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NEW DECLARATION OF SANCTIONS WAR BY US DEPARTMENT OF JUSTICE – MTS AND VIMPELCOM CHARGED WITH BRIBING [NAME CONCEALED] – US BANKS NAMED IN THE CONSPIRACY ARE IN THE CLEAR

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By John Helmer, Moscow

Last Friday a US federal court judge named Andrew L.Carter Junior issued a warrant for the US Government to seize $300 million in bank cash and investment accounts in Belgium, Ireland and Luxembourg. The proceeding conceals the name of the owner of the targeted bank accounts, and of the mastermind in what court documents call “an international conspiracy to launder corrupt payments made to GOVERNMENT OFFICIAL A, a relative of the President of Uzbekistan and a government official at all times relevant to the facts alleged.”

The court claim by the US Department of Justice names Russian telecommunications companies MTS and Vimpelcom for having “made more than $500 million in corrupt payments”. But the US Government court papers are selective. The Russian companies weren’t the only ones in the alleged conspiracy between 2004 and 2011, Justice acknowledged in court. The other telecommunication company names concealed in the court papers included TeliaSonera, owned by the Swedish and Finnish governments, and the International Communications Group (ICG), which is given the protective code “U.S.Company-1”, and whose method of buying its entry into Uzbekistan [1] was unrecorded.

No evidence of the allegations against the Russians was tested in court before the forfeiture order for the cash was issued. Lawyers for MTS and Vimpelcom did not appear at Friday’s hearing. The court papers reveal that all activities, assets, and the start and end of cashflows in the alleged conspiracy were located outside US territory. The grounds for jurisdiction cited in the US Government papers, and for the court order, are that MTS and Vimpelcom issue shares on US stock exchanges; that “acts and omissions [sic] giving rise to forfeiture took place in the Southern District of New York”; and that funds were transferred “into and out of correspondent bank accounts at financial institutions in the United States”.

Judge CarterUntil last week’s action by Judge Carter (right), US courts have consistently rejected attempts to establish jurisdiction in the US for individuals alleging corruption and racketeering against Russian corporations such as Rusal, Lukoil, and Tyumen Oil Company (TNK). For details, read this [2]. By contrast, when the US Government has targeted foreign individuals, the US courts have been agreeable to stretching jurisdiction for alleged corruption as far as the prosecutors demand. In the case of Ukrainian business and political figure Dmitry Firtash, accused last year by the Justice Department of corruption and arrested in Vienna, the Austrian court has dismissed the US claim as a political frame-up. Click [3] for this story. The US is appealing.

In Moscow the new US Government attack against MTS and Vimpelcom is viewed as an expansion of sanctions against Russian companies operating internationally, not for reason of the Ukraine conflict set out in the President’s Executive Order 13661; but for allegations of corruption according to the Foreign Corrupt Practices Act (FCPA). The mobilization of this new statutory weapon by Washington has not been accompanied by any test of the evidence in a US legal proceeding.

Kendall DayAt the Justice Department in Washington, the asset forfeiture and money-laundering section initiated the court action. Signing the New York court papers are Kendall Day (right), the section chief, and Marie Dalton, a trial attorney for the section. Asked why their 54-page statement of allegations name the Russian telecommunications companies, but keep the name of the mastermind veiled, Dalton refuses to say. For the government’s full statement of the corruption charges, read here [4].

Five clearing banks are named as the conduits through which money flowed between MTS and Vimpelcom on the one hand, and entities controlled by “GOVERNMENT OFFICIAL A” on the other. To substantiate the jurisdiction of the New York district court, they are named as the New York branches of Citibank, Deutsche Bank, Wells Fargo, JP Morgan Chase, and Standard Chartered.

Evidence cited in court includes excerpts from corporate board minutes, board papers and financial records of Vimpelcom; these were apparently seized from the company’s headquarters in Amsterdam by the Dutch police on March 11, 2014 [5]. Vimpelcom board directors during the period covered by the US charges included Jo Lunder, a Norwegian; three other Norwegians; a German; and four Russians — Mikhail Fridman (below, left), Alexei Reznikovich (right), Leonid Novoselsky, and Oleg Malts.

