FCPA Equity Transaction Bribery: When the Bribe Is Written Into the Deal

FCPA equity transaction bribery transfers a corrupt benefit through an ownership stake, a purchase price or an option in exchange for official help with business. The revealing document may be an acquisition agreement, a valuation or an amendment that gives one shareholder a better exit. If you worked on the deal, you may know why the price changed, whose name stayed out of the ownership file, or what government approval the company expected in return.

The Uzbekistan telecom enforcement actions involving Telia, VimpelCom and Mobile TeleSystems show how those arrangements worked. The companies’ admissions and the Securities and Exchange Commission’s findings connect shares and contract rights to licenses, frequencies and permission to operate. The business needed government decisions. The transactions delivered benefits to the official who could influence them.

What Conduct Can Violate the FCPA?

Corruptly offering, promising or paying value to a foreign official to obtain or retain business can violate the Foreign Corrupt Practices Act. The Justice Department’s description of the anti-bribery provisions covers indirect payments as well as direct ones. A company can therefore put the benefit into a transaction with an intermediary that the official controls.

The books, records and accounting controls tell another part of the story. An acquisition price, an intangible asset and a consulting expense each give the payment a place in the accounts. The underlying agreements and communications can explain what that entry concealed.

Telia’s Minority Equity Stake and the Official’s Telecom License

Telia’s FCPA action connects a minority equity stake to an official’s influence over telecom licenses. In its September 2017 order, the Securities and Exchange Commission found that Telia provided a 26% interest in the holding company of its Uzbek operator, COSCOM, to Takilant, a company beneficially owned by an Uzbek official. The stake carried a $50 million purchase price and a put option: the right to sell it back to Telia at a specified minimum price.

According to the order, Telia paid $80 million through Takilant in connection with acquiring regulated assets for a 3G network. The official used part of that money to fund the stake purchase. We see a remarkable bargain for the official: Telia supplied money for the stake it was selling Takilant.

The option supplied an exit as well as an entry. The order found that the original terms allowed Takilant to sell its interest back for at least $85 million. When Takilant partially exercised the option in January 2010, Telia paid $220 million for most of the stake. The official had used Telia’s money to buy in, then sold most of the stake back at a much higher price.

The Regulator Supplied the Rights

Telecom licenses, frequencies and number blocks were essential to operating and expanding the network. The order explains that Uzbekistan’s telecom regulator issued those rights and that private parties could not buy and sell them during the period covered by the case. That made the intermediary’s promised contribution particularly revealing.

The order found that the regulator first issued the 3G licenses to a Takilant subsidiary, which then gave them up so the regulator could issue them to COSCOM. The Takilant subsidiary was not a telecom operator. Telia’s managers knew the company could obtain the licenses directly from the regulator without an upfront payment. The surrender and reissue of the licenses supplied the form of the transaction.

The same official relationship reached the numbers customers needed to use the network. The order found that Telia paid $9.2 million through Takilant for additional telephone number blocks after the official influenced their allocation. A numbering requirement inside the operating business had become another payment opportunity.

Consulting Agreements Covered Further Expansion

For one later license transaction, the order found that Telia agreed to pay Takilant’s debt to a third party through a sham consulting agreement. The payment benefited Takilant by clearing its debt, while COSCOM obtained the frequencies it wanted. Telia received no evidence of the supposed consulting work.

A further agreement covered additional licenses and a fiber-optic lease. The order says Telia paid $55 million through Takilant under that arrangement, again using sham consulting services as the cover. For someone in finance or network expansion, the connection is the payment, the promised service and the regulatory right that arrived afterward.

VimpelCom’s Equity Deal Dressed as a Loan

In its criminal deferred prosecution agreement, VimpelCom admitted disguising an equity purchase and resale as loan proceeds. The arrangement dated from 2007, was repayable in 2009 and used subsidiary shares as security. The paperwork called it a loan, but the benefit ran through a stake in the business.

The Securities and Exchange Commission’s civil complaint describes the ownership terms. It alleged that Takilant bought an interest in Freevale, a holding company for VimpelCom’s Uzbek operator Unitel, for $20 million. The agreement gave Takilant a put option, and VimpelCom later repurchased the interest for $57.5 million. The purchase price, resale commitment and payment records make the economic benefit visible across the transaction’s life.

Under its criminal agreement, VimpelCom also admitted using consulting contracts that bought no work and backdating documents and service-acceptance certificates. Those certificates matter because they purported to confirm that the service had been delivered. An insider who knows when a document was actually prepared can explain a discrepancy that the signed copy conceals.

The SEC complaint alleged an equally revealing problem with the technical reports supporting a later license transaction. It described the supposed deliverables this way:

The alleged consulting product included the customer’s own work. The SEC also alleged that employees reviewing the deal questioned its structure and raised concerns with senior officers, yet the transaction proceeded. For a whistleblower, the objection and the decision to proceed can be as revealing as the payment itself.

MTS’s Share Prices, Options and Ownership Warnings

Mobile TeleSystems, known as MTS, provides another comparison between a commercial instrument and the benefit inside it. Its March 2019 SEC order describes share purchases, option amendments and frequency transactions involving companies the agency identified as controlled by an Uzbek official.

Different Prices for Shares in the Same Business

The order found that MTS paid Swisdorn $100 million for 33% of the Uzbek telecom operator Uzdunrobita. Swisdorn received a significantly higher price per share than the other seller, which sold a larger interest. The order attributed most of the Swisdorn payment to securing the official’s assistance with market entry.

