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The Burgeoning Uzbekistan Telecommunication Investigations

Telecomscandal

For approximately two years, Dutch telecommunications company VimpelCom  and Swedish telecommunications company TeliaSonera have been under scrutiny concerning its business practices in Uzbekistan (see here and here prior posts).

The scrutiny has sort of flown under the radar, but recent events suggest that the scrutiny, as well as related scrutiny of other companies, may be on par with arguably the most high profile instance of multi-company FCPA scrutiny (the 2009 – 2012 enforcement actions against KBR/ Halliburton, Snamprogetti / ENI, Technip, JGC Corp. and Marubeni all in connection with the Bonny Island natural gas project in Nigeria – with the exception of Marubeni all of these enforcement actions are in the top 8 in terms of overall settlement amounts).

Recently, VimpelCom, a company with shares traded on NASDAQ, disclosed:

“As previously disclosed, the U.S. Securities and Exchange Commission (“SEC”), the U.S. Department of Justice (“DOJ”), and the Dutch Public Prosecution Service (Openbaar Ministerie) (“OM”) are conducting investigations relating primarily to VimpelCom Ltd.’s (the “Company” or “VimpelCom”) business in Uzbekistan and prior dealings with Takilant Ltd. As announced in February of 2015, the Company has been exploring resolution of the Company’s potential liabilities. The Company continues to cooperate with the authorities. Based on its ongoing assessment of the investigation during the third quarter of 2015, the Company will make a provision in the amount of US$900 million in its third quarter financial statements. The discussions with the authorities are ongoing and, until concluded, there can be no certainty as to the final cost to the Company of any such resolution or the nature, likelihood or timing of a definitive resolution. At this time, the Company will make no further comments on the ongoing discussions.”

The amount mentioned in the disclosure caught many by surprise.

The disclosure amount is a bit ambiguous. For instance, does it refer to a settlement amount (and if so how will it be apportioned between U.S. and Dutch authorities)? Likewise, does the disclosure amount refer to pre-enforcement action professional fees and expenses (often the largest financial hit to a company under FCPA scrutiny) and/or expected post-enforcement action professional fees and expenses?

Regardless, it would appear that a future FCPA enforcement action against VimpelCom is likely to land on the top ten list of FCPA settlement amounts.

What is certain is that days after the above announcement, plaintiffs lawyers came out of the woodwork and filed class action securities fraud complaints (see here, here, and here).

As to TeliaSonera, a company with ADRs registered with the SEC, since 2013 the company has been conducting a review of its operations in Uzbekistan as well as other Eurasia countries including Azerbaijan.

VimpelCom and TeliaSonera are not the only telecommunications under scrutiny.

Russia-based Mobile TeleSystems PJSC, a company with shares traded on the New York Stock Exchange, has also been FCPA scrutiny in connection with Uzbekistan business and recently disclosed:

“[A]s the Company had previously disclosed, the US Department of Justice (DOJ) and the SEC are conducting an investigation into MTS’s business activities in Uzbekistan. In addition, MTS publicly confirmed that it had been referenced in a civil forfeiture complaint, filed by the DOJ, directed at certain assets of an unnamed Uzbek government official. The complaint alleges that MTS made corrupt payments to gain access to the Uzbek telecommunications market. The Complaint alleges among other things that MTS and certain other parties made corrupt payments to the unnamed Uzbek official to assist MTS entering and operating in the Uzbekistan telecommunications market. The Complaint is solely directed towards assets held by the unnamed Uzbek official, and none of MTS’s assets are affected by the Complaint. Recent announcements with regard to Uzbekistan by MTS’s peers in the market have naturally raised questions among stakeholders and partners to MTS’s management. At this time, MTS can reiterate that it is cooperating with the investigation, and it is too early to draw any conclusions based on the experiences of others in the Uzbekistan market. As there have yet been no new developments, MTS can make no further comment or provide new information.”

Last, but certainly not least, Norway-based Telenor recently announced that its CEO has resigned and that it is divesting its ownership interest in VimpelCom. Shortly thereafter the company disclosed:

“On 14 March 2014 VimpelCom announced that the company was under investigation by US and Dutch authorities for its operations in Uzbekistan. Telenor Group has status as witness in these investigations and has cooperated with the investigating authorities. As a witness, Telenor has shared all requested information, and interviews have been conducted with relevant persons in Telenor. Telenor Group sees VimpelCom’s announcement today as a serious development that significantly increases our concerns in relation to the potential outcome of the still ongoing investigations. Telenor Group has a financial participation with an economic stake of 33 per cent in VimpelCom. In its financial reporting, Telenor includes VimpelCom as an associated company.”

