US law firm Pomerantz has filed a class action lawsuit against Amsterdam-based and Nasdaq-listed telecommunications group VimpelCom in New York for its alleged wrongdoings in Uzbekistan on November 4, just a few hours after former CEO Jo Lunder got arrested in Oslo.
“The Complaint alleges that […] defendants [VimpelCom and certain of its officers] made materially false and misleading statements regarding the company’s business, operational and compliance policies,” a statement by Pomerantz reads.
“Specifically, defendants made false and/or misleading statements and/or failed to disclose that: VimpelCom had paid tens of millions of dollars to a company controlled by Gulnara Karimova, daughter of the president of Uzbekistan; the payments to Karimova were unlawful bribes intended to secure VimpelCom’s access to Uzbekistan’s telecommunications market; and as a result of the foregoing, defendants’ statements about VimpelCom’s business, operations, and prospects were false and misleading and/or lacked a reasonable basis.”
VimpelCom is under investigation in the US, where the company is listed, and the Netherlands, where the company is headquartered, on corruption and money laundering charges related to its operations in Uzbekistan – its local brand Beeline is the largest mobile operator in the country with a subscriber base of 10.6mn clients at the end of 2014. VimpelCom entered the Uzbek market in 2006, when it acquired Unitel, the then second largest Uzbek mobile operator, for a disclosed price of $200mn, plus assumption of approximately $7.7mn in debt, according to company figures. Successive investigations by American and European authorities alleged that VimpelCom, as well as its two foreign competitors in the Uzbek market, Nordic TeliaSonera and Russian MTS, paid hundreds of millions of dollars to shell companies linked to Gulnara Karimova, the daughter of President Islam Karimov, in order to secure wireless spectra in the country and safeguard their interests in Uzbekistan.
VimpelCom alone allegedly transferred $133.5mn to Karimova’s Gibraltar-based company Takilant between January 2006 and October 2011, according to figures disclosed by the US State Department in an official lawsuit filed with a court in New York in June.
A $30mn payment made to a bank account held at Swiss bank Lombard Odier also caught the attention of Norwegian authorities, which eventually opened a case against former CEO Jo Lunder, a Norwegian citizen, and took him into custody in the evening of November 3 on corruption charges. The payment, made during Lunder’s tenure as CEO, was officially aimed at buying from Takilant some reports on the Uzbek market, which turned out to have little, if any, original content (it was mostly a copy of Wikipedia pages and other open source online material), the US State Department claimed, beefing up suspicions of bribery.
“He has not had any reason to believe that this meant some corrupt payment, it is the central,” Lunder’s lawyers told the Norwegian press after his arrest.
Pomerantz’s class action risks now to further inflate the financial penalties VimpelCom faces in the US should corruption charges be upheld by local courts. The company has already made a provision in the amount of $900mn in connection of the ongoing investigations in the US and Europe on November 3.
Its second largest shareholder, Telenor, a company controlled by the Norwegian government, which owns a 33% stake in VimpelCom, is also in the spotlight.
“Telenor sees VimpelCom’s announcement today [the $900mn provision] as a serious development that significantly increases our concerns in relation to the potential outcome of the still ongoing investigations,” Telenor wrote on November 3.
Telenor’s chairman, Svein Aaser, resigned on October 30, citing that the VimpelCom case has been demanding and complex to manage. The company has already announced its intention to disinvest from its 33% stake in VimpelCom, following on the heels of TeliaSonera, which also disclosed its willingness to pull out of troublesome Eurasian markets, including Uzbekisan, Kazakhstan and Azerbaijan. These announcements have been seen by many as a way for both companies to show US and European prosecutors commitment to start over with a clean sheet and thus, eventually, limit any potential fine.
“Just think of how this kind of operations work,” Peter Utterström, a leading expert on US corruption law, told Swedish newspaper Svenska Dagbladet on October 5. “Normally companies go public when the sale is completed. But they [Teliasonera] just held a press conference and said ‘Now we sell’,” he added, hinting that the board wants to show the US Department of Justice its real commitment to cleaning up the company and avoid any more allegations linked to its Eurasian operations. The board of Telenor announced its decision to sell its stake in VimpelCom in a similar fashion a few days later.