Telia faces $1.4bn fine for Uzbekistan wrongdoings

Telia faces $1.4bn fine for Uzbekistan wrongdoings

Telia Company is facing a fine of $1.4 billion from US and Dutch authorities for its past wrongdoings in Uzbekistan, which led to the dismissal of senior executives three years ago.

Johan Dennelind, who was appointed CEO to help clear up the scandal, admitted “wrongdoings and unethical behaviour” in a conference call this morning.

Telia Company’s board learned of the scale of the proposed fine last night and reacted this morning after an overnight board meeting.

“The proposal covers – as far as we understand – all existing investigations. It is a very high amount.”

The company’s chairman, Marie Ehrling, shared Dennelind’s view of the scale of the fine. “Our initial reaction to the proposal is that the amount is very high. We will now have to analyse the information and decide on how to proceed with the ongoing discussions with the authorities,” she said in a prepared statement.

But she also admitted that the company – previously called TeliaSonera – had been wrong. “I have said on many occasions in the past that Telia Company’s entry into Uzbekistan was done in an unethical and wrongful way and we are prepared to take full responsibility. We are cooperating fully with the authorities to bring clarity to the matter.”

General counsel Jonas Bengtsson said that Telia has been cooperating with Swedish, Dutch and US authorities. The new board, appointed at the 2013 annual general meeting, determined to “change the company fundamentally”, he said, and decided to “cooperate with all investigating authorities”.

The US Securities and Exchange Commission and the US Department of Justice started investigating in early 2014, followed by the Dutch authorities. Telia was not questioning their jurisdiction over the matter, said Bengtsson. “Telia has cooperated with these authorities. It is an extensive cooperation.”

Telia is hoping that the proposed fine will be an end to the matter. “The proposal as far as we understand it covers all interests the authorities have in Telia Company’s activities,” he said.

Dennelind was unclear on how the level of the fine was set. “We have just received the information and have to analyse it,” he said. But he added that the company “hasn’t had an expectation” of the level in advance. “We simply state it is a big number.”

Telia Company announced earlier in 2016 that it intends to dispose of all its central Asian interests, though Dennelind said he understands that there is no investigation into investments outside Uzbekistan.

Earlier this month Telia sold its 60% stake in Tajikistan operator Tcell for $39 million to the Aga Khan Fund for Economic Development, which owns the other 40%.

The Uzbekistan scandal dates back to what was then TeliaSonera’s acquisition of Uzbekistan operator Coscom – later rebranded as Ucell – in July 2007. TeliaSonera “did not conduct a sufficiently in-depth analysis into the identity of our local partner in Uzbekistan before we invested in the country or into how this partner came to own the assets that were later obtained by TeliaSonera”, said then CEO Lars Nyberg in his 2013 resignation statement.

A report by Swedish Television in September 2012 alleged that TeliaSonera paid $320 million for its Uzbekistan licences through Gayane Avakyan, an Uzbek woman in her late 20s described as having “close ties” to Gulnara Karimova, the daughter of Islam Karimov, who had been president of Uzbekistan since 1991. Karimov died on 2 September 2016.

After the allegations emerged, TeliaSonera commissioned a Swedish law firm, Mannheimer Swartling, to investigate. The company also fired Per-Arne Blomquist, the CFO, and three other senior executives after it received Mannheimer Swartling’s report.

Uzbekistan has not been a good investment for other foreign telecoms companies. In February 2016 VimpelCom agreed to pay $835 million in settlement fees to US and Dutch authorities after admitting it paid huge bribes to enter the Uzbekistan telecoms market. Telenor this week started to sell its stake in VimpelCom.

In August 2016 Russia’s MTS left the Uzbekistan market after selling its 50.1% stake in Universal Mobile Systems to the state for an undisclosed amount. Four years earlier the Uzbekistan government confiscated MTS’s assets in the country and arrested executives.

This morning Dennelind told financial analysts that the fine would not affect Telia Company’s dividend policy.

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