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U.S. Secures Approximately $1.7 Billion In FCPA Settlements Largely On The Theory That Gulnara Karimova Is A “Foreign Official” – But Swedish Court Says No She Is Not!

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If I ever update my 2009 article “The Facade of FCPA Enforcement” there is going to be special mention of the facts and circumstances discussed in this post.

Over the last couple of years, the U.S. government has secured approximately $1.7 billion in net Foreign Corrupt Practices Act settlement amounts in related FCPA enforcement actions against telecommunications companies VimpelCom, Telia, and most recently MTS. The enforcement actions have largely been based on the theory that Gulnara Karimova is a “foreign official” under the FCPA’s anti-bribery provisions and have not been subjected to any meaningful judicial scrutiny.

Interesting then, that in this recent Swedish court decision (English transaction) concerning the 2017 prosecution of former Telia executives Tero Kivisaari, Olli Tuohimaa and Lars Nyberg the court acquitted the defendants because Karimova was not a “public official” under the relevant law.

In the decision, the court also cared little that Telia resolved an FCPA enforcement action based on this enforcement theory because – in the words of the court – there were “strong commercial reasons” for Telia to do this and that therefore the FCPA resolution “is without probative value or impact in this case.”

By way of background, the VimpelCom, Telia and MTS FCPA enforcement actions were all primarily based on the following core allegation (as stated in the recent MTS resolution documents).

“Foreign Official [Karimova], an individual whose identity is known to the United States, was a relative of a high-ranking Uzbek government official and an Uzbek government official, including Uzbek Deputy Minister of Foreign Affairs for Cultural Issues and Uzbekistan’s Ambassador to the United Nations. Foreign Official had influence over decisions made by UzACI. Foreign Official was a “foreign official” as that term is used in the FCPA …”.

UzACI is described as:

“The Uzbek Agency for Communications and Information (“UzACI”) was an Uzbek governmental entity authorized to regulate operations and formulate state policy regarding communications, information technology, and the use of radio spectrum in Uzbekistan.  As such, UzACI was a “department,” “agency,” and “instrumentality” of a foreign government, as those terms are used in the Foreign Corrupt Practices Act.”

Across the pond in Sweden, the court described the Nyberg et al prosecution and decision in summary form as follows.

“The prosecution concerns verbal allegations between the years 2007 and 2010 in relation to the agreements and transactions with an Uzbek partner as a consequence of TeliaSonera’s (Telia) establishment in Uzbekistan. The District Court has considered the criminal law liability for gross bribery pursuant with the prosecution directed at the then head of the business area Eurosia within Telia, Tero Kivisaari, Telia;s then CEO Lars Nyberg and the then chief legal adviser for Telia’s Dutch subsidiary Fintur Holdings B.V., Olli Tuohimaa. The District Court has also considered the forfeiture action directed against Telia for MUSD 208.5 constituting dividends or benefits from alleged crime.

The course of events regarding the transactions that the Public Prosecutor has cited in relation to agreements and associated payments to accounts belonging to primarily Takilant Ltd., a company with connections with the then Uzbek president Islam Karimov’s daughter, Gulnara Karimova, have objectively be considered as having been investigated in the case.

According to the prosecution, the transactions would have included bribes. In order for the legislation pertaining to bribery to be applicable at all, it is supposed that the alleged beneficiaries are susceptible to bribery, i.e. the must fall in under the limited circle of people who are susceptible to bribery that was applicable under the then Swedish legislation. The Prosecutor’s statement of the criminal offence as charged has been considered unclear in a number of respects, including regarding the circle of people. As regards what has been initially cited by the Public Prosecutor the assertion that Gulnara Karimova held a position or was engaged on an assignment within the telecommunications sector as an employee or contractor in a position of trust has not been made more specific. The statement of the criminal offence as charged has also been considered as unclear as regards which official or officials which, according to the Public Prosecutor’s second hand allegation of the criminal act, will be bribed through Telia’s business dealings with Takilant Ltd.

Particularly as regards these unclear parts of the allegation of the criminal act, major deficiencies in the robustness of the investigations could be established. The assertion that Gulnara Karimova acted in the exercising of her duties as a public sector employee or contractor in a position of trust engaged on assignments within the telecommunications sector has therefore not been able to be proven; an alternative explanation has instead been considered reasonable, meaning that Gulnara Karimova acted as a business person through Takilant Ltd.

