MTN Promised Iran Money, UN Votes for Phone Deal

Bloomberg -- MTN Group Ltd., Africa’s largest mobile phone operator, bribed officials, arranged meetings between Iranian and South African leaders, and promised Iran weapons and United Nations votes in exchange for a license to provide mobile phone service in the Islamic Republic, Turkcell Iletisim Hizmetleri AS (TCELL) alleged in a lawsuit.

Turkcell, which initially was awarded the Iranian mobile phone license, sued its Johannesburg-based rival yesterday in federal court in Washington for $4.2 billion in damages. The suit includes numerous alleged internal MTN memos that detail the company’s efforts to win the Iranian business after losing the bid to Turkcell in February 2004.

“Upset by the loss of the open competition, MTN sought to obtain illegally what it could not obtain through honest competition and thereafter embarked on a premeditated program of corruption through bribery and trading in influence,” the complaint states.

The license tender was “the largest new international telecommunications opportunity in the world and was known to involve the largest single investment opportunity into Iran since the 1979 Revolution,” according to the complaint prepared by Patton Boggs LLP (1211L) (1211L), a Washington-based international law and lobbying firm.
‘Project Snooker’

The memos Turkcell attached to the complaint codenamed the MTN effort “Project Snooker,” and described payoffs to Javid Ghorbanoghli, then Iran’s deputy foreign minister, dubbed “Long-J” in the memos, and Yusuf Saloojee, South Africa’s ambassador in Tehran at the time, who was codenamed ‘Short-J.” The men were paid $400,000 and $200,000 respectively, according to the complaint.

In a Sept. 21, 2005, memo attached to the lawsuit, then-MTN Chief Executive Officer Phuthuma Nhleko wrote that “Project Snooker still presents one of the most significant ‘virgin’ mobile opportunities in the world.” MTN signed agreements with Iran that week “under duress” in order to “book our place at the foot of the mountain,” he wrote according to the memo.

Rich Mkhondo, a spokesman for MTN, didn’t respond to two text messages and a telephone call to his mobile phone after business hours in South Africa.

MTN prevailed upon the South African government to abstain from three votes on Iran’s nuclear energy program at the United Nations’ International Atomic Energy Agency in Vienna in 2005 and 2006, according to the complaint. The Iranian communications ministry allegedly told MTN it was withholding its license until it saw how South Africa voted at an upcoming IAEA meeting.
Abstained From Vote

South Africa’s representative to the IAEA at the time, Abdul Minty, abstained from an IAEA vote on Iran on Nov. 24, 2005. The license was delivered three days later, the complaint states.

According to the complaint, MTN in August 2004 struck a deal with Ali Shamkhani, who was then Iran’s defense minister, to facilitate South African military cooperation and the delivery of defense equipment, including Denel AH-2 Rooivalk helicopters, encrypted military radios, sniper rifles, G5 howitzer artillery weapons, cannons, armored personnel carriers and radar technology. The list was set in a 2004 memorandum of understanding, which wasn’t included with the suit, according to the complaint.

MTN executives and the Iranian officials came to call the shopping list by the codename “The Fish,” according to the complaint.
Legitimate Channels

Much of the equipment on the list wasn’t available to Iran through legitimate channels because of U.S. and international restrictions, the complaint alleges.

While MTN had promised Iran it could deliver South African military aid, no arms sales took place, angering Iranian officials, Turkcell claimed.

Turkcell’s complaint cites violations of the Alien Tort Statute, a 1789 law that gives U.S. courts jurisdiction in some instances to consider claims by foreigners for illegal conduct that occurred in another country. The law is usually cited in human rights and torture cases.

The U.S. Supreme Court is considering a case brought by a group of Nigerians seeking damages under the statute, claiming Royal Dutch Shell Plc (RDSA) helped their government commit torture and murders in the early 1990s. The company argued that corporations can’t be sued under the law. Four federal appeals courts have permitted corporations to be sued under the Alien Tort Statute, the Nigerians argued.
Attempted Extortion

On March 12, MTN issued a statement accusing Istanbul-based Turkcell of attempted extortion and saying Turkcell threatened a lawsuit alleging improper payments to an Iranian and a South African official. MTN said at the time that any such suit would lack merit.

MTN also said that U.S. courts would not have jurisdiction over any such a case, because the “accusations involve conduct alleged to have taken place in South Africa and Iran, and have no connection to the United States.” MTN said it established a committee of non-executive directors to investigate Turkcell’s allegations.

The claims against MTN also include aiding and abetting violation of U.S. treaties, tortuous interference with a contract, defamation and breach of contract related to a confidentiality agreement that Turkcell says MTN violated.

