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By John Helmer, Moscow

Following a fresh investigation of its business practices in the former Soviet Union, TeliaSonera, the Stockholm-based telecommunications company, reported Friday that it has dismissed four senior executives, including the chief financial officer and the head of its mobile telephone division. A company statement claims that the objective of the investigation was “a risk assessment from a business ethics perspective”. The spokesman of the company, Salomon Bekele, says the targets were geographically limited to its “Eurasia division”, and that TeliaSonera’s business in Uzbekistan and Russia were “excepted”.

According to TeliaSonera’s financial report for the first nine months of the year, issued on October 17, Sweden currently accounts for about 36% of the company’s sales, Eurasia about 22%. But the Eurasia division is the group’s main source of growth, generating SEK5.3 billion ($807.6 million), 11.1% more in sales revenues compared to last year counted in local currencies; in Swedish kronor the growth rate was 3.1%. Earnings (Ebitda) from the Eurasian division jumped 9.5% to SEK8 billion ($1.2 billion). By comparison, the company’s consolidated revenues fell by 1.8%, earnings rose by 1.5%.

The company report includes in its Eurasia division direct telephone operations in Kazakhstan, Azerbaijan, Uzbekistan, Tajikistan, Georgia, Moldova, and Nepal. Russia and Turkey are also reported among the Eurasian results; but in those countries TeliaSonera doesn’t hold a direct telephone concession. In Russia TeliaSonera is the largest minority shareholder in Megafon, the telephone company controlled by Alisher Usmanov, with a stake of 25.2%.

In Uzbekistan TeliaSonera’s revenues earnings jumped by 119.4% to SEK1.3 billion ($197.6 million) in the nine months to September 30. In Russia, TeliaSonera says it received dividend income in the third quarter of SEK793 million ($120.5 million), a 358% increase over the third quarter of 2012. For the nine-month period, TeliaSonera’s income from Russia came to SEK2.2 billion ($334.4 million); that was more than a quarter of the earnings of the entire Eurasian division; only Kazakhstan produced more earnings (SEK3.3 billion. $501.6 million) for the group.

Friday’s statement from TeliaSonera says that “on April 18 TeliaSonera’s Board of Directors assigned the international law firm Norton Rose Fulbright LLP with the task to conduct a thorough review of the transactions and agreements made over the past few years by TeliaSonera and partners in Eurasia. The purpose of the review was for the Board and management to get as thorough a view as possible of the Group’s transactions in Eurasia… The review is still on-going. On the basis of the information and conclusions to date it is evident to TeliaSonera’s Board and CEO that the processes for conducting some transactions have not been in line with sound business practices. As a consequence four individuals will now leave the company.”

The company has since named two of those fired – Per-Arne Blomquist (left) , the chief financial officer, and Tero Kivisaari (right), head of the mobile telephone division.

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On October 17, in its financial report TeliaSonera explained that Kivisaari’s “role in
TeliaSonera’s criticized investments in Uzbekistan, and the attention surrounding
them, made it impossible for him to act with the internal and external authority necessary.”

Last Friday, however, the company went further, claiming “some senior employees no longer have the trust of the Board. Therefore they have been notified that their employment with TeliaSonera will be terminated and they will leave their position effective immediately.” A statement by the chief executive Johann Dennelind claimed that “together with the Board I have come to the conclusion that the way some transactions in the past were managed does not live up to the high standards of business ethics and transparency that TeliaSonera wants to stand for.”

Company spokesman Bekele did not identify the other two executives who were dismissed. “The other two are on a lower level therefore the company has chosen not to name them.” He refused to say what they had done or where they had done it. “We won’t go into any more detail on this.” Bekele added that “yes, they contributed to the generation of [revenues, earnings and profits].” But he added: “they may have acted legally but there is no legal assessment – no judgement of the legality of the actions they took. This is about lack of trust.”

dennlindDennlind (right) said publicly Blomquist was fired because he “hasn’t done enough in his capacity to prevent these transactions from being conducted in the way they have.”

TeliaSonera is not explaining why it engaged Norton Rose Fulbright to conduct a second inquiry after last year’s investigation by Mannheimer Swartling. For the findings of that investigation into corrupt dealings by TeliaSonera in Uzbekistam, and an assessment of the culpability of chief execuitive Lars Nyberg, read this. Nyberg resigned from the company in February of this year, declaring his innocence of negligence or corruption, and his “confiden[ce] that the allegations are legally unfounded.”

Three months earlier, in November 2012, Nyberg had been an anchor investor in the Megafon initial public offering. Megafon is the telephone group controlled by Alisher Usmanov, and one of the top three operators in Russia; for background on the problems surrounding Usmanov and the Megafon IPO, read this.

TeliaSonera was asked whether the new investigation by Norton Rose Fulbright examined communications between Nyberg and Usmanov in relation to Megafon’s operations in Russia and in relation to Uzbekistan where Usmanov is an influential figure. Just how influential Usmanov is with the target of Swedish investigation of TeliaSonera’s corrupt involvement in that country, read the backfile on Gulnara Karimova, the senior daughter of Uzbek President Islam Karimov and a candidate to succeed him when the Uzbek presidential election is held in March 2015.

TeliaSonera won’t say if it has investigated the Nyberg-Usmanov record. According to Bekele, “the company will not comment on details in the Norton Rose Fulbright review out of consideration for personal integrity and commercial confidentiality, but it has made the material available to the Prosecutor.”

Asked what period of time in what countries the Norton Rose Fulbright investigation has covered, Bekele did not say. Asked whether Russian activities had been investigated, Bekele added; “it would be grossly unprofessional of me to give you more information than has been released to others.”

bekeleExplaining why the second law firm had been engaged after the Mannheimer Swartling report of last year, Bekele (right) said the first report had been a “preliminary” one, and that there is “no point in having two parallel investigations.” The previous board of the company “gave this [Mannheimer Swartling] assignment. It has nothing to do with [the Norton Rose Fulbright report].” He also explained: “as part of our on-going dialogue with the Prosecutor around the preliminary investigation on the Uzbekistan investments we make the material available to the Prosecutor. It up to the Prosecutor to judge if the material is of interest.”

TeliaSonera insists it has dismissed its senior executives for the morality of their business conduct, not for its illegality. Bekele was asked if the company’s position is that the executives have been dismissed for immoral behaviour, but that the company has no objection to living off their earnings? “Those are your words and not mine. What we communicated on Friday was that the individuals no longer have the trust of the board and the CEO. Even if they have had the company’s best interest before their eyes they have shown a lack of judgment in conjunction with acquisitions on a number of markets in Eurasia. Both the Chairman and the CEO reiterated that they believe that it is possible to operate in these complex markets. With the measures announced on Friday they believe TeliaSonera is even better equipped to do so in a sustainable way.”

TeliaSonera shares have fallen 2% since the dismissal announcement; $750 million in market capitalization has been lost.

Usmanov’s spokesman at Megafon in Moscow was asked to comment on his communications with Nyberg regarding Uzbekistan. He did not reply.

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