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

VimpelCom [1]This 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 [2] for the DOJ release, here [3] for the SEC release).

Yesterday’s enforcement action is expected to be the first enforcement action concerning the Uzbek bribery scandal [4] 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 [5] 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 [6] by Unitel LLC (an entity headquartered and incorporated in Uzbekistan which conducted VimpelCom’s mobile telecommunications business in Uzbekistan) to a criminal information [7] 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 [8] (and here [9]) to resolve a criminal information [10] 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 [11] 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 [12] 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 [13], 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 [14] and John Davis [15] (both of Miller Chevalier) represented the VimpelCom entities.