Moscow-based Mobile TeleSystems (MTS), the largest mobile telecommunications company in Russia, has settled SEC and US Department of Justice (DoJ) allegations that it violated the FCPA to win business in Uzbekistan.
The SEC alleges in a related filing that from 2004 until at least 2012 MTS offered and paid bribes to a government official in Uzbekistan in connection with its Uzbek operations. The improper payments enabled MTS to enter the country’s market, operate as a telecommunications provider and receive commercial benefits, according to the agency. Those benefits continued until 2012, when the Uzbek government expropriated MTS’ Uzbek operations, the SEC says.
During the course of the alleged scheme, MTS made at least $420 million in illicit payments for the purpose of obtaining and retaining business – payments that generated more than $2.4 billion in revenues, according to the agency.
The alleged illicit payments were made through a variety of means, including equity transactions with the government official, sham contracts and charitable contributions or sponsorships at the direction of the government official, the SEC says.
These payments were improperly characterized as legitimate expenses in MTS’ books and records, and MTS filed its financial statements incorporating the falsely recorded payments with the commission throughout the period at issue, according to the agency.
‘The company engaged in egregious misconduct for nearly a decade, secretly funneling hundreds of millions of dollars to a corrupt official. Building business on a foundation of bribery leaves the business and American investor interests at the mercy of corrupt officials,’ Charles Cain, chief of the SEC enforcement division’s FCPA unit, says in a statement. MTS issues and maintains publicly traded securities registered under the Securities Exchange Act that traded on the NYSE during the relevant period, the commission states.
MTS settled with the SEC without admitting or denying wrongdoing. Under the agreement, it consents to pay a $100 million penalty and co-operate fully with the commission in any and all related investigations, litigation or other proceedings. The company also agrees to engage an independent compliance monitor to conduct three reviews, issue a report following each review and release a final certification report.
In related proceedings, MTS entered into a deferred prosecution agreement with the DoJ, and its wholly owned Uzbek subsidiary Kolorit Dizayn pleaded guilty to a one-count criminal information filed in the Southern District of New York, charging the company with conspiracy to violate the anti-bribery and books and records provisions of the FCPA, according to the DoJ.
Under its agreement with the department, MTS agreed to pay a total criminal penalty of $850 million. The DoJ credits the civil penalty paid to the SEC as part of its agreement with MTS, so the combined total of criminal and regulatory penalties paid by MTS and Kolorit will be $850 million.
In announcing the settlement, the SEC expressed gratitude for co-operation and assistance from the DoJ, Internal Revenue Service and Department of Homeland Security in the US, and a lengthy list of non-US authorities in the Netherlands, Norway, Sweden, Switzerland, Latvia, the UK, France, Ireland, the British Virgin Islands, the Cayman Islands and Bermuda.
‘By entering into the DoJ resolution and the SEC settlement, MTS affirmed its commitment to ensuring its business policies, processes and procedures strictly comply with all relevant anti-corruption legislation,’ MTS says in a statement. ‘In the resolution, the DoJ recognized MTS’ ongoing enhancements to its compliance program and internal accounting controls.’
MTS president and CEO Alexey Kornya says as part of the company statement: ‘Obtaining a resolution of the Uzbek investigations was in the company’s best interests. The resolution and settlement allow MTS to focus fully on the implementation of MTS’ business strategy to be a first-in-class digital telecom company. MTS’ balance sheet remains strong…
‘MTS has systematically and proactively developed its current anti-corruption compliance framework in line with international best practices within a dedicated compliance division since 2012. Our compliance function continues to undergo testing and we are committed to developing and implementing high professional standards of corporate policies, processes and procedures at MTS. I am confident that MTS’ commitment to adhering to the highest standards of business ethics will strengthen and protect the company’s position as a leader in all our markets of operation.’
Ben Maiden
Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...