A “highly confidential” March 25, 2007 alleged memo to MTN’s chief executive from its representative in Iran, Chris Kilowan, recounts Saloojee’s description of visits to South Africa by top Iranian officials on behalf of Supreme Leader Ayatollah Ali Khamenei and President Mahmoud Ahmadinejad.

Khamenei dispatched Ali Larijani, then the secretary of Iran’s Supreme National Security Council, to remind Thabo Mbeki, South Africa’s president at the time, “that certain defence- related promises were made by the South African Minister of Defence in 2004 in exchange for which MTN was allowed to replace Turkcell in the Irancell consortium,” according to the memo.

The same memo reports that Manouchehr Mottaki, who was then Iran’s foreign minister, was sent by Ahmadinejad to “get a direct answer” from Mbeki about South Africa’s alleged promises to sell arms to Iran.

Mottaki “reiterated their understanding that MTN was allowed to replace Turkcell in exchange for defence cooperation,” Kilowan wrote in the memo attached to the complaint.

In addition, the suit alleges that former South African trade unionist Irene Charnley, then a senior executive at MTN, arranged meetings for Iranian officials with the South African president and defense minister in 2004 and 2005, when MTN was trying to wrest the license away from MTN.
Defense Company

Charnley also tried to facilitate a meeting between Iranian officials and Denel (Pty) Ltd, a South African government-owned defense company in late 2004, according to fax she allegedly sent an Iranian official.

Efforts to reach Charnley after hours at Smile Telecoms Holdings Ltd., a Mauritius-based company, were unsuccessful. Clayson Monyela, a spokesman for the South African Department of International Affairs and Cooperation, declined to comment on the lawsuit.

No one answered the phone after hours at the South African embassies in Muscat, where Saloojee is now ambassador to Oman, or in Vienna, where the IAEA is located. No one answered repeated calls to the Iranian Interests Section in Pakistan’s embassy in Washington.

Lanny Davis, a Washington lawyer and former special counsel to President Bill Clinton who said he represents MTN’s law firm, declined to comment yesterday. Davis referred calls to Tim Coleman, a Washington lawyer at Freshfields Bruckhaus Deringer (1002L) LLP, who said he couldn’t immediately comment because he hadn’t seen the complaint.
Iran’s Parliament

Turkcell’s agreement suffered a setback in 2005 when Iran’s parliament ordered the company to reduce its stake from 70 percent to 49 percent, deeming that foreign control of the joint venture was a threat to Iran’s security. Turkcell eventually agreed, and later paid the license fee in September 2005, according to the lawsuit.

Turkcell claims that Iran continuously changed its terms, opening the way for MTN to replace the Turkish company in the deal.

As part of the new deal, MTN, which controlled only 49 percent of the Irancell consortium, agreed to pay the capitalization costs, taxes and license fees owed by the Iranian shareholders, as well, the complaint alleged. The payments, including $88 million in capitalization costs, were allegedly disguised as loans that “MTN knew at the time would not be repaid.”
MTN Iran Division

MTN’s Iran division, known as MTN Irancell, contributed 5 billion rand ($652 million) in revenue in the first six months of last year, or about 9 percent of MTN’s sales, and 2.1 billion rand ($274 million) in earnings before taxes, interest, depreciation and amortization, according to MTN company figures.

MTN is planning 1.3 billion rand ($170 million) in capital expenditures in Iran, up from 1.2 billion rand ($156 million) last year, according to company figures. MTN had 33.3 million subscribers in Iran as of Sept. 30, and is budgeting for 4 million new customers in Iran this year, the company said this month.

American depositary receipts of MTN Group Ltd. (MTN) fell 1.3 percent to $18.10 at the close in New York. The ordinary shares advanced 0.4 percent to 139.50 and, the equivalent of $18.19, in Johannesburg trading yesterday.

Turkcell says MTN’s business dealings in the U.S. are “extensive,” giving the U.S. court so-called personal jurisdiction over the company. Turkcell cites MTN’s roaming agreements with U.S. cellular carriers such as AT&T Inc. (T) (T) and T- Mobile USA Inc. (166783Q) (166783Q), the sale of airtime at 7-Eleven stores, and collaboration with Facebook and contracts with Intel Corp., Microsoft Corp. and Cisco Systems as evidence.

Turkcell also says that one of MTN directors lives in the U.S.

The case is Turkcell Iletisim Hizmetleri AS v. MTN Group Ltd, 12-cv-479, U.S. District Court, District of Columbia (Washington).

To contact the reporters on this story: Indira A.R. Lakshmanan in Washington at [email protected]; Tom Schoenberg in Washington at [email protected]

To contact the editor responsible for this story: John Walcott at [email protected]