MTN: the $4.2bn question that won’t go away

Was MTN involved in bribery and corruption when it won a stake in Iran’s GSM licence in 2005, or has Turkish cellular group Turkcell been duped into believing a whistle-blower’s account and haplessly litigating for more than a decade?

The case heard in the Supreme Court of Appeal (SCA) on August 26 and 27 won’t provide any definitive answers to that. It was a preliminary case about some complex points in law. If the court finds in favour of MTN, Turkcell, through its subsidiary East Asian Consortium (EAC) may mull its options and try to approach the Constitutional Court. If the SCA finds in favour of EAC, MTN is likely to appeal.

If, after all the potential legal wranglings are done in South Africa, and EAC is suddenly far more successful than it has been elsewhere, the case will go to trial about three years from now. The likes of former MTN CEO Phuthuma Nhleko and former MTN executive vice-president Irene Charnley will probably be called to testify. The period involved was when President Cyril Ramaphosa was chair of MTN and Thabo Mbeki was president of South Africa.

Nhleko, Charnley and the four legal MTN entities named as respondents have consistently denied the allegations of bribery and corruption.

The issue goes back to 2005, when EAC approached the court in Tehran after it was ousted as a stakeholder in the consortium that was to become Irancell, in which MTN now has a minority shareholding. This followed a change in the Iranian government’s policies about how big a stake foreign companies could take in local entities. That court application was dismissed in 2006.

But EAC later alleged that MTN had bribed officials and offered sweeteners to ensure it got its stake in Irancell.

Right now the alleged evidence against MTN is moot; MTN and EAC are still arguing about whether South Africa has the jurisdiction to hear the case or whether it should be heard in Iran.

Iran is in political turmoil, with its growing conflict with Israel, the death of president Ebrahim Raisi in a helicopter crash in May, a new cabinet having been named as recently as August 11, and unhappy hardliners. It’s a country defined by human rights violations, unfair trials and the use of the death penalty, according to Amnesty International and others. So it’s hard to see how a court case in Iran could be objective, fair or even safe.

Yet the Joburg high court found in November 2022 that the matter should be tried in Iran. Having heard the arguments of both EAC and MTN about MTN’s special pleas — which covered the exclusive jurisdiction of Iranian courts, the act of state doctrine, and state immunity — judge Willem Wepener held that the Iranian courts had the jurisdiction in the matter. The act of state doctrine is a principle in international law that national courts won’t make judgments on the legality of a foreign government’s acts when those acts take place within the foreign state. 

Wepener agreed about the concept of state immunity and the act of state doctrine, finding against EAC and ordering the company to pay MTN’s costs.

The primary driver of MTN’s price decline since 2014 has been the impact of a weaker naira on its Nigerian operations, which was its most valuable subsidiary 

—  Nadim Mohamed

David Farber, one of Turkcell’s counsel who has been following the SCA case in Bloemfontein, protests that “the trial court’s decision betrays the SCA’s promise that South Africa would ‘lead’ in the fight against international corruption, and instead invites further international bribery and corruption through the country with the promise of immunity from liability through technical legal doctrines that simply do not apply. The lower court’s finding that the case be sent to Iran, of all places, is deeply troubling. We are hopeful the decision will be reversed, so that the merits of the case can be heard.”

His fellow counsel, Cedric Soule, says the state of Iran “is not involved in this case — no-one is suing the state of Iran, no-one is asking for damages from the state of Iran, and so Iran’s interests are not implicated at all.”

He adds: “So state immunity is out, the act of state doctrine is out, because, again, this is not embarrassing to Iran, it’s embarrassing to MTN.”

MTN, though, isn’t about to budge, and says its position on the correct forum for this case, namely Iran, was already set out in its heads of argument for the appeal and was accepted by the high court, leading to the dismissal of EAC’s case.

“We trust in the legal processes of the jurisdictions involved and believe that the appropriate forum for this case has already been determined,” it says.

