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Russia's largest mobile network operator, Mobile TeleSystems, has agreed to pay $850 million to settle a corruption case that highlights the importance of having effective internal accounting controls.

MTS allegedly violated the Foreign Corrupt Practices Act by paying at least $420 million in bribes from 2004 to 2012 to Gulnara Karimova, the 46-year-old daughter of ex-Uzbekistan President Islam Karimov, who died in 2016. Karimova also was a Uzbek official who held sway over the country's telecom operations.  

The alleged bribes allowed Moscow-based MTS to enter the Uzbekistan telecom market, where it operated for eight years and generated more than $2.4 billion in revenues, according to the U.S. Securities and Exchange Commission and Department of Justice. MTS will pay $100 million to the SEC in the settlement, while the DOJ credited that amount to the $850 million it calculated as a criminal penalty. 

The DOJ asserted in a plea agreement that MTS's “failure to implement effective internal accounting controls” had allowed the company's executives and others to get away for years with disguising the bribery payments on the company's books as acquisition costs, option payments, purchases of regulatory assets and charitable donations.

The DOJ's finding was based, at least in part, on an internal investigation of MTS's activities in Uzbekistan. New York-based Debevoise & Plimpton conducted that investigation on behalf of MTS “under the auspices of the MTS Audit Committee,” according to a spokeswoman for the law firm. She could not immediately provide additional details about the firm's involvement in the case.  

MTS is the third telecom company to pay penalties to resolve allegations connected to bribery schemes in Uzbekistan. The three cases have spurred a total of $2.6 billion in recoveries for the SEC, DOJ and foreign authorities. The other two telecom companies, Netherlands-based telecom VimpelCom Ltd. and Swedish telecom Telia Co., reached settlements with authorities in 2016 and 2017, respectively.

“This is the third installment in a trilogy of cases arising from an almost $1 billion bribery scheme that reached the highest echelons of the Uzbekistan government and was orchestrated by some of the largest telecommunications companies in the world,” said Geoffrey Berman, the U.S. attorney for the Southern District of New York.

Charles Cain, chief of the SEC Enforcement Division's FCPA Unit, described MTS's conduct as “egregious” and said “building business on a foundation of bribery leaves the business and American investor interests at the mercy of corrupt officials.”

Meanwhile, MTS President and CEO Alexey Kornya issued a statement Wednesday in which he asserted that the company “has systematically and proactively developed its current anti-corruption compliance framework in line with international best practices within a dedicated compliance division since 2012.” That was the same year that the Uzbek government expropriated MTS's Uzbek operations.

Karimova was indicted in the Southern District of New York on Wednesday on one count of conspiracy to commit money laundering. Former Uzbek executive Bekhzod Akhmedov was charged in the same indictment with one count of conspiracy to violate the FCPA, two counts of violating the FCPA, and one count of conspiracy to commit money laundering.  

MTS has entered into a deferred prosecution agreement with the DOJ and has agreed to have an independent compliance monitor for at least three years, “implement rigorous internal controls,” and cooperate with the DOJ's ongoing investigation, which includes Akhmedov and Karimova.

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