In March 2019, US DoJ and SEC announced that “MTS (Mobile TeleSystems), the largest mobile telecommunications company in Russia, and its wholly owned Uzbek subsidiary, have entered into resolutions with the DoJ and SEC and agreed to pay a combined total penalty of $850 million to resolve charges arising out of a scheme to pay bribes in Uzbekistan.” Actually, I predicted that MTS might be in trouble in my post on VimpelCom case back in 2016. Since 2015, MTS Ukraine, a subsidiary of leading Russian mobile service provider MTS is operating under the brand of Britain's Vodafone.
It appeared that MTS made at least $420 million in illicit payments for obtaining and retaining business to an Uzbek official related to the former President of Uzbekistan. The payments enabled MTS to enter the telecommunications market in Uzbekistan and operate there for eight years, from 2004 to 2012, during which the company generated over $2.4 billion in revenues.
MTS fell under DOJ and SEC prosecution for three reasons: (1) MTS traded stock on a US stock exchange and filed SEC reports; (2) MTS employees used email accounts based in US servers; and (3) Many of MTS’ illegal bribery payments traveled through US-based correspondent accounts. While the first reason is an obvious one, I really doubt that involved MTS officials were aware that other two reasons are applicable to respective transactions and that it triggers FCPA jurisdiction. It also demonstrates that even minimal link to US might result in application of the FCPA.
MTS would pay a total fine equal to 25% more than the bottom of the Federal Sentencing Guidelines range due to the following reasons: (1) the company did not disclose a matter voluntarily; (2) company’s level of cooperation and remediation was lacking, not proactive, the company was slow to provide information and evidence in response to the investigators; (3) the company failed to discipline senior executives involved in the conduct; and (4) the nature and seriousness of the offense. It demonstrates how crucial it is to cooperate with the investigators.
MTS entered into a three-year deferred prosecution agreement with the DoJ and agreed to the appointment of an independent compliance monitor. At the same time, the DoJ unsealed criminal indictments against Gulnara Karimova, the daughter of the former president of Uzbekistan, and Bekhzod Akhmedov, former MTS executive based in Uzbekistan. Here I have to stress a tendency of increasing prosecution of individuals for bribery offences emphasized in Yates memo and summarized in one of my previous posts. As such, corporate bribery will not only expose corporations to huge financial penalties, but also threat responsible individuals with long-term imprisonment and fines.
According to the DoJ, “Law enforcement authorities in Austria, Belgium, Cyprus, France, Ireland, Isle of Man, Latvia, Luxembourg, Norway, the Netherlands, Switzerland, Sweden and the United Kingdom have provided valuable assistance in this case.” Therefore, considering the deepening expertize of anti-corruption enforcement authorities in revealing corruption and increasing international cooperation in this field, no corruptionist should feel secure even if the bribery scheme has been sophisticatedly designed.
MTS case is the third case brought by DOJ and SEC involving telecommunications companies operating in Uzbekistan. Last year, Telia Sonera paid $965 million to resolve FCPA charges in Uzbekistan. In 2016, VimpelCom reached a $795 million settlement for FCPA violations in Uzbekistan. In total, U.S. and foreign authorities have recovered $2.6 billion for bribery violations in the telecommunications market in Uzbekistan.
Finally, why does it matter for Ukraine? Firstly, even minimal link to US might trigger FCPA application. And, secondly, FCPA anti-corruption monitoring in Ukrainian Vodafone in addition to ongoing monitoring in Ukrainian Kyivstar (due to earlier Vimpelcom case) should add up to promoting compliance culture among business in Ukraine.
Stay tuned and be compliant!
Volodymyr Grabchak is a legal counsel with an international FMCG company, responsible, inter alia for anti-corruption compliance issues in Ukraine and Moldova. He got his law degree in Ukraine and LL.M. degree in the Netherlands.
Volodymyr is attorney at law admitted to Ukrainian Bar and a member of the International Bar Association (IBA).