The above disclosure was thereafter followed by this disclosure from Telenor:

Telenor Board of Directors has assigned Deloitte Advokatfirma AS (Deloitte) to perform a review of Telenor’s handling and oversight of the minority ownership in VimpelCom. The review will focus on Telenor’s handling of its ownership in VimpelCom which covers the Telenor nominees on the VimpelCom Supervisory Board and Telenor’s follow-up as a shareholder. In addition the review will cover actions and decisions by Telenor nominees and Telenor employees in relation to VimpelCom’s investment in Uzbekistan. The review will assess facts and identify learning points for future governance and organization of Telenor’s ownerships. This would cover both the formal governance structure and the practical handling of the ownerships. The review will cover the period from 2005 until this date. The conclusions and recommendations of the review will be made public.”

What interest does the U.S. have in investigating alleged bribery of Uzbekistan officials or family members by Dutch, Swedish, Russian and Norwegian telecom companies?

Probably as much interest as the U.S. had in investigating and bringing enforcement actions against Dutch, Italian, French and Japanese companies for bribing Nigerian officials in the Bonny Island, Nigeria enforcement actions.

Friday Roundup

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Scrutiny alerts and updates, asset recovery, Fokker DPA appeal, Holder to private practice, and for the reading stack. It’s all here in the Friday roundup.

Scrutiny Alerts and Updates

Former Yara Executives

Reuters reports:

“A Norwegian court sentenced four former top executives at Yara, the world’s biggest nitrate fertilizer maker, to prison on Tuesday for paying bribes in Libya and India, in one of Norway’s biggest corruption scandals. Prosecutors had accused the men of paying around $8 million in bribes to officials in Indiaand Libya – including to the family of former Libyan leader Muammar Gaddafi’s oil minister and the family of a financial adviser in India’s Ministry of Chemicals and Fertilizers – for the right to establish joint ventures. Former CEO Thorleif Enger got the longest sentence of three years. His lawyer said he would appeal the sentence. Former chief legal officer Kendrick Wallace was sentenced to 2-1/2 years in prison, while former head of upstream activities Tor Holba and former deputy CEO Daniel Clauw were both given two-year jail terms years, court documents showed.”

For more on the underlying Libya investigations, see here.

Cerberus Capital Management

Cerberus Capital Management has been the subject of several recent media articles (see here and here for instance) concerning its purchase of a portfolio of the National Asset Management Agency (Nama) in 2014 in Northern Ireland.  According to reports:

“Northern Irish politicians have called for an investigation after a politican in Dublin alleged that Belfast law firm Tughans had £7m in an account, ‘reportedly earmarked for a Northern Ireland politician’.”

Tughans was engaged as local counsel by Brown Rudnick in connection with its representation of Cerberus. In response to the scrutiny, Brown Rudnick released this statement.

Asset Recovery

The DOJ recently filed this civil forfeiture complaint seeking “£22 million in British pounds (approximately $34 million at current exchange rates) that represent the value of 4,000,000 founders’ shares in Griffiths Energy International Inc. (“Griffiths Energy”), and that are traceable to, and involved in the laundering of, bribe payments made to Chadian diplomats …”.

According to the complaint, Griffiths Energy gave Mahamoud Adam Bechir (“Bechir”), Chad’s ambassador to the United States and Canada from approximately 2004 to 2012, and others “valuable company shares in exchange for Bechir exercising his official influence over the award to the company of lucrative oil development rights in Chad.”

The recent action is the second DOJ civil action filed in connection with the Griffiths Energy matter.  (See here).

See here for the prior post regarding the underlying Canadian enforcement action against Griffiths Energy.

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As highlighted in this Bloomberg article:

“The Justice Department is seeking to seize $300 million claimed to be the proceeds of an international bribery conspiracy involving two Russian phone companies, as the U.S. joins a group of European nations in a telecom corruption probe. The U.S. claims VimpelCom Ltd., part-owned by Russian billionaire Mikhail Fridman, and Mobile TeleSystems OJSC used a web of shell companies and phony consulting contracts to funnel bribes to a close relative of Uzbekistan’s president, Islam Karimov, in exchange for access to that country’s telecommunications market. The assets sought by the U.S., in a complaint filed Monday in Manhattan federal court, are held in Bank of New York Mellon Corp. in Ireland, Luxembourg and Belgium. VimpelCom said in March 2014 that its Amsterdam headquarters had been raided by Dutch prosecutors and that the U.S. Securities and Exchange Commission demanded documents as part of the probe into its business.”

