By Miranda Patrucic and Stella Roque
VimpelCom, the Russian-Norwegian telecom operator, admitted to bribing Gulnara Karimova, daughter of Islam Karimov, president of Uzbekistan and agreed to pay US$ 795 million in penalties to US and Dutch authorities.
VimpelCom, majority owned by Mikhail Fridman, one of Russia's wealthiest businessmen, and Telenor, which is majority-owned by the Norwegian government, was accused of paying more US$ 114.5 million to a “relative” of Karimov between 2006 and 2012 for mobile phone licenses and frequencies.
A criminal investigation by US and Dutch authorities also revealed VimpelCom, registered in Netherlands and trading in the US, paid an additional US$ 30 million for sponsorships and charitable contributions to organizations controlled by Karimova and another government official whose name was not identified, and US$ 20 million in extra charges for currency conversion fees. Internal VimpelCom e-mails between company officials show VimpelCom considered paying US$ 16 million for the “opportunity to conduct future operations without hurdles from the partner and regulatory agencies.”
An earlier investigation by the Organized Crime and Corruption Reporting Project (OCCRP) found five telecom companies including VimpelCom paid more than US$ 1 billion in bribes to Karimova. OCCRP also found another of Fridman’s companies paid US$ 19 million making the total bribes paid by VimpelCom related companies closer to US$ 183.5 million.
The settlement includes US$ 167.5 million to the US Securities and Exchange Commission, US$ 230.1 million to the US Department of Justice, and US$ 397.5 million to the Public Prosecution Service of the Netherlands.
VimpelCom admitted to falsifying its books and records and to trying to conceal the bribery scheme by classifying the payments as equity transactions, consulting and repudiation agreements and reseller transactions.
“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 $114 million in bribes funneled to a government official,” said US Attorney Preet Bharara of the Southern District of New York. “Those payments, falsely recorded in the company’s books and records, were then laundered through bank accounts and assets around the world, including through accounts in New York.”
The investigation by the US and Dutch prosecutors sheds light on how Gulnara used threats and intimidation to extort money or to force companies to pay bribes in order to operate in the Uzbek market.
Entering the Uzbek Market
In mid-2005 two telecom operators were up for sale – Buztel and Unitel. VimpelCom was interested.
Documents obtained by Dutch authorities revealed that VimpelCom was aware that in order to really operate in the Uzbek market, “it would need to use and work with a local partner” and that a relationship with Karimova was a prerequisite for doing business in Uzbekistan.” The negotiations started in December 2005. Their local partner would be Takilant, a Gibraltar-based offshore company beneficially-owned by Karimova.
According to the terms of the cooperation agreement, VimpelCom would acquire both operators and merge them. Following the merger Takilant would get a 7% share and an additional agreement that would allow it to make at least US$ 37.5 million on the sale of shares in the future.
VimpelCom's Board of Directors discussed Karimova’s involvement at a board meeting held on Dec. 14, 2005. According to the Dutch investigation, Karimova “actively influenced who would acquire Unitel and Buztel” and “in fact would decide who may take part in the bidding for both companies and probably could influence the price as well.”
An unidentified senior manager also informed the board that VimpelCom needed to acquire both companies, otherwise it “would risk that the potential local partner would make it difficult to operate in the market.”
The board was informed acquiring Buztel was of special significance.
Officially Buztel at the time was owned by Fridman’s Alfa Group. Alfa bought this small, 2700-subscriber local company in December 2004 for US$ 4 million. Alfa’s Buztel significantly benefited from favorable decisions by Uzbek regulators throughout 2005, including the awarding of a license at the expense of the state-owned company. While the reasons made little sense at the time, the Dutch investigation showed Karimova had an indirect interest in Buztel and VimpelCom managers were aware of it.
At the beginning of 2006, VimpelCom bought Buztel from Fridman’s Alfa for US$ 60 million, a massive profit from the US$ 4 million it originally paid for the company. Two days later, Alfa made a US$ 19 million payment to Karimova’s Gibraltar-registered Takilant.
In February 2006, VimpelCom bought Unitel for US$ 200 million, one of the big remaining players in the Uzbek market. A couple of months later, it merged Buztel into Unitel.
