In its annual report filed with the SEC last week, VimpelCom described the continuing fallout from its February mega-settlement with U.S. and Dutch authorities for bribery offenses in Uzbekistan.
Among other things, VimpelCom said it has a reserve of $105 million for legal and other costs. It can’t estimate how much it will cost to comply with the DPA and deal with other aspects of the resolution, and the final amount could be a lot more.
In February, Amsterdam-based VimpelCom Limited — the world’s sixth-largest telecommunications company — and its wholly owned Uzbek subsidiary, Unitel LLC, paid $397.6 million for FCPA settlements with the DOJ and SEC, and $397.5 million to Dutch prosecutors.
The DOJ is also seeking forfeiture of $850 million — $300 million in property located in Belgium, Ireland, and Luxembourg, and $550 million held in Swiss bank accounts. The DOJ claims the property and money came from criminal acts under U.S. law.
VimpelCom entered into a three-year deferred prosecution agreement with the DOJ. The DPA requires a monitor who can order the company to adopt new compliance practices.
VimpelCom is also required to cooperate with the DOJ and SEC and other agencies in any ongoing investigations.
The U.S. penalties of $397.6 million made February’s resolution the sixth biggest Foreign Corrupt Practices Act enforcement action in history.
Two class action lawsuits have been filed against VimpelCom based on its prior disclosures in late 2015 about the bribery investigations by U.S. and Dutch authorities, the company said.
The Norwegian government said it plans to hold parliamentary hearings into the VimpelCom case.
“Any collateral investigations, litigation or other government or third party actions resulting from these matters could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects,” VimpelCom said.
The media attention and government interest generated by the February settlements could also “result in reputational harm,” it said.
Norway’s state-controlled Telenor owns 33 percent of VimpelCom. Telenor said it is trying to sell the stake.
The Norwegian government fired Telenor’s chairman because of the scandal. The CFO and general counsel were relieved of their duties until more is known about what happened.
VimpelCom trades on the NASDAQ Global Select Market under the symbol VIP.
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Here’s the FCPA disclosure from VimpelCom Ltd’s Form 20-F (Annual Report) filed with the SEC on March 31, 2016. All amounts are in millions.
VimpelCom has reached resolutions through agreements with the U.S. Department of Justice (the “DOJ”), the U.S. Securities and Exchange Commission (the “SEC”) and the Dutch Public Prosecution Service (Openbaar Ministerie) (the “OM”) relating to the previously disclosed investigations under the FCPA and relevant Dutch laws pertaining to VimpelCom’s business in Uzbekistan and prior dealings with Takilant Ltd. The relevant agreements have been approved by the authorities.
Pursuant to these agreements, VimpelCom agreed to pay an aggregate amount of US$795 in fines and disgorgements to the SEC, the DOJ and the OM. On February 18, 2016, the United States District Court for the Southern District of New York (the “District Court”) approved the agreements with the DOJ.
In particular, the District Court approved without modification the deferred prosecution agreement (the “DPA”) entered into by VimpelCom and the DOJ related to charges of conspiracy to violate the anti-bribery and the books-andrecords provisions of the FCPA and violation of the internal controls provisions of the FCPA. In addition, Unitel LLC (“Unitel”), a subsidiary of VimpelCom operating in Uzbekistan, pleaded guilty to conspiring to violate the anti-bribery provisions of the FCPA, and the District Court immediately sentenced Unitel in accordance with the plea agreement between VimpelCom and the DOJ.
Under the agreements with the DOJ, VimpelCom agreed to pay a total criminal penalty of US$230 to the United States, including US$40 in forfeiture. In connection with the investigation by the OM, VimpelCom and Silkway Holding BV, a wholly owned subsidiary of VimpelCom, entered into a settlement agreement (the “Dutch Settlement Agreement”) related to anti-bribery and false books-and-records provisions of Dutch law.
Pursuant to the Dutch Settlement Agreement, VimpelCom agreed to pay criminal fines of US$230 and to disgorge US$375, to be satisfied by the forfeiture to the DOJ of US$40, a disgorgement to the SEC of US$167.5 and a further payment to the OM of US$167.5 beyond the criminal fines.
VimpelCom also consented to the entry of a settlement (the “Consent”) relating to the SEC’s complaint against VimpelCom, which charged violations of the anti-bribery, books-and-records and internal controls provisions of the FCPA.
On February 22, 2016, the District Court issued a final judgment that affirmed the terms of the Consent and permanently enjoined the Company from future violations of law. Pursuant to the Consent, VimpelCom agreed to a judgment ordering disgorgement of US$375, to be satisfied by the forfeiture to the DOJ of US$40, the disgorgement to the OM of US$167.5, and a payment to the SEC of US$167.5.
The DPA, the guilty plea, the Dutch Settlement Agreement and the Consent comprise the terms of the resolution of the Company’s potential liabilities in the previously disclosed DOJ, SEC and OM investigations regarding VimpelCom and Unitel. All amounts to be paid under the DPA, the guilty plea, the Dutch Settlement Agreement and the Consent were paid in February and March 2016 and were included in the provision made by VimpelCom in its financial statements for the year ended December 31, 2015.
The remaining provision of US$105 mainly covers expected direct and incremental legal expenses associated with this resolution.
Under the DPA, the DOJ will defer criminal prosecution of VimpelCom for a term of three years. If VimpelCom remains in compliance with all terms of the DPA during its term, the charges against VimpelCom will be dismissed with prejudice. Under the DPA and pursuant to the Consent, VimpelCom also represented that it has implemented and agreed that it will continue to implement a compliance and ethics program designed to prevent and detect violations of the FCPA and other applicable anti-corruption laws throughout its operations.
