VimpelCom faces criminal investigation in Uzbekistan

European operator group VimpelCom said it has received a letter from the United States Securities and Exchange Commission (SEC) stating that it is conducting an investigation into the firm’s operations. Group headquarters in Amsterdam were also visited this week by representatives of the Dutch authorities, including the Dutch public prosecutor office, which informed VimpelCom that it is the focus of a criminal investigation in the Netherlands.

VimpelCom said that the investigations appear to focus on its operations in Uzbekistan. The firm told that it could not comment on the nature of the investigation but said that the US SEC is spearheading the investigation because VimpelCom is listed on the NASDAQ stock exchange.

In its 2013 annual earnings report, the operator noted that it had a 10.5 million strong mobile customer base in Uzbekistan as of 4Q13, up four per cent on the 10.2 million it had in the same period a year earlier.

The firm’s CIS business unit delivered five per cent year on year organic growth over 2013, to generate revenue of $503m. VimpelCom stated at the time that this result benefited from the duopoly that was created in Uzbekistan, following the closure of a competitor’s network by Uzbeki authorities.

That competitor is thought to be MTS, which has confirmed to that it is no longer operational in Uzbekistan. In June last year, MTS announced that it had become aware of an auction planned for July 1st 2013 of assets owned by its wholly owned subsidiary in Uzbekistan, Uzdunrobita.

“In the Company’s opinion, the claims of Uzbekistan authorities that resulted in the initiation of bankruptcy proceedings and the forthcoming auction sale of Uzdunrobita assets have no legal and factual basis,” the operator said at the time.

In August 2012 MTS accused the Uzbek government authorities of “blatant harassment” with the “thinly-veiled purpose of destroying the business and expropriating its assets” since June 2012.

Another rival, TeliaSonera, has also had its share of troubles in Uzbekistan. The operator group called on Swedish law firm Mannheimer Swartling to conduct an investigation on its investments in Uzbekistan in early February last year. The law firm did not establish any evidence that the alleged bribery or money laundering had occurred. However, there remained suspicions of criminal activity among the Swedish Prosecution Authority that were not dismissed by the investigation, and CEO Lars Nyberg left the firm as a consequence. The operator’s board then appointed law firm Norton Rose Fulbright to launch a review of its transactions in Eurasia and hired Johan Dennelind as president and CEO as of September 1, 2013.

When asked by why Uzbekistan has proven to be such a difficult market for mobile operators to do business in, a VimpelCom spokesperson was not able to comment. However, he did say that the firm “intends to fully cooperate with these investigations”.

Earlier this month, VimpelCom posted a $1.4bn net loss as well as a two per cent year on year decline in revenue for the full year 2013. The operator blamed the impact of regulation, market slowdown and non-cash impairments related to operations in Ukraine and Canada for the poor performance.

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