The Silk Road Affair: Power, Pop and a Bunch of Billionaires
Mobile companies in three countries in alleged bribery probe
VimpelCom may pay near-record U.S. fine, people familiar say
As the U.S. embassy noted in a secret dispatch from 2005 that was later published by Wikileaks, Karimova was viewed by most Uzbeks “as a greedy, power-hungry individual who uses her father to crush business people or anyone else who stands in her way.”
These days the 43-year-old former globetrotting socialite who once publicly praised God for “my face” is confined to her homeland along the legendary Silk Road, watched over by the security services of her aging father, Islam Karimov, who has ruled for a quarter century. Even in isolation, though, Googoosha, as she’s called herself in music videos, remains in the eye of a storm, the protagonist in a multibillion-dollar tale of alleged greed and graft unfolding across three continents.
This story stretches back more than a decade, from the fringes of the czarist empire to the tidy streets of Oslo, via Gibraltar, Geneva and beyond. It touches companies owned by six of Europe’s richest men -- five Russians and a native Norwegian -- and thrusts the staid Scandinavian business world into a strange new light. It also offers a glimpse into a mercurial U.S. ally, a nation of 30 million that is ranked among the most repressive and corrupt in the world by Freedom House and Transparency International, even while providing occasional logistical support for American troops in neighboring Afghanistan.
The latest chapter of the saga opened near midnight on Nov. 4, when a flight from London touched down at Oslo Airport carrying the man shipping tycoon John Fredriksen had just hired to manage his industrial and financial fortune.
But it wasn’t Fredriksen Group that Norwegian investigators were after when they whisked Jo Lunder away in front of startled passengers. It was the former professional soccer player’s previous employer, VimpelCom Ltd., the U.S.-listed mobile-phone venture between a clutch of Russian billionaires including Mikhail Fridman and Norway’s state-controlled Telenor ASA.
Norway’s probe comes as the U.S. Justice Department and Securities and Exchange Commission are investigating VimpelCom, founded in Moscow and based in Amsterdam, for allegedly paying bribes to Karimova to win business in Uzbekistan, according to court documents and people with knowledge of the matter. They are also probing billionaire Vladimir Evtushenkov’s MobileTeleSystems PJSC, or MTS, and Stockholm-based TeliaSonera AB for the same reason.
VimpelCom, MTS and TeliaSonera all said they are cooperating with investigators and declined to comment further.
A 60-page civil-forfeiture complaint filed by the Justice Department accuses VimpelCom and MTS, which both trade on the Nasdaq exchange in New York, of making more than $500 million in corrupt payments to offshore companies set up to benefit a “relative of the president of Uzbekistan” starting in 2004.
Karimova isn’t mentioned in the complaint by name but she is the relative in question, two people involved in the probe said. Swiss, Dutch and Swedish officials are also investigating payments to shell companies tied to Karimova. So far, no company or person has been publicly charged as part of the U.S. and European investigations.
Before her Twitter account went silent in February 2014, Karimova repeatedly tweeted denials of accusations of corruption. Her former spokesman, London-based public relations firm Davidson Ryan Dore’s Locksley Ryan, who announced her house arrest last year, said she was dropped as a client when friends and family stopped paying the bills. Calls and e-mails to the president’s office and the Foreign Ministry in Tashkent seeking comment weren’t answered.
Lunder, a former VimpelCom chief executive officer and chairman, was held for six days while officials searched his home and questioned other witnesses in the case. When he was finally released, the stunned executive, who says he’s never been to Uzbekistan or even met Karimova, told reporters he’d done nothing wrong. He remains under investigation in Norway on suspicion of corruption.
“I have built my entire professional career on creating trust,” Lunder, 54, said Nov. 11 in Oslo. “I have tried to cooperate with the Americans and the Dutch.”
By then, Fredriksen had suspended Lunder. In the past month, Svein Aaser, the chairman of Telenor, VimpelCom’s other major shareholder, has been ousted by the Norwegian government and Telenor’s chief financial officer and general counsel have been temporarily suspended. CEO Sigve Brekke said he had no reason to believe the men were involved in corruption.
Aaser declined to comment after stepping down, saying only that he and the Norwegian government had different views on how to deal with the situation. The two suspended executives said in a statement they handled issues related to VimpelCom "in a correct manner.”