Under the DPA and the Consent, VimpelCom agreed to appoint an independent compliance monitor (the “monitor”). Pursuant to the DPA and the Consent, the monitorship will continue for a period of three years, and the term of the monitorship may be terminated early or extended depending on certain circumstances, as ultimately determined and approved by the DOJ and SEC. If the DOJ determines that VimpelCom has violated the DPA, the DOJ, in its sole discretion, may commence prosecution of the Company for the conduct covered by the DPA or extend the period of the DPA for up to one year.
The monitor will assess and monitor VimpelCom’s compliance with the terms of the DPA and Consent by evaluating, among other things, VimpelCom’s corporate compliance program, internal accounting controls, recordkeeping and financial reporting policies and procedures. The monitor may recommend changes to our policies, procedures, and internal accounting controls that we must adopt unless they are unduly burdensome or otherwise inadvisable, in which case we may propose alternatives, which the DOJ and the SEC may or may not accept.
Additionally, we have incurred significant costs in connection with our retention of legal counsel and other vendors/advisors and the internal investigation undertaken in connection with these matters.
Other than what has been provided for as part of the settlement, we currently cannot estimate the costs that we are likely to incur in connection with compliance with the DPA, the Consent and the Dutch Settlement Agreement, including the ongoing obligations to cooperate with the agencies regarding their investigations of other parties, the monitorship, and the costs of implementing the changes, if any, to our policies and procedures required by the monitor. However, such costs could be significant.
Furthermore, the DOJ has initiated two asset forfeiture proceedings alleging that various funds located in various jurisdictions were amassed in violation of U.S. law. The relevant complaints include allegations regarding conduct by multiple companies related to the telecommunications sector in Uzbekistan, including VimpelCom, Unitel and Takilant. However, VimpelCom and Unitel are not defendants in these actions, and VimpelCom and Unitel do not possess or otherwise have any claims against the assets involved in the litigation. The allegations involving VimpelCom and Unitel are the same facts covered by the agreements by VimpelCom and Unitel with the DOJ, SEC and OM.
Specifically, on June 29, 2015, the DOJ filed a civil complaint in the Southern District Court of New York, seeking the forfeiture of US$300 of property located in Belgium, Ireland and Luxembourg that it claims was derived in violation of U.S. law. On July 10, 2015, a federal judge signed warrant orders allowing the DOJ to proceed with forfeiture actions as described in the complaint. In that case, on January 11, 2016, the Southern District Court of New York entered a partial default judgment against all potential claimants to the subject property other than the Republic of Uzbekistan. On February 18, 2016, the DOJ filed a second civil complaint, seeking forfeiture of US$550 held in Swiss bank accounts, which it claims was similarly derived in violation of U.S. law. On February 23, 2016, a federal judge signed a warrant order in that case, allowing it to move forward. . . .
Under the DPA, the DOJ will defer criminal prosecution of VimpelCom for the three-year term of the DPA. If the DOJ determines that VimpelCom has violated the DPA (including the monitoring provisions described in the preceding risk factor), the DOJ may in its sole discretion commence prosecution or extend the term of the DPA for up to one year. If VimpelCom remains in compliance with the DPA through its term, the charges against VimpelCom will be dismissed with prejudice after the conclusion of the DPA.
Failure to comply with the terms of the DPA could result in criminal prosecution by the DOJ, including (but not limited to) for the charged conspiracy to violate the anti-bribery and the books and records provisions of the FCPA and violation of the internal controls provisions of the FCPA that were included in the information that was filed in connection with the DPA. Under such circumstance, the DOJ would be permitted to rely upon the admissions we made in the DPA and would benefit from our waiver of certain procedural and evidentiary defenses.
Pursuant to the Consent, VimpelCom is permanently enjoined from committing or aiding and abetting any future violations of the antifraud, corrupt payments, books and records, reporting and internal control provisions of the federal securities laws and related SEC rules. Failure to comply with this injunction could result in the imposition of civil or criminal penalties, a new SEC enforcement action or both.
Any criminal prosecution by the DOJ as a result of a breach of the DPA or civil or criminal penalties imposed as a result of noncompliance with the Consent could subject us to penalties and other costs and could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.
We may face other potentially negative consequences relating to the investigations by, and agreements with, the DOJ, SEC and OM, including additional investigations and litigation. We may face other potentially negative consequences relating to the investigations by, and agreements with, the DOJ, SEC and OM. For example, none of the DPA, the Consent or the Dutch Settlement Agreement prevents these authorities from carrying out certain additional investigations with respect to the facts not covered in the agreements or in other jurisdictions, or prevents authorities in other jurisdictions from carrying out investigations into, or taking actions with respect to the issuance or renewal of our licenses (for example, in Uzbekistan) or otherwise in relation to, these or other matters.
Furthermore, the Norwegian Government has stated that it plans to hold parliamentary hearings concerning the investigations.
Similarly, the agreements do not foreclose potential third party or additional shareholder litigation related to these matters. For example, since the announcement of our US$900 million provision in the third quarter of 2015, two class action lawsuits have been filed against VimpelCom in relation to our prior disclosure regarding the investigations by the DOJ, SEC and OM. We may incur significant costs in connection with these or future lawsuits.
Any collateral investigations, litigation or other government or third party actions resulting from these matters could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects. In addition, ongoing media and governmental interest in the investigations, settlements and lawsuits and any announced investigations and/or arrests of our former executive officers could impact the perception of us and result in reputational harm to our company.
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Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.
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