Corruption and state capture in the telecommunications sector in transition countries

Corruption and state capture in the telecommunications sector in transition countries
Definitions
Corruption
Corruption is abuse of social and/or economic power, and of state and/or public authority for private interests.
Political corruption
Political corruption is the abuse of state and/or public authority for the realization of private interests.
Grand Corruption
Grand Corruption is the abuse of highest level of state and/or public authority that benefits the few at the expense of the many. It causes serious and widespread harm to individuals and society.
Corruptive crimes
Corruptive activities commonly include committing the typical corruptive crimes: bribery, embezzlement, fraud, business fraud, extortion, Influence peddling, abuse of powers.
State Capture
State Capture is a type of systematic political corruption in which private interests significantly influence a state's decision-making processes (influence on law making), to their own advantage.
The term "state capture" was first used by the World Bank, around the year 2000, to describe the situation in certain post Soviet Central Asian transition countries. It was related to situations where small corrupt groups used their influence over government officials to appropriate government decision-making in order to strengthen their own economic positions. Members of these groups would later become known as oligarchs.
State capture is undue and illicit influence of the elite in shaping the laws, policies, and regulations of the state. In essence, state capture is a manifestation of grand corruption.
Social and economic consequences of corruption
Corruption poses threat to the stability and security of societies; it undermines social institutions and democratic values and jeopardizes sustainable development and the rule of law.
Corruption is closely linked, to other forms of crime, including transnational organized crime.
Corruption erodes trust in government and undermines the social contract, impedes investment, and has negative effects on growth and employment.
Corruption is cause and consequence of armed conflicts. Social instability linked with armed conflicts especially favours growth of corruptive activities. Corruption is closely linked to activities that accompany armed conflicts such as: arms and narcotics trafficking, human trafficking and terrorist activities.
According to World Economic Forum 2018. assessment, global cost of corruption is at least $2.6 trillion, or 5 per cent of the global gross domestic product (GDP).
Regions of corruption
The regions that are especially affected by corruption are undeveloped countries, developing countries, countries in transition from communist dictatorship to democratic order, countries at war, especially after the cessation of conflict.
Corporate crime (white collar crime)
Corporate crime is “illegal or socially injurious, social action that is the collective product of the interaction between a business corporation and a state agency engaged in a joint endeavor. Most commonly these crimes involve the active participation of two or more organizations, at least one of which is private and one of which is public.”
It is about a relationship between business and government that results in harmful consequences for society and the economy of the state in question.
Corporate crimes can be committed by active action or by omission.
Types of corporate crimes
Corporate crimes can be divided into two types: state-initiated and state-facilitated.
State-initiated corporate crimes are committed when corporations employed by the government engage in crime at the instigation the government.
State-facilitated corporate crimes can be defined as a failure of government regulatory agencies to restrain delinquent business activities, either because of a direct illicit collusion between business and government organizations or because their activity is directed towards the same shared purpose.
It should be emphasized that corporations, especially large international ones, that have huge financial resources at their disposal, are main initiators and perpetrators of corporate crimes.
State-facilitated crime is much more dangerous, especially in cases of political corruption. In cases of political corruption, when state officials and state representatives engage in the execution of corporate crimes, their goal is almost exclusively, and always primarily personal benefit, although they occasionally gain some benefit for the state when the criminal activity is mutually compatible with both.
Abuse of economic power
Abuse of economic power is a crime if it has a negative effect on the personal freedom of a large number of individuals and if it destroys the social system that serves the purpose of protection of personal liberties.
Economic and financial crime
Financial crime not only accumulates funds from illegitimate sources, but also disrupts economic order, impedes development, contributes to degradation of social norms, Increases economic inequality, and causes chaos and disorder in society.
“Economic crime can be committed not only against the state, but also against other businesses and individuals”.
“Crimes against economic order are distorting or even destroying regular mechanisms of the economy and the market”.