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That same week a year ago, the Dutch police also raided the Dutch holding companies which control the Uzbek operations of TeliaSonera [6]. TeliaSonera’s involvement in corrupt dealings with Gulnara Karimova, elder daughter of the Uzbek President Islam Karimov, has been under official investigation in Sweden since 2012, and can be followed in this story archive [7]. The official Swedish identification of Karimova at the centre of the corrupt exchange of cash for telecommunications assets in Uzbekistan, dates from February 2013, and can be followed here [8].

Karimova
Karimova pictured in 2012 with Gayane Avakyan. The US court papers name Avakyan as “GOVERNMENT OFFICIAL A’s close friend” and operator of Takilant, one of three front companies used to hold and trade Uzbek telecommunications assets, receive payments, and move money. Avakyan’s role with TeliaSonera has been spelled out here [9].

The US Department of Justice has avoided identifying or accusing TeliaSonera by name in its latest New York court action.

When the Dutch raid on Vimpelcom was first reported last year, the company responded [10]: “On March 11, 2014, the Company received from the staff of the United States Securities and Exchange Commission a letter stating that they are conducting an investigation related to VimpelCom and requesting documents. Also, on March 11, 2014, the Company’s headquarter in Amsterdam was visited by representatives of the Dutch authorities, including the Dutch public prosecutor office, who obtained documents and informed the Company that it was the focus of a criminal investigation in the Netherlands. The investigations appear to be concerned with the Company’s operations in Uzbekistan. The Company intends to fully cooperate with these investigations. “

Rustam MadumarovAltogether, the new US Government dossier claims, between January 2006 and October 2011 Vimpelcom made corrupt payments of $133.5 million for its assets in Uzbekistan. It is alleged that consulting reports were mocked up from open sources by associates of Karimova, er GOVERNMENT OFFICIAL A – one, Rustam Madumarov (right), is identified as “his/her boyfriend” — in order to camouflage the purpose of the payments.

The court papers also present details of MTS’s payments to cut-out companies over the five-year period, August 2004 to July 2009; the corrupt total allegedly comes to $380 million.

The banks receiving this bribe money have been named in court as Standard Chartered of Hong Kong; Parex and Aizkraukles (ABLV) of Latvia, Lombard Odier of Switzerland, ING and Citibank of the UK. They have not been accused of negligence or wrongdoing, even though the court papers report evidence of the practice in “international money laundering schemes” of “the use of layered transactions to transfer funds through four bank accounts in three countries for no apparent commercial or business purpose…designed to conceal the nature, source, and origin of criminal proceeds.”

From these banks the money was reportedly moved into investment accounts in Belgium, Ireland, and Luxembourg, and from there into hedge fund, fixed income, emerging market, and other investment portfolios. The institutional holders and managers of these accounts and portfolios were Bank of New York Mellon Investment Servicing, Bank of New York Mellon SA/NV Belgium, Bank of New York Mellon Trust Company of Ireland, and Clearstream Banking SA of Luxembourg. These institutions have not been accused of wrongdoing by the Justice Department.

Harvard University’s Institute of Politics [11], which took money from Karimova and awarded her a master’s degree, has not been named for its role in teaching her how to manage enrichment schemes with her country’s resources.

On March 20, according to a Justice Department letter to the Swedish authorities released [12] by US Government radio, attorneys at the money-laundering and fraud sections acknowledged they were “conducting investigations into whether three companies – Vimpelcom, MTS and TeliaSonera – (1) made improper payments to foreign government officials for the purpose of obtaining or attempting to obtain mobile telecommunications licenses, (2) improperly recorded and manipulated accounting records, and (3) committed money laundering violations.”