But Farber is convinced that the courts of South Africa should have the jurisdiction to hear these cases, rule on their merits, and, if parties have been damaged, ensure there are amends. EAC believes that if South Africa doesn’t hear the case, the precedent set is that locally domiciled companies can be allegedly involved in corruption in other countries and escape liability at home.

The thing is, though, that the alleged corruption hangs on the story of one whistle-blower, Christian Kilowan, who was employed by MTN for a few years in the early 2000s. Given Kilowan’s incendiary allegations, MTN appointed an independent committee to investigate the matter in 2012. That committee produced a report in 2013, finding that MTN hadn’t been involved in corruption or bribery and there was no conspiracy between MTN and Iranian officials to remove Turkcell from the licence process in Iran.

If it’s true that there was no corruption, the Joburg high court didn’t set as disturbing a precedent as it might have.

MTN points out further that the committee, chaired by international jurist Leonard Hoffmann, found that Turkcell’s allegations, “which rested entirely upon the evidence of Kilowan, were all ‘a fabric of lies, distortions and inventions’ and that Kilowan was shown to be ‘a fantasist and a conspiracy theorist’”.

Sometimes when people are accused of wrongdoing in complex legal cases they say they want their day in court and their names to be cleared. This hasn’t been the case with MTN, Nhleko or Charnley.

Nhleko and his attorneys have declined to comment. Paul Jenkins — a former MTN board member and an MTN delegate and consultant who was involved in MTN’s entry into Iran — responded after questions were sent to Charnley and her attorneys. He  points out that Charnley already gave evidence in an arbitration case in London last year and at the International Court of Arbitration. He says Charnley and Nhleko have had a miserable time.

“Who is going to subject themselves to a trial that will last a year because the facts are so heavy and there’s so much information? As far as [Charnley and Nhleko] are concerned, there’s so much that they’ve said, so much evidence that they’ve given in other forums. So why must [Charnley] suffer jeopardy a third time?” Jenkins asks.

MTN, in response to a question about whether it wouldn’t be better to have a trial in South Africa, which has a stable democracy and a working judiciary, says only that it’s confident in its legal strategy and remains committed to adhering to all legal standards.

But even for MTN, which is used to being sued — consider, for example, the cases it’s faced in Nigeria — the $4.2bn-plus interest claim isn’t something to take lightly. That’s about R80bn, or about half of MTN’s market capitalisation. It’s more than three times the company’s combined 2022 and 2023 attributable profit. It’s the equivalent of about 20% of MTN’s total assets as at the end of 2023. And it’s well over double the amount of net cash and cash equivalents the telecommunications firm disclosed in its 2023 annual report.

Nonetheless, MTN hasn’t made a provision for a negative outcome.

“Provisions in financial reports are made only when there is a probable risk of an adverse outcome. Based on thorough legal assessments and the high court judgment of December 2022, which dismissed the case against MTN with costs, we maintain that the case brought by Turkcell is baseless and without merit,” MTN says.

Still, says MTN, “while we are confident in our legal position and believe the case has no merit, MTN always ensures that robust contingency planning is in place. Should any unexpected outcome arise, the company will explore all available options to protect its financial health.”

MTN’s share price was battered when the Nigerian cases arose. It’s been a decade since the stock peaked. But instead of blaming litigation in foreign climes for being the root of the share’s underwhelming long-term performance, Nadim Mohamed, head of technology, media & telecommunications research at SBG Securities, says the primary driver of MTN’s price decline since 2014 has been the impact of a weaker naira on its Nigerian operations, which was its most valuable subsidiary.

“In 2014, the official exchange rate was 180 naira per US dollar, compared with today’s 1,590 naira. The fine [imposed by] Nigeria in 2015 and the Turkcell litigation have been net negative, but contribute much less to investor confidence than the naira weakness,” says Mohamed, who isn’t concerned that MTN hasn’t raised a provision for the EAC case.

“The decision about whether or not to raise a provision would be based on the assessment of the board and management of the probability of a payment resulting from the litigation. I expect this to have been evaluated diligently by management and its advisers,” he says.