Fokker DPA Appeal

This previous post concerned the pending D.C. Circuit appeal of the DOJ – Fokker Services deferred prosecution agreement. Recently David Debruin (Jenner & Block), the court appointed amicus, filed this brief.

Regarding the following issue: “whether the District Court abused its discretion by denying the parties’ motion to exclude time under the Speedy Trial Act […] which provides for the exclusion of a period of delay pursuant to a deferred prosecution agreement “with the approval of the court.”, the brief states in pertinent part:

“If the Court reaches the merits, it should hold that the District Court had the authority to consider the substantive fairness of the DPA. Under 18 U.S.C. § 3161(h)(2), a DPA requires “approval of the court.” The plain text of this provision grants a district court the discretion to consider the substantive fairness of a DPA before approving it. The parties argue that a district court may reject a DPA only if it concludes that the parties are using the DPA as a pretext for a continuance, but that artificial restriction on judges’ discretion finds no basis in § 3161(h)(2). The legislative history, structure, and purpose of the Speedy Trial Act similarly confirm a district court’s discretion to consider a DPA’s substantive fairness.

Contrary to the parties’ contentions, the District Court’s rejection of the DPA poses no separation-of-powers problem. The District Court’s order does not force the Government to pursue a criminal prosecution. The Government remains free to negotiate a new DPA, try its case, or dismiss the charges. Prosecutorial discretion does not confer upon the Government the right to force a judge to exclude time from the Speedy Trial Act clock for 18 months. A district court order excluding time under the Speedy Trial Act is a judicial act, and separation-ofpowers principles give a judge the authority and the obligation to exercise independent judgment in performing that judicial act. If the Government had wanted to avoid judicial involvement, it should have signed a non-prosecution agreement; by instead choosing to invoke judicial process and filing a motion to exclude time under the Speedy Trial Act, it cannot now characterize the District Court’s denial of that motion as a separation-of-powers violation.

On the merits, the District Court did not abuse its discretion in rejecting the DPA. FSBV willfully violated the U.S. sanctions regime over 1,000 times and repeatedly provided assistance to the Iranian military. Yet under the DPA, as long as it agreed to pay back the revenues it earned and promised not to break the law, it would get off scot-free. The District Court’s conclusion that the DPA was grossly disproportionate to FSBV’s conduct was entirely reasonable.”

Holder to Covington

Recently Covington & Burling announced:

“Former U.S. Attorney General Eric H. Holder, Jr., is returning to Covington as a partner after more than six years of service as the nation’s top law enforcement officer. Mr. Holder will be resident in the firm’s Washington office and focus on complex investigations and litigation matters, including matters that are international in scope and raise significant regulatory enforcement issues and substantial reputational concerns. […] Mr. Holder was a partner at Covington from 2001 until February 2009, when President Obama appointed and the Senate confirmed him as the nation’s 82nd Attorney General.”

Reading Stack

Gibson Dunn’s Mid-Year FCPA Update is here.

Gibson Dunn’s Mid-Year Update on Corporate NPAs and DPAs is here.

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A good weekend to all.

Friday Roundup

Further trimmed, scrutiny alerts and updates, facts and figures, quotable, and for the reading stack.  It’s all here in the Friday roundup.

Further Trimmed

When the SEC announced its enforcement action against James Ruehlen and Mark Jackson  (a current and former executive of Noble Corp.) in February 2012, I said that this would be an interesting case to follow because the SEC is rarely put to its burden of proof in FCPA enforcement actions – and when it has been put to its ultimate burden of proof – the SEC has never prevailed in an FCPA enforcement action.

Over the past two years, the SEC’s case has been repeatedly trimmed.  (See this recent post containing a summary).  In the latest cut, the SEC filed an unopposed motion for partial voluntary dismissal with prejudice on March 25th.  In pertinent part, the motion states as follows.

“To narrow this case and streamline the presentation of evidence to the jury, the SEC hereby moves for leave to voluntarily dismiss with prejudice all portions of its claims … predicated upon Noble Corporation’s violation of [the FCPA’s internal controls provisions”.