This Justice Department letter reveals that on the same day, March 20, a warrant had been issued by the New York federal court for seizure of assets in Sweden “after finding probable cause to believe that the assets constitute the proceeds of crime or are assets involved in illegal money laundering related to the investigation”. The Swedes were asked to “restrain” up to $30.5 million at Nordea Bank in accounts controlled by Takilant “as a preliminary step to forfeiture under US law.”

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According to reports of Swedish court action, the Nordea Bank cash had been frozen in October 2012. Subsequent Swedish court orders have reportedly frozen another €190 million, also connected to TeliaSonera’s payments to Karimova. Altogether, it is estimated that TeliaSonera paid more than $320 million for its Uzbek mobile telephone business [9]. The Swedish authorities have not agreed that jurisdiction over the money belongs with the Americans. Stockholm sources acknowledge that the issue between the two governments has been kept from public disclosure.

In Washington Justice Department officials were asked why TeliaSonera was not identified in the latest court dossier or in last week’s court proceedings; why its payments were not pursued by the US outside Sweden; and whether the US and Swedish governments agree on who has jurisdiction, forfeit and seizure rights over the money. Day and Dalton are refusing to respond.

Bruce Marks, founding partner of Marks & Sokolov with a 15-year practice in the US, Russia,and Ukraine, comments: “The Vimpelcom case shows the long arm of American criminal jurisdiction when American banks are used to wire money allegedly used to bribe foreign government officials as part of money laundering schemes. Plainly, the United States Government believes the anti-money laundering statute… applies extraterritorially. The next step is to see whether the jurisdictions where the funds are located, Belgium, Ireland, and Luxembourg, accept the American position.”

Moscow sources are not surprised that the Justice Department is treating the Swedish company differently from the Russian companies. They believe that since the start of the US sanctions campaign against Russia in March 2014, it has been only a matter of time before the international operations of the Russian telecommunications companies would come under US Government attack. There is speculation in the Moscow business press that the Russian telecommunications positions in the Ukraine market are vulnerable to ouster by the government in Kiev.

Gregory ShenkmanThe tension between Moscow and Washington over telecommunications security and shareholder control of international telecommunications technology was reported in the controversial case of Vimpelcom’s recent negotiations with Gregory Shenkman (right); click to read [13].

Vimpelcom’s controlling shareholder, Fridman’s LetterOne in London, refuses to comment on the New York court proceedings and the fresh bribery and money-laundering allegations.

On March 24, in its Form 20-F report [14] to the US Securities & Exchange Commission – required because Vimpelcom shares are listed on the NASDAQ exchange — Vimpelcom does not challenge the jurisdiction of the US Government over its operations in Uzbekistan. The company says it paid a total of $134.5 million to Takilant for operating assets and rights, but admits no culpability.

At the same time the company hints at a plea bargain. “We are also exploring the prospect of resolving the company’s potential liabilities arising from the facts established in the investigations …The DOJ and SEC have a broad range of civil and criminal sanctions under the FCPA [Foreign Corrupt Practices Act] and other laws and regulations including, but not limited to, judgments, settlements, injunctive relief, debarment or other relief, disgorgement, fines, penalties, modifications to business practices, including the termination or modification of existing business relationships, the imposition of compliance programs and the retention of a monitor to oversee compliance with the FCPA, and criminal convictions and/or penalties.”

Does Vimpelcom believe the US government is discriminating against Russian companies in pursuing the Karimova corruption case, Rozzyn Boy and Artem Minaev, Vimpelcom’s spokesmen in Amsterdam, won’t say. They are also silent on whether Vimpelcom is plea-bargaining with Washington. “We are aware of the U.S. government’s forfeiture action,” Boy said today. “As we have disclosed in our filings with the SEC, VimpelCom had prior dealings with Takilant related to our business in Uzbekistan. We continue to cooperate with the authorities in their investigation and given that these are still ongoing, we cannot comment further.”

A veteran international lawyer comments: “When I do presentations, I advise the audience not to pay bribes and, if they do, to use Euros or Chinese currency.”