The sellers held shares in the same business, but the official’s company got paid more for a smaller stake. The terms offered to each seller show something that a single total acquisition price would leave out.

An Option Amendment Shifted the Value

The original agreement gave Swisdorn a right to sell its remaining stake and gave MTS a corresponding right to buy it. The order found that an amendment requested by the official removed MTS’s purchase option, extended Swisdorn’s sale option and replaced the fixed price with a valuation to be set by an investment bank. Each change benefited Swisdorn.

An estimate prepared for MTS’s investment committee put the sale option’s value at $44 million before the changes and at least $150 million afterward. MTS lost the opportunity to buy at the fixed price. The amendment itself transferred value, before the eventual share purchase required a payment.

The regulatory decision also affected the price. According to the order, Uzdunrobita received new frequencies that increased its value before Swisdorn exercised the amended option. The investment bank’s later valuation included those frequencies. For the people preparing the valuation, the sequence of the option change, regulatory award and purchase was part of the economics.

A Frequency Agreement Named the Official’s Share

The order found that an earlier agreement called for Uzdunrobita to pay Buztel $12 million for surrendering frequency rights, with $4 million going to the official. The regulator would then reallocate the rights to Uzdunrobita. The order described the official as ensuring that the regulator approved the intended reallocation. Network expansion for the company, a payment for the official arranging it.

The Ownership Warning Reached Management

For a later transaction with Takilant, the order found that MTS hired an investigator who reported that the nominal owner had no telecom background and was a known proxy for the official. According to the order, MTS proceeded without further investigation. The ownership paperwork and the investigator’s account pointed to different people behind the same company.

In its separate criminal deferred prosecution agreement, MTS admitted that managers withheld the official’s beneficial ownership when seeking legal advice in the United States. That omission helped them obtain favorable advice about the transactions.

The problem returned when MTS acquired the advertising company KolorIt. The SEC order says the investigator identified the same proxy among its listed shareholders. According to the order, MTS paid approximately $40 million despite an investment-bank valuation of $23 million, and an internal document counted the acquisition toward a payment commitment to the official.

An earlier internal management document reproduced in the order shows how the commercial explanation followed the commitment to pay. Management was still working out the basis for a promised payment:

We see the problem in that sequence. The payment came first in the company’s planning, and the service agreement was still looking for a purpose.

What the Transaction Records Can Show

The useful FCPA whistleblower evidence connects the deal to its beneficiary and the government decision. In these cases, that connection ran through several departments: acquisition teams, finance, local operations, management and the people reviewing ownership. Someone who understood one of those handoffs may know why the formal explanation was incomplete.

The documents answer different parts of the question:

• Ownership files and diligence reports connect the registered shareholder to the person who actually benefits. The SEC order describes MTS’s investigator identifying the official’s proxy behind Takilant and in the KolorIt ownership records.
• Option agreements and amendments show who gained a right, who surrendered one and how the price changed. The investment committee’s estimate in MTS made the value of those changes explicit.
• Valuations and purchase agreements connect the price paid to the business acquired. Telia’s repurchase terms and MTS’s KolorIt valuation show why the original and final terms belong together.
• Loan, security and regulatory documents connect the financing description to shares, licenses or frequencies. VimpelCom’s loan characterization and the telecom license surrender arrangements show how several contracts can describe one payment route.
• Deliverables, acceptance certificates and internal messages connect the promised work to actual performance and approval. Copied reports, backdated certificates and ignored objections explain more than a signature alone.

The finance and accounting records add the company’s explanation of the payment. The SEC alleged that VimpelCom recorded license transactions as intangible assets with corresponding balances involving a holding company outside its Uzbek operations. The contract, ledger and internal discussion can each reveal a different part of the transaction.

The Same Pattern Beyond Telecom

Petrobras admitted in its criminal non-prosecution agreement that inflated contracts funded kickbacks. The inflated costs were capitalized, overstating asset values. A payment supporting corruption could therefore appear in the cost of an asset rather than as a suspicious current expense.

In its criminal deferred prosecution agreement, Och-Ziff admitted conduct involving equity and loan transactions in the Democratic Republic of the Congo. In the loan arrangements, advice assumed restrictions on how the money could be used, while the final terms allowed discretion. The difference between the proposed terms and the agreement actually signed mattered to where the money could go.

Goldman Sachs admitted in its criminal deferred prosecution agreement that bankers concealed an intermediary’s involvement in the 1MDB transactions despite earlier diligence rejecting him as a client. Goldman used its own assets to buy the bonds, bringing its transaction approvals and recording controls into the story. Across these cases, the people who understood the investment, the financing or the asset account could explain conduct that an expense review alone would miss.

Whistleblower Rewards

The foreign-bribery whistleblower programs can reward information about violations of the Foreign Corrupt Practices Act. An eligible whistleblower’s SEC award can be 10% to 30% of collected monetary sanctions in the covered and qualifying related actions. The covered action must order more than $1 million in monetary sanctions. We help you connect what you know to the program that fits it.

Where the conduct also involves fraudulent claims on U.S. government money, a separate law may apply. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know Why the Terms Changed

If you know why an official’s company received the better price, the easier exit or a payment for work nobody performed, speak with our whistleblower experts about the transaction. Our expertise is in seeing how the ownership, financing and official favor fit together, and building the strongest whistleblower case your knowledge supports. We bring in FCPA whistleblower lawyers who understand ownership and financing transactions, and stay with you through the process.