For additional specifics, see the filing.

As highlighted in this previous post, in 2010 the SEC charged Noble Corporation with violating the FCPA’s anti-bribery, books and records and internal controls provisions based on the same core conduct alleged in the Jackson/Ruehlen action. Without admitting or denying the SEC’s allegations, Noble agreed to agreed to an injunction and payment of disgorgement and prejudgment interest of $5,576,998.

In short, the SEC’s enforcement action against Ruehlen and Jackson is a shell of its former self.   Interesting, isn’t it, what happens when the government is put to its burden of proof in FCPA enforcement actions.

Scrutiny Alerts and Updates

Alstom

Bloomberg reports speculation that a future FCPA enforcement action against Alstom could top the charts in terms of overall fine and penalty amounts.  (See here for the current Top 10).

The article states:

“The Justice Department is building a bribery case against Alstom SA , the French maker of trains and power equipment, that is likely to result in one of the largest U.S. anticorruption enforcement actions, according to two people with knowledge of the probe. Alstom, which has a history checkered with corruption allegations, has hindered the U.S. investigation of possible bribery in Indonesia and now faces an expanded probe including power projects in China and India, according to court documents in a related case. Settlement talks haven’t begun, the company said.”

In response to the Bloomberg article, Alston released this statement.

“Robert Luskin of Patton Boggs, Alstom’s principal outside legal advisor in the USA, states that the Bloomberg article published on 27 March 2014, regarding the investigation of Alstom by the US Department of Justice, does not accurately reflect the current situation: “Alstom is cooperating closely, actively, and in good faith with the DOJ investigation. In the course of our regular consultations, the DOJ has not identified any on-going shortcomings with the scope, level, or sincerity of the company’s effort”.

“The discussions with the DOJ have not evolved to the point of negotiating a potential resolution of any claims. Any effort to estimate the size of any possible fine is sheer speculation, as would be any comparison with other cases that have recently been resolved. Alstom has agreed to focus its efforts on investigating a limited number of projects that we and the DOJ have identified in our discussions. We are working diligently with the DOJ to answer questions and produce documents associated with these specific projects so that we can address any possible improper conduct”.

VimpelCom

Netherlands-based and NASDAQ traded telecommunications company VimpelCom recently disclosed:

“[T]hat in addition to the previously disclosed investigations by the U.S. Securities and Exchange Commission and Dutch public prosecutor office, the Company has been notified that it is also the focus of an investigation by the United States Department of Justice. This investigation also appears to be concerned with the Company’s operations in Uzbekistan. The Company intends to continue to fully cooperate with these investigations.”

On March 12, 2014, VimpelCom disclosed:

“The Company received from the staff of the United States Securities and Exchange Commission a letter stating that they are conducting an investigation related to VimpelCom and requesting documents. Also, on March 11, 2014, the Company’s headquarter in Amsterdam was visited by representatives of the Dutch authorities, including the Dutch public prosecutor office, who obtained documents and informed the Company that it was the focus of a criminal investigation in the Netherlands. The investigations appear to be concerned with the Company’s operations in Uzbekistan. The Company intends to fully cooperate with these investigations.”

Orthofix International

As noted in this Wall Street Journal Risk & Compliance post, Orthofix International recently disclosed:

“We are investigating allegations involving potential improper payments with respect to our subsidiary in Brazil.

In August 2013, the Company’s internal legal department was notified of certain allegations involving potential improper payments with respect to our Brazilian subsidiary, Orthofix do Brasil. The Company engaged outside counsel to assist in the review of these matters, focusing on compliance with applicable anti-bribery laws, including the Foreign Corrupt Practices Act (the “FCPA”). This review remains ongoing.”

As noted in this previous post, in July 2012 Orthofix International resolved a DOJ/SEC FCPA enforcement action concerning alleged conduct by a Mexican subsidiary.  In resolving that action, the company agreed to a three year deferred prosecution agreement.  As is typical in FCPA DPAs, in the Orthofix DPA the DOJ agreed not continue the criminal prosecution of Orthofix for the Mexican conduct so long as the company complied with all of its obligations under the DPA, including not committing any felony under U.S. federal law subsequent to the signing of the agreement.

See this prior post for a similar situation involving Willbros Group (i.e. while the company while under a DPA it was investigating potential additional improper conduct).  As noted here, Willbros was released from its DPA in April 2012, the original criminal charges were dismissed and no additional action was taken.

