes.”

Special Agent in Charge Patrick Lechleitner of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (ICE-HSI) Washington, D.C., Field Office stated:

“Today’s resolution marks a win against a foreign corruption scheme where millions of dollars in bribery funds were paid to Uzbekistan officials and laundered through the U.S. financial system.” HSI, working hand in hand with our partners at IRS Criminal Investigation, leveled the playing field for publicly traded companies by exposing these corrupt practices and helped the U.S. government collect nearly $275 million in criminal penalties”

SEC

Based on the same core conduct highlighted above, in this administrative order found that Telia violated the FCPA’s anti-bribery provisions and internal controls provisions.

“From 2007 to at least 2010, Telia paid bribes to a government official in Uzbekistan in order to obtain and retain business that generated more than $2.5 billion in revenues for Telia. During the course of the bribery scheme, Telia made at least $330 million in illicit payments. These bribe payments were made to the Uzbek official (“Government Official A”) to enable Telia to acquire a United States-based telecommunications company with operations in Uzbekistan and enter the telecommunications market in Uzbekistan. The bribe payments were funneled through payments for sham lobbying and consulting services to a front company controlled by the official.

Over the course of the relevant period, Telia paid Government Official A at least $330 million in bribes through a series of transactions that were designed to obfuscate their true purpose. Most of the transactions with Government Official A were denominated in United States dollars, and communications concerning Government Official A were conducted, in part, using electronic mail accounts on United States-based servers.”

Based on the above findings, Telia agreed to cease and desist from causing any future FCPA violations and agreed to pay disgorgement of $457 million “which represents profits gained as a result of the conduct.” As stated in the Order:

“1. Within ten (10) days of the entry of the Order, $208,500,000 to be paid to the Securities and Exchange Commission for transfer to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3);

2. Respondent’s disgorgement obligation shall be deemed satisfied in part by Respondent’s forfeiture payment of up to $40,000,000 within ten (10) days of its sentencing hearing as part of Respondent’s resolution with the United States Department of Justice;

3. Respondent’s disgorgement obligation shall be deemed satisfied in part by any confiscation or forfeiture payment of up to $208,500,000 made by Respondent within five hundred forty (540) days of the Order as part of any related proceedings between Respondent and the Swedish Åklagarmyndigheten or within five hundred fifty (550) days as part of Respondent’s related resolution with the Dutch Openbaar Ministerie;

4. In the event that any confiscation or forfeiture payments made by Respondent in related proceedings with the Swedish Åklagarmyndigheten or Dutch Openbaar Ministerie are less than $208,500,000, or with the Department of Justice are less than $40,000,000, Respondent shall pay the remaining disgorgement amounts to the Securities and Exchange Commission within ten (10) days of such event for transfer to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3);

5. Should any amount of the payment made in connection with Respondent’s resolution with the Dutch Openbaar Ministerie be returned to the Respondent or any affiliated entity for any reason, that amount will not be credited as an offset and Respondent shall pay such amount to the Securities and Exchange Commission within ten (10) days of such event for transfer to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).”

As stated in the Order:

“The Commission considered remedial acts promptly undertaken by Respondent, both before and during the Commission’s investigation, including replacing all relevant members of its board and senior management and implementing a new comprehensive compliance program, and the thorough cooperation afforded the Commission staff.”

In this SEC release, Stephanie Avakian (Co-Director of the SEC’s Enforcement Division) states:

“Corporate bribery is not just unfair and illegal, it has terribly corrosive effects on business, government, and society. As this global settlement demonstrates, the SEC continues to work closely with our counterparts at home and abroad to expose and pursue such corruption.”

As further noted in the release:

“Portions of [SEC and DOJ settlement amounts] could be offset by payments made in overseas settlements or proceedings brought by the Dutch Openbaar Ministerie or the Swedish Åklagarmyndigheten.  Telia’s overall payment to the four agencies must be at least $965 million.”

Telia issued this release:

“Today’s settlement brings an end to an unfortunate chapter in Telia Company’s history. Since 2013 the new board and management have worked diligently and responsibly to understand what went wrong, to remedy what has been broken and to regain trust from all our stakeholders. We have come a long way to establish a more sustainable company with a strong focus on governance and compliance but it is a never-ending journey as we aspire to embed this into our culture making sure that all employees understand the importance of doing the right thing all the time. The resolution and related financial sanction that we announce today is a painful reminder of what happens if we don’t”, says Telia Company’s President and CEO Johan Dennelind.

The U.S. and Dutch authorities conclude that Telia Company’s conduct was in violation of the FCPA (Foreign Corrupt Practices Act) and Dutch legislation and that corrupt payments of approximately USD 330 million were made by the company.

As part of the settlements, Telia Company will pay fines and disgorgements to the SEC, DOJ and OM in an aggregate amount of USD 965 million. In addition, Telia Company’s subsidiary in Uzbekistan, Coscom LLC, has entered a guilty plea with the DOJ. The total fine has been determined to be USD 548 million which is paid in equal parts to the DOJ and OM. In addition, the financial gain has been calculated to be USD 457 million and the equivalent amount will be disgorged except for USD 40 million which is part of the amount to be paid as a forfetuire to the DOJ. This SEC disgorgement amount will be offset by up to USD 208.5 million against any disgorgement obtained by the Swedish Prosecutor or Dutch authorities.

Since receiving the initial resolution proposal from the U.S. and Dutch authorities in September last year, Telia Company has engaged in constructive discussions with each authority and this has resulted in a resolution that is in the best interests of the Company.

Telia Company’s cooperation in the investigation and its extensive remedial measures, including terminating all individuals involved in the misconduct; creating a new and robust compliance function throughout the company; implementing a comprehensive anti-corruption program and overhauling the Company’s corporate governance structure has been recognized by the authorities. Telia Company received an aggregate discount of 25% off of the bottom of the otherwise-applicable U.S. Sentencing Guidelines fine range. Based on the Company’s remediation and the state of its compliance program, the authorities determined that an independent compliance monitor was unnecessary. Telia Company will continue to cooperate with the authorities and has committed to continuing to enhance its compliance program and internal controls.

Telia Company was informed in March 2014 that U.S. and Dutch authorities were investigating its historical transactions in Uzbekistan and its dealings with Takilant Ltd – Telia Company’s local partner when the Company entered Uzbekistan in 2007. Since 2012, a Swedish prosecutor has separately investigated the transactions as well. Telia Company has continuously cooperated fully with and supported the investigations.

“Telia Company is pleased to be able to bring closure to what has been a very serious and difficult process. The company has done everything in its power to take responsibility for actions in connection to the entrance into Uzbekistan ten years ago and the subsequent transactions involving Takilant. Our ambition throughout the entire process has been to be as transparent as possible and to establish a trustful co-operation with the authorities in question. We have accounted for our solid sustainability work and the major cultural changes that have taken place within the Company during the last few years which have been important factors enabling us to have a constructive dialogue and for the outcome of the settlement. These changes within the company are also a very important platform for shaping the new Telia Company,” says Marie Ehrling, Chair of the Board of Telia Company.

The settlement announced today relates to the question of the Company’s responsibility for its previous wrongdoings, not if there may be individuals that have a liability for related events. The Swedish prosecutor’s investigation into individuals is still ongoing and the Company may be subject to disgorgement proceedings resulting from that investigation. Telia Company continuously considers all possibilities to protect the rights and interests of the Company.”

David Stuart and Rachel Skaistis (Cravath) and Angela Burgess (Davis Polk) represented Telia.

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