“In our view, very little attention has been given to the EAC allegations since the South Gauteng High Court ruling. The allegations have been heard in the US and South Africa, and both rulings suggest that it needs to be heard in an Iranian court. The Hoffmann committee appointed by the MTN board in 2012 also found no substance to the allegations.”

That may be so, but EAC disagrees with the respondents’ interpretations when they say EAC has lost in other jurisdictions.

Counting on the courts 

Farber and Soule explain that after EAC was ejected from the licence process in 2005, it applied to the Iranian courts for an emergency injunction to prevent the process from continuing with MTN and without EAC.

“Unsurprisingly, the Iranian courts took months to even consider EAC’s request for an emergency injunction and then denied it as moot — because it was long past the time when MTN had signed the licence agreement with Iran — which resulted in EAC withdrawing the case because it was not going to get justice before the infamously biased Iranian courts,” Farber and Soule say.

In April 2008, EAC launched a commercial arbitration process against its Iranian partners in terms of a shareholders’ agreement they had signed in September 2004, thereby setting up what would be the first of two international tribunals. Essentially, EAC accused its Iranian partners of breaching various provisions of the shareholders’ agreement, alleging that the Iranian partners had not behaved in good faith towards EAC.

At the time of the arbitration, EAC didn’t yet know about MTN’s alleged corruption, so it wasn’t raised in the commercial arbitration hearing. The tribunal in the arbitration case ruled against EAC, finding that there was no evidence that the Iranian partners had acted in bad faith.

Also in 2008, Turkcell launched an investment arbitration against Iran under the bilateral investment treaty (BIT) between Turkey and Iran — the second international tribunal. The BIT allows Turkish investors to sue Iran if Iran has breached the treaty — for example, if it expropriated an investment or did not behave fairly and equitably. Turkcell accused Iran of breaching the treaty because of the way EAC had been excluded from the GSM licence process.

“In the closing stages of the case, the bribery and corruption allegations against MTN came out and these were put before the international tribunal,” EAC’s council says.

“However, the tribunal never ruled on the bribery and corruption allegations against MTN, and affirmatively noted it was not addressing them.

“Instead, the tribunal decided for technical reasons that it did not have jurisdiction over the case because Turkcell was not an ‘investor’ within the meaning of the treaty and was therefore not protected by the treaty.”

In 2012, Turkcell and EAC sued MTN Group and MTN International before the US courts under a law called the Alien Tort Statute. But during the case, say the counsel, the US Supreme Court issued a ruling narrowing US courts’ jurisdiction under the statute, which  eliminated the trial court’s jurisdiction over the Turkcell/EAC case.

“As a result, Turkcell and EAC voluntarily withdrew the US case without prejudice and refiled the case against the MTN defendants in South Africa,” according to Farber and Soule.

“The important point here is that no court, no tribunal, has ever ruled on the substance of the bribery and corruption allegations against MTN. This is why the hearing before the SCA is so important. If EAC prevails, it can finally proceed to trial and a judge can hear the evidence and make a decision,” they say.

“But if MTN wins, it means the case will be dismissed on jurisdictional grounds, not on the substance, and so once again, there will have been no examination of MTN’s conduct regarding the GSM licence in Iran and what it did to get it.”

EAC may have a good point here, according to Corruption Watch. Legal researcher at the organisation Refilwe Chulu says any case that involves allegations of bribery, especially bribery of foreign public officials, should be exposed and investigated.

“While the SCA will decide on limited issues, we believe that there remains the question of [alleged] criminal liability, which is not yet being pursued,” she says, adding that the courts would also be best placed to determine the credibility of Kilowan’s alleged evidence.

Exiting Iran

What’s interesting is that in high-profile international cases, for example accusations made against the likes of former US President Donald Trump and the late US financier Jeffrey Epstein, once one person was brave enough to come forward others followed. This hasn’t happened in the MTN matter — in more than a decade, only Kilowan has made allegations. But corporate corruption cases work differently from sexual abuse scandals, Chulu points out.