The Public Prosecutor’s assertion that Gulnara Karimova exercised the authority of a foreign state without authority, so-called “actual exercising of authority”, without holding a position or being engaged on an assignment has not been found to constitute a crime according to the bribery legislation due to the fact that the actual exercising of authority also supposes employment or engagement on an assignment.

As regards different determined public employment or assignments within the Uzbek overseas administration that, according to the Public prosecutor, Gulnara Karimova held, the District Court has considered the so-called “service relationship” between any benefits from Telia and reported positions and functions. When examined, it has been established that the investigation does not demonstrate that the business area in which Gulnara Karimova had been active included national telecommunications matters. The District Court has therefore not found it proven that a service relationship existed.

Regarding the allegation of bribery where benefits have been provided directly to somebody other than the official, in this case to Takiant Ltd./Gulnara Karimova, there must be some form of connection between the official and another party in order for it to be said that the benefit has in some way or other favoured the official (favourable connection). In so far as the Public Prosecutor has not specified which official or officials the Public Prosecutor in the second and third hand has or have been bribed, it has not been possible to test this.

Where the Public Prosecutor has specified the official as being the General Director for the telecommunications authority, Abdulla Aripov and the CEO of the telecommunications operator Uzdunrobita, Bekhzod Ahmedov, there is no investigation that proves a favourable connection between them and Takilant Ltd./Gulnara Karimova.

There have therefore not been found any grounds for the District Court to proceed in its examination of other constituent elements of criminal acts and examine whether the transactions had contained any benefits and if so, whether they had been in appropriate. Nor has there been reason to review the accused’s accounts and the evidence to which they have adduced.

The accused are acquitted from prosecution for gross bribery.

In the assessment of the matter regarding liability, a forfeiture action is being brought against Telia without approval.”

As highlighted in this recent post, the DOJ recently criminally charged Ahmedov for FCPA and related offenses.

Before proceeding further, it is interesting to note that the Swedish court’s reference to the “limited circle of people who are susceptible to bribery” is similar to what a U.S. court said in U.S. v. Castle when noting that “foreign officials” under the FCPA are a “small class of persons.”

Back to the Swedish court decision.

The court noted:

“In criminal cases, it is the public prosecutor who has the burden of proof. For a conviction, it is required that it is without reasonable doubt that the defendants have been guilty of committing the acts that form the basis for the indictment and prosecution. The evidentiary requirements/requirement for proof applies to all necessary prerequisites for the conviction of the commission of a crime.”

[…]

“The public prosecutor’s statement of the criminal offence as charged gives rise to the following general remarks. A starting point in the law of criminal procedure against the background of inter alia the requirements which the European for the Protection of Human Rights and Fundamental Freedoms imposes concerning a fair trial is that a charge must be sufficiently detailed so that the accused will be able to defend themselves.”

[…]

“The public prosecutor has stated that the District Court shall use imagination and empathy in its examination of the indictment and prosecution. The District Court must already state here that it is self-evident that within the law of criminal procedure there is no room for such a thing. The principle of legality is considered central from a rule of law and is given a special importance in criminal law and the criminal legal proceedings. The principle prevents extensive interpretation and application of the law. When interpreting a penalty clause, the purpose of the legislation – which can be seen from preparatory work – as well as practice and statements in the legal literature is important.”

[…]

“The alleged illegal act must fulfil all the requisites in the legal text, otherwise it is contrary to the principle of legality’s prohibition on the use of analogy to nevertheless apply the provision. It is self-evident that the allegations/statement of the criminal offence must consist of facts and circumstances that are able to be proven.”

Regarding the prosecution’s theory of Karimova’s status, the court stated:

“In order for the corruption legislation to be applicable at all, it is assumed that the alleged recipients are susceptible to bribery, i.e. they must fall within the group of persons susceptible to bribery. As the public prosecutor has formulated the statement of the criminal offence charged, the District Court therefore begins by examining whether Gulnara Karimova belonged to the group of persons susceptible to bribery who are faced with liability for bribery, something the public prosecutor alleged but the defence counsel denies.