The plan was set in motion. In April 2007, Karimova entered into an agreement with VimpelCom to buy a 7 percent stake of Unitel for US$ 20 million through a subsidiary. A put option allowed either party to force the sale of the 7 percent stake back to VimpelCom two years later for between US$ 57.5 million to US$ 60 million. Karimova exercised that option in September 2009 earning a windfall of US$ 37.5 million as originally agreed.
But that was not all. As with other telecom operators, Karimova requested payment for every telecom license VimpelCom needed to successfully operate in Uzbekistan. Earlier investigations by OCCRP showed that while licenses can be obtained directly from the Uzbek telecommunications regulator, Karimova would also obtain the only available license and then demand payment to return it to the regulator so it could be reissued to VimpelCom. Or she simply threatened them with harmful repercussions unless they paid consulting fees.
Millions for Licenses
Between 2007 and 2011, VimpelCom paid at least US$ 57 million to Karimova to obtain licenses.
Documents obtained by OCCRP showed VimpelCom paid US$ 25 million to Karimova for 3G licenses in November 2007. The Dutch investigation revealed that Takilant offered licenses to VimpelCom even before the company obtained them themselves. VimpelCom first paid US$ 10 million to relinquish the rights, and an additional US$ 15 million for allocation.
A year later, in August 2008, VimpelCom paid Takilant US$ 2 million for services including negotiating with different Uzbek agencies for the allocation of additional capacity.
But the next payment to Karimova did not go as smoothly and required some arm twisting. In 2011, VimpelCom needed to obtain LTE (high speed data) licenses. While no payments needed to be made to the government agency, senior managers agreed to pay US$ 30 million to Takilant under a service agreement, including advising on the legislative framework in Uzbekistan and negotiating with authorities.
Internal emails obtained by Dutch investigators showed that some VimpelCom managers questioned the transactions. One of the managers noted that he couldn’t understand why the licenses would be issued for no cost when other countries were raising significant revenues from telecom licenses. Others expressed concern that the fee paid to Takilant was out of proportion with other consulting fees.
The investigation revealed that VimpelCom management had been warned of “potential harmful repercussions” if this transaction did not go through. Karimova used the same method to force other telecom companies to pay or do what she wanted.
On Sep. 21, 2011 VimpelCom paid US$ 20 million. One month later, two days after the allocation of licenses a remaining US$ 10 million was paid.
In this and other cases, VimpelCom sought the opinion of a law firm to determine whether transactions in Uzbekistan were subject to the Foreign Corrupt Practices Act. While the law firm said they were not, the Dutch investigation showed it was based on erroneous and incomplete information.
Other Payments
The Dutch investigation also revealed VimpelCom's Uzbek operator Unitel paid over US$ 30 million in sponsorships and charitable contributions to charities related directly to Karimova and another government official whose name was not identified. Some of these payments are linked to the acquisitions of licenses.
In one case, according to the investigation, as soon Unitel filed a request with the government to obtain additional numbers, the company received a letter from an organization asking for a donation. The phone number blocks were approved following the payment.
VimpelCom also paid US$ 20 million in indirect payments to Takilant through intermediaries using fake or inflated contracts for services so that they could use their revenues earned in Uzbek Sum to buy equipment or services priced in non-Uzbek currency. Conversion of local earnings into foreign currency is strictly controlled in Uzbekistan and the conversion of large amounts of money requires the approval from the president himself. Companies operating in the country often have difficulties taking profits earned out of the country.
Internal correspondence obtained by Dutch investigators also show management at the regional level contemplated additional payments to Karimova in 2013 in the amount of US$ 16 million in exchange for, among other things, “the opportunity to conduct future operations without hurdles from the ‘partner’ and regulatory agencies.” Those bribes were not completed before VimpelCom opened an internal investigation, according to the US Department of Justice.
OCCRP’s earlier investigation showed VimpelCom’s payments are just a fraction of the over US$ 1 billion Karimova made through telecom deals. TeliaSonera paid US$ 381 million and promised an additional US$ 75 million; the Russian giant MTS paid US$ 350 million. She also received nearly US$ 90 million from two other companies that ran fiber optic lines and provided WiMAX and WIFI services in Uzbekistan.
The telecom case is the largest case ever brought under the Kleptocracy Asset Recovery Initiative, spearheaded by the Department of Justice to freeze and seize illicit assets stashed by corrupt foreign leaders in the United States.