“We believe that it is not odd that only one whistle-blower has come forward to [allege] corruption. In many instances, we’ve found that whistle-blowers may be reserved about reporting wrongdoing because they feel torn between loyalty to their employer and their conscience,” she says.

“There is also the fear of the negative impact on their employment and danger to their own safety and that of their families. There are many instances in our country where whistle-blowers have been harassed, victimised, called into disciplinary hearings, dismissed and financially crippled. In other instances, some have had to leave South Africa for their safety,” says Chulu.

The focus of our strategy is Africa ... This includes continuing to optimise our portfolio, including exiting the Middle East in an orderly fashion

—   MTN

While it’s seemingly not odd that only Kilowan has made allegations, what is arguably strange is that MTN is still operating in Iran at all. Considering all the litigation, Iran not being a significant money-spinner for the group and with the country’s terrible record when it comes to human rights, it’s not hard to imagine that a company would want to get out of such a situation. MTN has said for a while it wants to exit, but it still hasn’t done so. To be fair, it’s probably not easy to sell assets in Iran, especially right now.

“We remain committed to exiting the Iranian market in due course,” says MTN. “Exiting a market involves navigating various complexities, and we are taking a considered approach to ensure that all factors are appropriately managed.”

The company adds: “The focus of our strategy is Africa. One of our strategic priorities is to ‘accelerate portfolio transformation’. This includes continuing to optimise our portfolio, including exiting the Middle East in an orderly fashion, allowing us to simplify the business.”

That’s exactly what Mohamed would like to see. He says that while his understanding is that there’s no immediate plan to exit Irancell, an exit would remove significant geopolitical and litigation risks from the MTN portfolio.

“Given that cash has not been repatriated from Iran since 2018 and that the Iranian currency has devalued materially over the past few years, MTN should perhaps look to simplify its structure to focus more on its African operations,” Mohamed says.

In the meantime, there’s still this lingering court case. MTN is, of course, confident that it will win in the SCA and that the high court was correct in its findings. EAC is similarly confident, and Turkcell’s global counsel say that the jurisdictional objections the MTN defendants have raised are without merit.

Jurisdictional objections

First, there’s the issue of immunity. South Africa’s Foreign States Immunities Act ensures that foreign countries are generally entitled to be granted immunity from the jurisdiction of another state. The issue here will turn on whether EAC’s case before the South African courts seeks to affect the property, rights, interests or activities of Iran, say Turkcell’s counsel. But, they argue, EAC isn’t seeking anything from Iran — it’s only seeking monetary damages from the MTN defendants.

Further, they focus on the act of state doctrine. It isn’t applicable, EAC argues, because the case focuses on the acts of the MTN defendants, not on anything done by Iran.

“Moreover, even if the act of state doctrine were applicable, there is an exception in the event that the acts in question are a breach of customary international law or South African public policy. Bribery and corruption are very much against South African public policy, and so the exception to the act of state doctrine should apply,” Turkcell’s global counsel say.

MTN’s third jurisdictional objection is that EAC’s case should be heard by the Iranian courts because it falls under Article 29 of Iran’s GSM License Tender Regulations. These state that any dispute or litigation relative to the regulations or the call for bids should be submitted to the Iranian courts.

It isn’t relevant, claim Turkcell’s counsel. “EAC’s case concerns MTN’s interference with EAC’s contractual rights, acquired after the tender process [was] concluded. Moreover, some of the MTN defendants are not bound by the regulations because they did not participate in the tender process at all — for example, MTN Group, Nhleko and Charnley,” they say.

“While we are aware that the doctrines invoked by the MTN defendants are complex, we also believe that if the SCA applies the law, EAC should prevail and the jurisdictional objections should be rejected.”

What both parties have in common is waiting. Waiting for cases to be heard, waiting for judgments and waiting for permission to appeal. In this instance, the level of complexity involved in the points of law is such that it will take two days to present, says Jenkins, and the SCA will reserve judgment. 

“I would not expect to get an answer before the end of the year.”