Besso Limited

Across the pond, the U.K. Financial Conduct Authority (“FCA”) recently issued this final notice to Besso Limited imposing a financial penalty of £315,000 for failing “to take reasonable care to establish and maintain effective systems and controls for countering the risks of bribery and corruption associated with making payments to parties who entered into commission sharing agreements with Besso or assisted Besso in winning and retaining business (“Third Parties”).”

Specifically, the FCA stated:

“The failings at Besso continued throughout the Relevant Period [2005-2011] and contributed to a weak control environment surrounding the making of payments to Third Parties. This gave rise to an unacceptable risk that payments made by Besso to Third Parties could be used for corrupt purposes, including paying bribes to persons connected with the insured or public officials. In particular Besso:  (1) had limited bribery and corruption policies and procedures in place between January 2005 and October 2009. It introduced written bribery and corruption policies and procedures in November 2009, but these were not adequate in their content or implementation; (2) failed to conduct an adequate risk assessment of Third Parties before entering into business relationships; (3) did not carry out adequate due diligence on Third Parties to evaluate the risks involved in doing business with them; (4) failed to establish and record an adequate commercial rationale to support payments to Third Parties; (5) failed to review its relationships with Third Parties, in sufficient detail and on a regular basis, to confirm that it was still appropriate to continue with the business relationship; (6) did not adequately monitor its staff to ensure that each time it engaged a Third Party an adequate commercial rationale had been recorded and that sufficient due diligence had been carried out; and (7) failed to maintain adequate records of the anti-bribery and corruption measures taken on its Third Party account files.”

The FCA has previously brought similar enforcement actions against Aon Limited (see here), Willis Limited (see here), and JLT Speciality Limited (see here).    For more on the U.K. FCA and its focus on adequate procedures to prevent bribery , see this guest post.

Facts and Figures

Trace International recently released its Global Enforcement Report (GER) 2013 – see here to download.  Given my own focus on FCPA enforcement statistics and the various counting methods used by others (see here for a recent post), I particularly like the Introduction of the GER in which Trace articulates a similar “core” approach that I use in keeping my enforcement statistics.  The GER states:

“[W]hen a company and its employees or representatives face multiple investigations or cases in one country involving substantially the same conduct, only one enforcement action is counted in the GER 2013.  An enforcement action in a country with multiple investigating authorities, such as the U.S., is also counted as one enforcement action in the GER 2013.”

The Conference Board recently released summary statistics regarding anti-bribery policies.  It found as follows.

39% of companies in the S&P Global 1200; 23% of companies in the S&P 500; and 14% of companies in the Russell 1000 reported having a policy specifically against bribery.

Given the results of other prior surveys which reported materially higher numbers, these results are very surprising.

Quotable

This recent Wall Street Journal article “Global Bribery Crackdown Gains Steam” notes as follows.

“Cash-strapped countries are seeing the financial appeal of passing antibribery laws because of the large settlements collected by the U.S., according to Nathaniel Edmonds, a former assistant chief at the U.S. Department of Justice’s FCPA division.  “Countries as a whole are recognizing that being on the anticorruption train is a very good train to be on,” said Mr. Edmonds, a partner at Paul Hastings law firm.”

The train analogy is similar to the horse comment former DOJ FCPA enforcement attorney William Jacobson made in 2010 in an American Lawyer article that “[t]he government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.”  For additional comments related to the general topic, see this prior post.

Reading Stack

This recent Wall Street Journal Risk & Compliance Journal post contains a Q&A with former DOJ FCPA Unit Chief Chuck Duross.  Contrary to the inference / suggestion in the post, Duross did not bring “tougher tactics” such as wires and sting operations to the FCPA Unit.  As detailed in prior posts here and here, undercover tactics and even sting operations had been used in FCPA enforcement actions prior to the Africa Sting case.

Speaking of the Africa Sting case, the Q&A mentions reasons for why the Africa Sting case was dropped.  Not mentioned, and perhaps relevant, is that the jury foreman of the second Africa Sting trial published this guest post on FCPA Professor after the DOJ failed in the second trial.  Two weeks later, the DOJ dismissed all charges against all Africa Sting defendants.

Further relevant to the Africa Sting case, the Wall Street Journal recently ran this article highlighting the role of Richard Bistrong, the “undercover cooperator” in the case.  Bistrong has recently launched an FCPA Blog – see here.

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A good weekend to all.

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