US Regulator Proposes to Fine UK Telco $660,639 for Failing to Disclose Russian Ownership

The Federal Communications Commission (FCC), the US comms regulator, has proposed a fine of USD660,639 for Truphone Inc, a wholly-owned subsidiary of UK-headquartered mobile operator Truphone Ltd, because Russians increased their ownership and control of the British business without seeking the FCC’s permission. A subsidiary of Truphone has a telco license from the FCC and hence is obliged to obtain the FCC’s consent if the portion of the business owned by foreign interests will exceed 25 percent. The FCC granted permission for foreign majority ownership of Truphone on several occasions but has now issued a Notice of Apparent Liability (NAL), a legal instrument that argues a fine is warranted because Truphone did not provide complete and accurate information about who ultimately owned their business. A NAL stipulates the maximum amount of a fine that may be imposed as a result of a failure to comply with FCC regulations; Truphone’s lawyers now have an opportunity to argue why the fine should be less.

The ownership of Truphone has a convoluted history, but in 2011 the FCC gave permission for Truphone to be three-quarters owned by legal entities based in the British Virgin Islands (BVI) that were known to be controlled by two Russian citizens, Alexander Abramov and Alexander Frolov. The FCC gave its permission although legal ownership was transferred to the BVI entities prior to that permission being granted. In 2012 the FCC gave permission for the stake controlled by Abramov and Frolov via these BVI entities to be raised to 82.66 percent, although the transfer of shares once again took place prior to the permission being granted. In 2013, almost 24 percent of business was sold to a different BVI entity which was not controlled by either Abramov or Frolov, diluting their ownership but not changing the extent of the business under foreign control. In 2019 Truphone submitted yet another filing to add another entity to its reported ownership structure, but also observed there were errors in its previous filings. Abramov and Frolov still had effective control of Truphone between them, but the updated information highlighted their ownership was effected via trusts set up in Cyprus for the benefit of Abramov, Frolov and their respective families. This submission also clarified that almost 95 percent of Truphone was now owned via various BVI entities because of further share transfers that had not been previously reported. In March of this year it was disclosed that Minden Worldwide Limited, a BVI entity which had obtained a 22.8 percent stake in Truphone, had changed ownership with the result it now ultimately belongs to a trust set up for the benefit of billionaire oligarch Roman Abramovich (pictured) and his children.

A statement issued by the FCC says they take compliance with foreign ownership disclosure requirements seriously. However, they are seeking to fine Truphone for various failures that began over a decade ago. It is clear why the FCC is now taking more interest in checking the accuracy of information they receive, having previously taken a relaxed attitude to determining who specifically owns which US telcos. This particular business attracted attention precisely because the FCC already knew it was majority controlled by Russian businessmen. Their interest will have intensified when it became apparent that a significant minority stake was held on behalf of Roman Abramovich, the high-profile former owner of Chelsea Football Club who ditched his stake in the English Premier League side when it became apparent that his ties to Russian President Vladimir Putin would lead to sanctions from the UK and the European Union. Truphone’s disclosure about Abramovich came five days after the UK imposed sanctions on Abramovich and on the same day as the EU announced their sanctions against him.

The hot war between Russia and Ukraine is forcing bureaucrats to step up the escalation of the new cold war between Western democracies and the authoritarian regimes in Russia and China. The FCC had already taken steps to ban several Chinese-owned telcos but has spent the last few months scrambling to identify Russian threats to national security. A tame media will mostly report this enforcement action against Truphone as evidence of the USA doing all it can to protect its networks from foreign disruption. Few will draw the other important inference from this story, which is that regulators like the FCC have previously been complacent about checking the facts presented to them by the businesses they supposedly oversee. The FCC’s leadership say they are doing everything they can to protect national security. I have less confidence in the security provided by any bureaucracy that naïvely assumes the truthfulness of legal filings about entities in offshore tax havens owned by billionaires who made their fortunes from corruption. If they really want to protect national security, regulators like the FCC need to spend less time congratulating themselves for each enforcement action they eventually take and more time analyzing why their rules can be flouted for so long.

You will find the FCC’s press release and the full text of their Notice of Apparent Liability by looking here.

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.