- Sweden's TeliaSonera yet to receive any indication of fine
- U.S., Dutch authorities probing carriers' Uzbek businesses
VimpelCom Ltd.’s $900 million provision to cover possible U.S. and Dutch fines over bribery allegations in Uzbekistan is the first indication of what may lie ahead for rivals TeliaSonera AB and Mobile TeleSystems PJSC, which also face investigation for their phone businesses in the former Soviet republic.
VimpelCom set aside almost twice its Uzbek earnings before interest, taxes, depreciation and amortization last year. Dutch, Swedish, Swiss and U.S. authorities have spent years probing graft allegations connected to the three European phone companies’ contract wins in Uzbekistan.
Controlled by billionaire Mikhail Fridman and Norway’s Telenor ASA, VimpelCom faces questions into the role of Gulnara Karimova, daughter of the president of Uzbekistan, in the awarding of telecommunications contracts in the country. Telenor Chairman Svein Aaser was ousted last week over the investments.
“VimpelCom’s issues in Uzbekistan are almost a copycat of Telia’s problems there and this is the first real indication we’ve seen of the size of potential fines these companies are facing,” said Thomas Heath, an analyst at Svenska Handelsbanken AB. “I’m not sure why the fine Telia could face would be much different to what VimpelCom is now expecting. It’s a serious amount of money.”
Although details are scant, the foreign phone companies all figure in reports of alleged bribes paid to secure a slice of the mobile phone industry in Uzbekistan. With corruption at the “highest levels,” the government there continues to suppress all political opposition, according to Freedom House, a group that monitors civil and political rights.
VimpelCom first entered Uzbekistan in 2006, buying two local operators while MTS took control of the country’s largest carrier in 2004 and bought the remainder in 2007, the same year that TeliaSonera established its local business.
VimpelCom Chairman Alexey Reznikovich declined to comment further on the provision.
Shares of VimpelCom fell 4.6 percent at the close on Tuesday in New York, while MTS declined 2.7 percent. Telenor retreated 1.9 percent in Oslo, while TeliaSonera fell 1.4 percent in Stockholm.
Swedish state-controlled TeliaSonera hasn’t yet received any indications from U.S. authorities on the size of a potential fine, sanction or any other consequence, the company’s General Counsel Jonas Bengtsson said Tuesday by telephone. TeliaSonera is cooperating fully with the U.S. Justice Department and other authorities, Sweden’s Ministry of Enterprise and Innovation said in an e-mailed comment.
TeliaSonera overhauled its leadership after the allegations surfaced in 2012. Then Chairman Anders Narvinger and former CEO Lars Nyberg were among a handful who left their positions early. Telia has since said it would exit former Soviet countries and Asia to focus on the Nordic region.
Neighboring Norway fired Aaser last week, citing a lack of confidence in his leadership after the Industry Ministry received more information about VimpelCom’s alleged Uzbek bribes. Last month, Telenor said it intends to divest its stake in the Russian carrier. VimpelCom’s provision will be included in its third-quarter earnings, the company said Tuesday, adding there is no certainty as to the final cost.
VimpelCom’s announcement is a “serious development that significantly increases our concerns in relation to the potential outcome of the still-ongoing investigations,” Telenor said Tuesday.
MTS spokesman Dmitry Solodovnikov declined to comment on whether the carrier would also consider provisions over the Uzbekistan probe. He reiterated that MTS is cooperating with authorities.
The U.S. Justice Department in July won a bid to seize $300 million alleged to be the proceeds from an Uzbek telecommunications scheme that involved companies including VimpelCom and Takilant Ltd., an investment firm linked to Karimova and her father President Islam Karimov. Takilant held a minority stake in VimpelCom’s business in Uzbekistan from 2007 to 2009.
Swiss federal prosecutors in August widened a probe into Karimova, saying they are investigating six people suspected of money-laundering and document forgery. The Office of the Attorney-General said at the time it has confiscated more than 800 million Swiss francs ($806 million) in the case.