It can be noted that the Public prosecutor’s primary allegations means that Gulnara Karimova has been employed during the current period, had an assignment in a position of trust in the telecom sector or in other ways exercised foreign state’s public authority. In addition, Gulnara Karimova has, according to the public prosecutor, also acted the foreign state’s minister in 2008. However, the public prosecutor has not specified, on the basis of a concrete actual course of events, what it is for employment or assignment in a position of trust that Gulnara Karimova held, but only in vague general terms specified Gulnara Karimova’s belonging to the group of persons susceptible to bribery according to the following two options:

• Gulnara Karimova has had the relevant public position in telecoms in the form of employment or assignments based on trust she has received from her father, President Islam Karimov.

• Gulnara Karimova has herself taken upon herself the right to exercise power, completely independent of the system or any governmental entity providing any assignment. This means that she, without having had governmental employment or assignments, in practice exercised authority based on a position of trust, referred to as a de facto exerciser of powers as a public authority.

The public prosecutor has also presented a third alternative, which he meant is not realistic, meaning that Gulnara Karimova has been an agent or lobbyist for Telia and as such she has had the opportunity to influence, completely independent of the system or any governmental entity providing any assignment.

In addition, in the statement of facts the public prosecutor has contended that Gulnara Karimova has not been a civil servant of the state or minister in the normal sense who has provided directives in matters regarding what must be done, but rather the public prosecutor’s position is that Gulnara Karimova has conducted a crime syndicate, a state-organised crime enterprise, with the president’s [explicit] approval.

And finally here the public prosecutor has also referred to information vis-à-vis official functions that Gulnara Karimova had during the current period in the Uzbek Foreign Service administration based on the response to an application for international mutual legal assistance in criminal matters received from Switzerland, who in turn received the information from Uzbek public authorities. The public prosecutor’s position is that the information is proof of Gulnara Karimova’s employment as a civil servant and related matters with a broad functional area of responsibility during 2007 with links to the telecom industry.

In this context, the public prosecutor has argued that the Swedish model with public authorities (myndigheter) clearly delimited against the Government (Regering) and state is not common as a model in a state such as Uzbekistan. He has asserted in general terms that in Uzbekistan, ministries are closely connected with public authorities even if the decision is made in the authority and pointed out that Abdulla Aripov was both deputy prime minister and head of the authority.

The public prosecutor’s case in the first count means in the part where no concretisation of the group of persons susceptible to bribery has taken place on the basis of an actual individualised course of events that the District Court cannot examine every necessary prerequisites for the commission of a crime individually, i.e. employees, contractors in a position of trust or referred to as a de facto exerciser of powers as a public authority.. The District Court instead examines the allegations in this section gathered under what the District Court chooses to designate as vague or indefinite public employment or assignment in a position of trust within the telecom sector. Subsequently, the District Court will examine the various concrete public appointments or assignments within the Uzbek Foreign Service administration which, according to the information provided by Uzbekistan, the public prosecutor claims that Gulnara Karimova has had. The legal framework for each necessary prerequisites for the commission of a crime is reviewed initially.”

Regarding the status of Karimova, the court concluded:

“As stated in the section on the legal framework, the relevant necessary prerequisites in the prohibition of bribery legislation for the commission of a crime in the group of persons are well-defined and demarcated. In order for the District Court to be able to examine the current necessary prerequisites for the commission of a crime criminal case in objective sense, it is therefore required, as the District Court has previously pointed out, that the public prosecutor concretise the circumstances on which he bases his allegations in these respects.

However, the public prosecutor has not stated what position or position he alleges that Gulnara Karimova in the proper order has chosen, appointed or employed held, or was she served, if it was in the ministry, authority, etc. Instead, he has vaguely sweepingly stated that Gulnara Karimova has had the relevant governmental position in the form of employment or an assignment based on trust which she has received from her father, the president Islam Karimov, or that Gulnara Karimova herself has taken upon herself the right to exercise power, entirely independent of the system or any governmental assignment. The latter, according to the public prosecutor, means that, without having had governmental employment, assignments or positions of trust, she practically exercised foreign state authority in what is referred to as the de facto exercise of powers as a public authority.

However, as stated in the relevant section under the legal framework above, what is referred to as the de facto exercise of public authority does not encompass unauthorised persons who become engaged in actual exercise of power. Therefore what the public prosecutor asserts in this part can not be accepted on a legal basis and meet with approval.

