MANHATTAN (CN) – A Dutch telecom company is under fire from shareholders for allegedly paying tens of millions of dollars in bribes to a company controlled by the daughter of Uzbekistan’s president to secure lucrative wireless licenses.
VimpelCom provides Internet and telecommunications services in a number of countries, including Italy, Russia, Ukraine, Bangladesh, and Pakistan.
In March 2014, the company announced it was facing investigations by the Securities and Exchange Commission and Dutch securities authorities related to its operations in Uzbekistan.
Eighteen months later, in August 2015, U.S. authorities asked their European counterparts to seize nearly $1 billion in assets from VimpelCom and two other companies after the investigation led to allegations of millions in payments made to Gulnara Karimova, daughter of Uzbekistan President Islam Karimov.
In a class action filed in Manhattan Federal Court just hours before the former CEO of the company, Jo Lunder, was arrested in Norway in connection with the case, lead plaintiff Charles Kux-Kardos says VimpelCom “made false and/or misleading statements” about its alleged illicit dealings with Karimova, and that since the allegations came to light, the company’s share price has plummeted
The lawsuit alleges that until 2014 VimpelCom and its officers lied or hid the truth in its SEC filings to investors about the bribery and other shading dealings, and then finally copped to the corruption investigation when it was revealed.
Shortly after VimpelCom announced it had set aside $900 million for litigation costs related to the corruption investigations, the company stock dropped 4.6 percent, the complaint says.
In addition to the company itself, the lawsuit names Lunder, current VimpelCom CEO Jean-Yves Charlier, and former CFOs Andrew Davies and Cornelis Hendrik Van Dalen, as defendants.
Lunder, who resigned from VimpelCom in March, was arrested Thursday in Norway. According to a statement attributed to his lawyer by Norwegian television, Lunder denies any involvement in the corruption scandal.
VimpelCom said in a Nov. 3 statement that it will no longer comment on the investigation.
The class-action lawsuit relies heavily on a March 2015 investigative report by the nonprofit Organized Crime and Corruption Reporting Project. That report details how Karimova, 42 and now reportedly under house arrest in Uzbekistan, extracted more than $1 billion in bribes from a variety of companies the past 25 years.
The nonprofit’s report includes allegations that Karimova inserted language into telecom contracts that required future stock buy-backs, often at higher rates; that shell companies run by Karimova’s aide Gayane Avakran were created to move money around; and accounts of blatant pay-offs for foreign companies to do business in Uzbekistan.
Avakram, as well as other Uzbek executives, were arrested in 2014 and now face jail time.
One example of the alleged kickbacks concerns a 2006 deal in which VimpelCom acquired and merged two Uzbek telecom companies into a single entity, Unitel. In 2007, VimpelCom sold a 7 percent chunk of the merged Unitel to Takilant, a company registered in Gibraltar, but which operates out of Uzbekistan and is said to be controlled by Karimova.
The stock sale proved profitable for Takilant, as in 2009 the shadowy holding company exercised its stock options and sold the 7 percent stake back to VimpelCom, netting a nearly $38 million profit.
Uzbekistan gained independence from the former Soviet Union in 1991, and it has had issues with corruption ever since. According to the European Union-sponsored Business Anti-Corruption Portal, the Asian country is “one of the most corrupt in the world,” with endemic nepotism and bribery issues, as well as a stymied press and massive human rights abuses.
Karimova-a former pop star with the stage name Googoosha, business maven, and one-time successor to her father’s reign-has come under sustained fire in recent months for her shadowy dealings. Leaked dispatches published in WikiLeaks showed U.S. diplomats described her as “a robber baron” and “the most hated person in the country.”
VimpelCom was founded in Russia in 1991 and for years operated exclusively in that country, though it has since expanded to doing business in Europe, Asia, and Africa.
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