On November 1, 2018, Attorney General Jeff Sessions announced the China Initiative, a Department of Justice (DOJ) program to combat Chinese economic espionage. The details of the announcement, which went largely unnoticed during those last days of the former Attorney General’s tenure, included a declaration in its accompanying fact sheet that one of the goals of the Initiative was to “[i]dentify Foreign Corrupt Practices Act (FCPA) cases involving Chinese companies that compete with American businesses.”
Likewise noticed by few, the inclusion of Huawei in the 2015 Organized Crime and Corruption Reporting Project (OCCRP) report on Gulnara Karimova’s massive corruption (Game of Phones, Part I), which preceded the DOJ’s three years of related FCPA enforcement cases (Game of Phones, Part II).
The DOJ is unlikely to have similarly failed to notice the presence of Huawei, the leading Chinese company competing with American businesses in 5G network technology, in the Karimova case and include the Chinese telecom giant in its FCPA investigations.
Huawei and Gulnara Karimova
The 2015 OCCRP report noted the presence of Huawei in early payments to Karimova in 2001–04. The report stated that Huawei Technologies, which helped Uzdunrobita create mobile telephone networks outside of Tashkent, had sent payments to Revi Holdings, a Dubai company set up in November 2001 as an offshore holding company owning Karimova’s other firms. These payments preceded the massive bribery by Vimpelcom, TeliaSonera, and MTS from 2004 to 2012 that was the subject of the DOJ’s FCPA enforcement actions against those companies starting in 2016. The OCCRP report lacked further information on these payments, such as exact dates, dollar amounts, and counterparties, which it had included for payments by Vimpelcom, TeliaSonera, MTS, and other companies.
Uzdunrobita played a central role in Karimova’s corruption, according to the DOJ’s findings. Once the largest mobile telephone carrier in Uzbekistan, Uzdunrobita had been originally founded in 1991 as a U.S.-Uzbekistan joint venture and changed ownership before MTS became its majority owner from 2004 to 2012. MTS conducted its business in Uzbekistan through Uzdunrobita, which was partly owned by Karimova, and MTS used its local subsidiary as a vehicle in a scheme of Byzantine complexity for funneling corrupt payments to Karimova. The scheme included MTS and Uzdunrobita acquiring ownership of an Uzbek advertising company named Kolorit Dizayn Ink LLC, partly owned by Karimova, as a further vehicle for paying bribes. MTS, Uzdunrobita, and Kolorit paid approximately $420 million in bribes to Karimova from 2004 to 2012, according to the DOJ Criminal Information for MTS.
It is possible that Huawei was a good corporate citizen in Uzbekistan during a period of pervasive corruption on a massive scale in its industry sector, but it is equally or more possible that it was not. Huawei entities and executives have been prosecuted for bribery in Algeria from 2003 to 2006 (one Huawei executive and two ZTE executives were sentenced to 10 years in prison in absentia in 2012), accused in Ghana of funding the ruling party in exchange for a lucrative government contract in 2012, and accused of bribery in numerous other countries. The 2015 OCCRP report’s findings on Huawei payments to Karimova in 2001 through 2004 may be only the tip of the iceberg in a larger bribery scheme whose details have not yet been publicly revealed, or fully investigated.
The DOJ’s Criminal Case Against Karimova
The DOJ’s March 7 indictment of Gulnara Karimova for money laundering is also an indictment of Bekhzod Akhmedov, the general director of Uzdunrobita for a decade starting in 2002. The indictment describes criminal conduct by them that began in the fall of 2001, when they “hatched a corrupt scheme to obtain a bribe from the American Company” (unnamed in the indictment), which they forced to give a 20% ownership share in Uzdunrobita to a Karimova-controlled shell company. Akhmedov became general director of Uzdunrobita in 2002 following this acquisition of a 20% ownership share by Karimova, which increased to 51.4% after she used her influence to have the government of Uzbekistan transfer its 31.4% stake in Uzdunrobita to the shell company. The corrupt payments by MTS, TeliaSonera, and Vimpelcom punished in the settlements with those companies followed MTS’s 2004 acquisition of Uzdunrobita.
The actions of Karimova and Akhmedov from 2001 to 2004 to acquire control over Uzdunrobita and then use it to extract bribes are clearly of interest in the criminal case against them. That interest is likely to have directed the attention of the DOJ toward Huawei’s relationship with Uzdunrobita and Karimova-controlled shell companies in those years. If it has, then there may be an active investigation of Huawei for violations of the FCPA. The China Initiative’s stated goal of identifying FCPA cases involving Chinese companies that compete with American businesses may make such an FCPA investigation more likely, if the unnamed American company was in any way a competitor with Huawei.
The lack of any information about Huawei in the DOJ’s actions against Karimova, MTS, TeliaSonera, and Vimpelcom may reflect the difficulty of investigating a Chinese company in Uzbekistan without the cooperation of China and Uzbekistan. The DOJ’s announcements of these actions thanked law enforcement partners in Austria, Belgium, Cyprus, France, Ireland, Isle of Man, Latvia, Luxembourg, the Netherlands, Norway, Sweden, Switzerland, and the United Kingdom for their assistance, but China and Uzbekistan were absent from the lists of cooperating countries.
China is unlikely to cooperate in an investigation of Huawei, despite having its own corruption case against Huawei for bribery in its domestic market, especially after imposing restrictions on providing judicial assistance between China and other countries in international criminal proceedings by passing the International Criminal Judicial Assistance Law in October 2018. As a result, any ongoing FCPA investigation may remain in progress and under seal for a long time.
FCPA, the China Initiative, and the U.S. National Security Strategy
The broader U.S. national security strategy will influence the DOJ’s FCPA actions and the China Initiative. The National Security Strategy of the United States of America issued on December 2017 states in its section on “Diplomacy and Statecraft” regarding “Tools of Economic Diplomacy”:
Retaining our position as the world’s preeminent economic actor strengthens our ability to use the tools of economic diplomacy for the good of Americans and others … Economic tools—including sanctions, anti-money-laundering and anti-corruption measures, and enforcement actions—can be important parts of broader strategies to deter, coerce, and constrain adversaries. We will work with like-minded partners to build support for tools of economic diplomacy against shared threats. (emphasis added)
Huawei and other Chinese companies must already be on notice of their potential criminal liability in the United States after the recent indictments of Huawei Technologies and Huawei CFO Meng Wanzhou for bank fraud and money laundering in violating U.S. economic sanctions against Iran, and of Huawei Device Co. for theft of trade secrets in stealing a smartphone testing robot arm from T-Mobile. Possible bribery of Gulnara Karimova is only one of many past actions by Huawei and other Chinese companies that may have violated U.S. and international economic sanctions, anti-money laundering laws, and anti-corruption laws, which should make them seriously concerned about potential enforcement action by the United States and other countries.