The potential financial costs of the case ballooned in June, when the Justice Department asked a New York court to seize $300 million held in Bank of New York Mellon Corp. and Clearstream Banking SA accounts in Ireland, Belgium and Luxembourg. Prosecutors said the money was linked to corrupt payments VimpelCom and MTS made to offshore companies set up to benefit “the relative” of Karimov and then laundered via correspondent accounts in New York.
Both BNY Mellon and Clearstream declined to comment.
VimpelCom is in talks with U.S. authorities to pay about $775 million to settle the allegations, according to three people familiar with the matter. That would be the second-largest fine ever levied under the U.S. Foreign Corrupt Practices Act, which bans bribing officials to win business. U.S. officials declined to comment.
The U.S. complaint details numerous schemes VimpelCom and MTS allegedly used to bribe Karimova. In 2011, for example, VimpelCom’s Uzbek unit paid $30 million to a Gibraltar company Karimova controlled, Takilant Ltd., for consulting work that included reports copied and pasted from Wikipedia, blogs and VimpelCom’s own research, according to the complaint. The unit was awarded a coveted 4G license at about this time.
A man who answered the phone at Gibraltar’s corporate registrar last week said Takilant’s company secretary is listed as Form-a-Co Ltd. A man who answered Form-a-Co’s phone declined to comment or provide an alternative contact for Takilant.
In Switzerland, where Karimova once lived in a Geneva mansion, prosecutors have widened their own probe into suspected money-laundering and fraud offenses related to her role in awarding telecommunications contracts in Uzbekistan. In August, they said they’d confiscated more than 800 million Swiss francs ($781 million) of assets linked to her, without elaborating, bringing the total amount seized to about $1.1 billion.
Add the $900 million VimpelCom has set aside for potential liabilities and the amount tied up in the investigations is pushing $2 billion. And that’s not even counting the impact on the market values of VimpelCom, MTS and TeliaSonera or the future costs of litigation.
VimpelCom’s market value has plunged 59 percent to $6.3 billion since March 12, 2014, when it disclosed the U.S. and Dutch probes, even after rallying 6.8 percent on Wednesday after Bloomberg News reported it was close to reaching a settlement. The American receipts of MTS and TeliaSonera have fallen 52 percent and 38 percent in the same period, cutting their values to $7.9 billion and $20.2 billion, respectively.
There were millions of reasons mobile operators were eager to break into Uzbekistan in the 2000s. In 2005, when cellular service was still a luxury, the country had just 917,000 users. Now it has 21 million, the most in Central Asia by far, according the U.S. Central Intelligence Agency.
By the mid-2000s, Karimova had become the “go-to person” in Uzbekistan because she was perceived as someone “you could do business with,” said Ed Baumgartner, a co-founder of the Edward Austin research consultancy.
Baumgartner studied with Karimova at Harvard, where she got a master’s degree in regional studies in 2000, and kept in touch with her during the years he spent working in Russia and other former Soviet republics, but never did business with her. He said she took her studies seriously, in contrast to reports she was little more than a dilettante.
"She wasn’t a lightweight,” Baumgartner said. “She showed up in class, her English was very good and she walked at graduation.”
After Harvard, Karimova moved back home to pursue a career that included stints at the United Nations in Geneva and as ambassador to Spain. She released a jewelry line, embarked on a singing career and organized charity events, including one that brought the musician Sting to Tashkent. As Googoosha, she performed in music videos with Spanish singer Julio Iglesias and French actor Gerard Depardieu.
But never far behind were allegations of corruption. Last year, Uzbek prosecutors named her a suspect in a criminal probe, as a member of a group they allege stole millions from local companies. That September, prosecutors announced they had seized about $167 million of assets from the group as part of their investigation.
Many powerful Uzbeks thought Karimova had gotten out of control and lobbied the president to rein his daughter in, which led to her house arrest, according to Kate Mallinson, a Central Asia specialist at London-based business intelligence firm GPW Ltd.
"Gulnara Karimova’s spectacular fall from grace was an attempt to ring-fence the money she supposedly expropriated,” Mallinson said in an interview. "The whole Shakespearean drama highlights how the president has been politically marooned. It’s the security apparatus that’s making day-to-day decisions."