Otherwise, the public prosecutor is perceived to hold the view that President Islam Karimov, without being able to report an actual concrete course of events on this, either in writing, verbally or via delegation, gave Gulnara Karimova governmental employment or an assignment in a position of trust to manage the telecom sector in Uzbekistan.

The public prosecutor’s allegations seem to be essentially based on general information that Uzbekistan was a kleptocracy where President Islam Karimov enriched himself and his family as much as possible and that there was a general reputation in Tashkent that Gulnara Karimova was awarded the telecom market by Islam Karimov and the fact that she via similar companies entered into similar agreements and held ownership interests in all three major mobile operators in Uzbekistan.

[…]

It can be concluded that there are no direct indications that show that Gulnara Karimova was given any governmental employment or assignment in a position of trust within the telecom sector in writing, verbally or via delegation. On the other hand, there are indirect indications that to some extent supports the position or, in any case, that Gulnara Karimova in this relevant respect has had an influence on the decision-making regarding Coscom. However, there are also alternative explanations for these indirect indications. One such is that Gulnara Karimova acted as a businesswoman and that as such she acted improperly or inappropriately. The public prosecutor has himself pointed out that Gulnara Karimova had a large business empire where the telecom sector accounted for about one-half of the assets, and that she engaged in criminal activities. It is noted that here that the payments from Telia have also gone to her company; a fact that even standing alone speaks against the assertion that work has been carried out on behalf of another party in governmental employment or that she has acted within the framework of an assignment of trust.”

The court next considered Telia’s 2017 FCPA settlement. [Notwithstanding what the court stated below, realize that the FCPA’s definition of “foreign official” is:

“any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.”]

Nevertheless, the court stated:

“According to the statement of agreed facts as a part of the agreement, the parties to the agreement agree that Gulnara Karimova fulfils the definition for a “Public Official” according to the FCPA and that she has influence over decisions made by UzACI and decisions that may have been made by other governmental authorities, for example so that Telia would have any possibility to be able to establish operations in Uzbekistan. The definition of “Public Official” according to FCPA includes senior officers [those with decision-making authority]or employees of a foreign government or some ministry, governmental authority or agency, or part thereof, or a public international organisation, or any person acting in their official function or on behalf of such government, ministry, governmental authority or agency, or part of it, or on behalf of such an international organisation.

The defence counsel has argued that strong commercial reasons have been present for Telia to enter into the agreement in question. This concerns what is referred to as a “Deferred Prosecution Agreement” between Telia and the U.S. Department of Justice, Criminal Division, Fraud Section and the U.S. Attorney’s office for the Southern District of New York, dated 21 September 2017. According to the agreement, Telia will pay USD 548,603,972 in fines. According to the defence counsel, the financial impetus amounts to some SEK 1.4 billion. The defence counsel has pointed out that Telia’s participation via identification of certain persons and information concerning their participation is deemed to constitute an extenuating circumstance [mitigating factor] and entitles Telia to a reduction. In addition, according to the defence counsel, the market-related situation is that companies usually choose to enter into agreements of the kind in question in order to avoid the very significant risks that an adverse action entails; that the market shares such a view is regularly reflected in the fact that a settlement has a positive impact on the price of the share. Furthermore, the defence counsel has pointed out in connection with the content of U.S. law that it lacks significance that Gulnara Karimova did not have employment or an assignment for UzACI due to that the actions as described in the statement of agreed facts are contrary to the U.S. Foreign Corrupt Practices Act.

The District Court may conclude, based on the contents of the agreement, that the strong commercial reasons that have existed for Telia to enter into the agreement and which the defence counsel has pointed out are of significant importance in terms of evidence and means that the agreement as such according to the District Court is without probative value or impact in the case. In this context, the District Court desires to emphasise the FCPA’s broad definition of the term “Public Official.”

In summary the court concluded:

“The public prosecutor has not explained the concrete facts of the significance for the assessment of whether Gulnara Karimova has been a governmental employee. It has not been clarified whether the relationship had been based on an agreement, what work Gulnara Karimova would perform, or whether the performance of the work was subject to specific directives or control. The same applies to the public prosecutor’s assertion that Gulnara Karimova acted in a position of trust. No description of the assignment has been submitted. Questions relating to that in which manner she has had a managerial or controlling task or responsibility remain unanswered. It is a requisite according to the provision that Gulnara Karimova constituted a special subject in the sense that she must have been in a special position.