Stability Clauses
Stability clauses are provisions in investment contracts in transition countries, which regulate the risk of regulatory changes for investors, in order to safeguard their interests.
They are risk allocation instruments directed towards the increase of the predictability of the regulatory environment in which the investor will be operating, especially towards mitigation of risks with respect to host state’s future fiscal regulations.
Stability clauses cause discrimination against domestic investors, because domestic investors are bound by legal rules from the modification of which stability clauses protect the foreign investor.
Types of stability clauses

==== 1. Freezing clauses ====
Freezing of fiscal and non-fiscal law in relation to the investment during its duration.
==== 2. Economic equilibrium clauses ====
Compensation to the investor, or amending the contract to compensate the investor for legislative changes.
==== 3. Hybrid clauses ====
Compensation to the investor, or amending the contract to compensate the investor or exemption of investors or investments from amendments to the law.
==== 4. Economic equilibrium clauses - subtypes ====
4.1.Amendment to the law will bound investor, but the state will compensate him for his compliance with the legal change.
4.2.In case of legal change, the investor is allowed to open negotiations with the state on changing the original risk allocation clauses with respect to that change.
In OECD member countries (Organization for Economic Co-operation and Development), stability clauses limit investor protection against changes in legal rules to those that are arbitrary or discriminatory.
In non-OECD countries, there are no such restrictions, but stability clauses either prevent the application of new rules or amendments to the law or provide for compensation to the investor, regardless of whether the new rules are arbitrary or discriminatory.
Stability clauses can limit the sovereign legislative authority of the state.
Corruption and State Capture in the Telecommunications Sector in the Transition States of the Former Soviet Union and Southeast Europe
Central Asia - Uzbekistan
By 2004, the fast-growing Swedish telecommunications company TeliaSonera, a corporation formed by the merger of Swedish telecom Telia and Finnish Sonera, had become the leading provider of telecommunications services in the Scandinavian countries. Looking for new investment opportunities, it began to explore opportunities in the former Soviet Union countries.
In 2007, TeliaSonera announced that it had been awarded a concession to use the 3G network and provide mobile telecommunications services in Uzbekistan.
In 2012, Swedish Public Service Television (SVT) announced that in 2007., TeliaSonera paid 320 million US$ to the account of Takilant Ltd., a Gibraltar-registered company, for 3G licenses and the use of mobile frequencies in Uzbekistan, and that Takilant Ltd. is linked to Gulnara Karimova, the daughter of the Uzbek President Islam Karimov. TeliaSonera declared that allegations were unfounded.
Following the publication of additional allegations about the connection between TeliaSonera and the daughter of the President of Uzbekistan, in 2013, the authorities in the United States and the Netherlands began investigating the case.
An investigation by the U.S. Department of Justice and U.S. Securities and Exchange Commission (SEC) in 2014, in addition to the activities of the Swedish company TeliaSonera AB, also covered the business of the telecommunications companies Vimpelcom Ltd., based in Amsterdam, and the Russian company Mobile TeleSystems PJSC. The three corporations allegedly paid hundreds of millions of US dollars into the accounts of companies controlled by Gulnara Karimova.
In August 2015, it was announced that prosecutors from the United States had asked the authorities of Ireland, Belgium, Luxembourg, Sweden, and Switzerland to block assets worth about 1 billion US dollars for corrupt activities which they suspected were committed by the three telecommunications corporations and Gulnara Karimova.
In September 2018, the trial of three former directors of TeliaSonera AB began in Sweden.
Among them was the former CEO Lars Nyberg. They were accused a year earlier of giving $350 million bribe to Uzbekistan's daughter Gulnara Karimova to obtain a concession to use the 3G mobile network.
On February 15, 2019, the Stockholm District Court issued an acquittal. The reason for the acquittal of the accused was the failure of the prosecutors to prove that Gulnara Karimova was in an official position related to the telecommunications sector.
In 2017, TeliaSonera AB reached a settlement pledging to pay 1 billion US dollars in exchange for suspending anti-corruption investigation against it.
