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Monday
Oct242016

Telia reserves $1.45 billion for U.S., Dutch settlements of Uzbekistan bribes

Sweden's Telia Company said in a quarterly report released Friday that it has recorded a provision of $1.45 billion to settle investigations by U.S. and Dutch authorities of bribery in Uzbekistan. 

The company said $1.45 billion represents its current "best estimate" of financial sanctions it could incur to reach a global settlement.

It said despite the settlement reserve in its books there is no "certainty as to the timing and amount that may be paid at the time of a final resolution."

In mid September, Telia said it received a proposal from U.S. and Dutch authorities to pay about $1.4 billion for the settlement.

The company said then it thought the proposal amount was "very high."

Johan Dennelind, Telia's president and CEO, said in a separate release Friday the company's third quarter financial results were "severely impacted" by the $1.45 billion settlement provision.

He said the company has repeatedly admitted wrongdoing in how it entered the Uzbek telecoms market.

Telia was formerly known as TeliaSonera. The governments of Sweden and Finland are the biggest shareholders.

In February this year, Amsterdam-based VimpelCom paid $795 million to resolve U.S. and Dutch charges of bribing an Uzbek official.

Last year the DOJ filed civil forfeiture actions to recover nearly $1 billion in bribe money that VimpelCom, MTS of Russia, and Telia allegedly paid to Gulnara Karimova, the eldest daughter of the late Uzbek President Islam Karimov.

Karimova, 43, has been under house arrest in the Uzbek capital of Tashkent for corruption since September 2014. She hasn't been seen for several months and didn't attend her father's funeral last month.

The DOJ last year won a federal court order to impound $300 million in bank accounts linked to Karimova. The accounts were held by Bank of New York Mellon Corp. in Ireland, Luxembourg, and Belgium, and in accounts at Clearstream Banking SA.

In 2014, prosecutors in Switzerland seized about $820 million as part of a money-laundering investigation into Karimova.

The Swiss investigation reportedly includes allegations that Telia paid an intermediary -- Gibraltar-registered Takilant -- $320 million for 3G phone rights in Uzbekistan. Takilant has been tied to Karimova.

Telia said Friday it is limiting disclosure about the possible U.S. and Dutch settlements.

"Disclosure of further details regarding the assumptions and uncertainties of the provision is expected to prejudice seriously the position of Telia Company," the company said.

Telia said it assumes any financial sanctions it pays wouldn't be tax deductible.

CEO Dennelind said Friday, "Discussions with relevant authorities continue with the goal of achieving a resolution that will be in the best interest of our shareholders."

He said the company believes it is "approaching the end of these investigations." 

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Here's Telia's full disclosure about the settlement provision in its October 21, 2016 quarterly report:

The U.S. and Dutch authorities have investigated historical transactions related to Telia Company’s entry into Uzbekistan in 2007. As announced on September 15, 2016, Telia Company received a proposal from the authorities for resolution of the pending investigations. The authorities have proposed a global resolution that includes a total financial sanction of USD 1.45 billion. Resolution of the various investigations is complex and will require further discussion and negotiation with the various government agencies involved in the investigations. Without certainty as to the timing and amount that may be paid at the time of a final resolution, Telia Company has recorded a USD 1.45 billion (SEK 12.5 billion) provision at the balance sheet date. This is in line with IFRS [International Financial Reporting Standards] requirements, which states that the best estimate must be recorded as a provision. As it is not possible for management to make another reliable estimate at this point in time, this amount is the estimate of the expenditure required to settle this matter at the balance sheet date. Disclosure of further details regarding the assumptions and uncertainties of the provision is expected to prejudice seriously the position of Telia Company. Telia Company has therefore, in accordance with IAS 37.92, not presented any further information on the provision in this Interim report.

The provision is recognized as a short-term provision and is included in the line item “Trade payables and other current liabilities, current tax payables and short-term provisions” in the condensed consolidated statements of financial position. The provision is classified as part of liabilities relating to continuing operations as the provision will not be part of the sale of the Eurasian net assets. The effect on net income is included in the line item “Net income from discontinued operations” in the condensed consolidated statements of comprehensive income and disclosed as operating expenses in the table “Net income from discontinued operations (Eurasia)” below. The net income effect is classified as part of discontinued operations based on that the expenses are related to the operations in Uzbekistan. The settlement amount is assumed to be non-tax deductible.

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Richard L. Cassin is the publisher and editor of the FCPA Blog. He'll be the keynote speaker at the FCPA Blog NYC Conference 2016.