This is because it requires that she be entrusted with a certain task/responsibility of managing or supervising. What kind of task/responsibility she has had has not been clarified. The public prosecutor has instead invoked all possible requisites in the provision, including legal affairs, which, naturally, is primarily intended to be carried out by lawyers.

The report that was presented has not clarified the vague parts that are in the public prosecutor’s indictment concerning the issue of Gulnara Karimova’s belonging to the group of persons susceptible to bribery. The assertion that she has had governmental employment or assignments in a position of trust within telecom has not been able to be proven. Instead, an alternative explanation has been deemed as being reasonable, i.e. that Gulnara Karimova in fact acted as a businesswoman within the framework of companies with which she had associations with.

Finally, the legal framework does not encompass what is referred to as the de facto exercise of powers as a public authority in such a situation as the public prosecutor has described where unauthorised persons engage in the actual exercise of power. The public prosecutor’s assertions in this part have thus already failed on a legal foundation.

Taken all together, it can be stated that the shortcomings that exist in the robustness of the investigation, the weakly weighted probative value of the evidence in conjunction with the great vagueness concerning the group of persons for the alleged crime and the difficulties which, as a result, have existed for the defendants to present rebuttal evidence lead to the conclusion that it has not been proven that Gulnara Karimova has been an employee or held a position of trust in the manner in which the public prosecutor has asserted.

It has not been proven that Gulnara Karimova belonged, in the manner that the public prosecutor alleged, according to Chapter 20, § 2 of the Penal Code, to a group of persons susceptible to bribery as an employee or contractor in a position of trust within the telecom sector. The public prosecutor’s allegations concerning that Gulnara Karimova’s engaged in an unauthorised exercise of foreign state authority is not a criminal offence pursuant to the legislation concerning bribery.”

The court next addressed the prosecutor’s theory that Karimova was a “public official” because of various positions she allegedly held such as “Head of the Centre for Political Studies” “Deputy Minister for International Cooperation in Cultural and Humanitarian Affairs,” and “Permanent Representative at the U.N.” However, the court concluded:

“The District Court can conclude that the investigation does not show anything other than that Gulnara Karimova’s functional area of responsibility is internationally focused on Uzbekistan’s foreign policy and regional cooperation and security, which refers i.a. to the implementation of analytical monitoring of social policy processes in the international arena. Thus, according to the investigation the area of activities does not include national telecom issues. Thus it has not been shown that there is any connection relating to the performance of official duties in any benefits [received] from Telia and Gulnara Karimova’s work or commissions in the Centre.”

[…]

“In the absence of an investigation, it has not been shown that Gulnara Karimova, as Deputy Foreign Minister for International Cooperation in Cultural and Humanitarian Affairs, had any formal rights to participate in decisions concerning issues arising from other ministries or agencies and which could have affected telecom issues. The conclusion is thus that some connection related to the performance of official duties between any benefits from Telia and Gulnara Karimova in the position of Deputy Foreign Minister for International Cooperation in Cultural and Humanitarian Affairs has not been proven.”

[…]

“Taking into account the area of activities of Gulnara Karimova as a permanent representative of the Republic of Uzbekistan at the UN office and other international organisations in Geneva reported in the Uzbek document, it can be concluded that no connection between any benefits provided by Telia and her work or commissions in the performance of official duties has been shown.”

“The public prosecutor has concretised three different official positions within the Uzbek Foreign Service administration with related functional descriptions based on an Uzbek document. Despite the fact that information from Uzbekistan is to be valued with caution, the District Court has, based on the Uzbek information, tested the positions and functions against referred to as the connection to the performance of official duties, which is one of several requirements that the criminal offence according to the bribery legislation to be considered come into play at all. The District Court has found that the reported official positions do not have a connection with national telecom issues and that no connection between any benefits from Telia and the official positions and functions in connection with the performance of official duties has been shown.

No connection to the performance of official duties has been shown between any benefits from Telia and the reported official positions and functions with the Uzbek Foreign Service administration.”

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