In the same year, Vimpelcom Ltd. reached a settlement by which he agreed to pay $795 to terminate investigations by U.S. and Dutch authorities.
In 2014, the BBC reported that Gulnara Karimova was under house arrest in Uzbekistan.
In 2016, the US Department of Justice (DOJ) seized $850 million under the Kleptocracy Asset Recovery Initiative (KARI), acquired through corrupt dealings involving Gulnara Karimova.
In the same year, Uzbek President Islam Karimov died.
In 2017, the Uzbek State Attorney’s Office announced that Gulnara Karimova had been in prison since 2015 based on a court ruling; that additional investigations were being conducted against her on new charges, and that she was a member of an organized criminal group that controlled assets worth more than 1,3 billion US dollars in 12 countries. She is also accused of acquiring assets worth 595 million US dollars and receiving bribes of $869 million.
In the same year, Gulnara Karimova was sentenced to 10 years in prison for fraud and money laundering. In 2018, her prison sentence was commuted to five years of house arrest.
Southeast Europe - Montenegro and Macedonia
In December 2011, the U.S. The Securities and Exchange Commission (SEC) has accused Magyar Telekom and its owner Deutsche Telekom of bribing government officials in Montenegro and Macedonia to acquire ownership and exclude competition in the telecommunications industry.
The SEC accused three senior Magyar Telekom officials of designing, approving and bribing Macedonian government officials in 2005 and 2006 to prevent the introduction of a new competitor and gain new regulatory privileges in Macedonia's telecommunications market. The ultimate goal of corrupt practices in Macedonia was to prevent changes in the law that could jeopardize the market leadership of Makedonske Telekomunikacije AD Skopje (MakTel), which was owned by Magyar Telekom.
In early 2005, the Macedonian Parliament passed the Law on Electronic Communications, which liberalized the Macedonian telecommunications market.
Using the services of Greek intermediaries, Magyar Telekom officials secretly met with representatives of the Macedonian coalition government, told them that granting a concession to provide telecommunications mobile services in Macedonia to a third provider is not acceptable, and signed a secret cooperation protocol to prevent the introduction of a third mobile service provider to the Macedonian telecommunications market.
In Montenegro, Magyar Teleokom officials bribed government officials in 2005 to ensure the Montenegrin government's cooperation in enabling Magyar Telekom to acquire a minority stake in the Montenegrin company Telekom Crne Gore. Thanks to this cooperation, Magyar Telekom was able to achieve full control over Telekom Crne Gore, its infrastructure and assets.
Macedonian officials received bribes of approximately $6 million and Montenegrin officials approximately 9 million US dollars.
The bribe was paid on the basis of fictitious consulting and marketing contracts.
In February 2017, three accused Magyar Telekom employees and Magyar and Deutsche Telekom reached an agreement with the SEC.
The three accused Magyar Telekom officials agreed to pay fines $60,000 , $150,000 and $250,000 respectively, and the criminal proceedings against them were suspended. Two of them also agreed to a ban on performing the duties of an official or director of any company registered with the SEC. The settlement of the parties in that procedure established that the accused "neither admitted nor denied" the charges.
Magyar Telekom has agreed to pay 31,2 million US dollars in unlawful profits and a $56,9 million fine. Deutsche Telekom has agreed to pay a $4,36 million fine.
Corrupt activities in the telecommunications sector in Macedonia and Montenegro involved not only government officials, but also intermediaries and family members of government officials. To date, none of the Macedonian and Montenegrin civil servants have been convicted of corrupt activities in the telecommunications sector, and German prosecutors have suspended the investigation and dropped charges against Deutsche Telekom CEO Mr. Obermann.
In 2010, Deutsche Telekom AG decided to delist from the New York Stock Exchange (NYSE) and delete it from the Securities and Exchange Commission (SEC) register, thus terminating its obligation to report its status and activities to the SEC. As a reason for such a decision, the company cited the reduction of the complexity of financial reporting and administrative costs.

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