From the Financial Times
“At the heart of the case is the question of what obligations a multinational faces in operating in countries where human rights abuses are common and there are few legal protections.”
By EDWARD ALDEN and ANDREW WARD
14 June 2006
For nearly a decade, Coca-Cola’s bottling plant in Uzbekistan was a shining example of the successful strategy that has seen the company expand into more than 200 countries around the world.
The plant on the outskirts of the capital Tashkent, set up in 1992 and run under a joint venture with ties to the family of Islam Karimov, the Uzbek strongman, was twice selected as Coke’s “bottler of the year” in its Eurasia and Middle East region and was highly profitable, with volume growth of about 10 per cent annually.
But all that began to unravel five years ago, when the marriage between Mansur Maqsudi, Coke’s main partner in the plant, and Gulnora Karimova, the president’s Harvard-educated daughter, fell apart – in recriminations that are still being felt by the couple, their children and the Coca-Cola company.
Mr Maqsudi last week filed for binding arbitration at an Austrian
tribunal, under a provision of the original joint-venture agreement
with Coke, seeking more than Dollars 100m (Pounds 54m, Euros 79m) in
damages from the company. He alleges that it “undertook to conspire
with Uzbekistan” to strip him of his share in the plant. Coke
insists it did not collaborate with the government, saying the
arbitration will vindicate that.
At the heart of the case is the question of what obligations a
multinational faces in operating in countries where human rights
abuses are common and there are few legal protections. The issue of
what Coke should or should not have done in Uzbekistan will also
focus fresh scrutiny on the company’s conduct around the world and
provide new ammunition for its numerous critics.
Coke is already facing a US lawsuit brought by labour rights groups
over allegations that it turned a blind eye to the murder of union
leaders at its bottling plants in Colombia by rightwing
paramilitaries. A similar case was filed last year in Turkey
involving the alleged intimidation and beating of union activists
at a Coke bottling plant.
The company denies wrong-doing in both cases but the allegations,
together with claims of environmental abuses in India, have fuelled
a student boycott against Coke in the US and Europe. New York
University and Rutgers in New Jersey are among several campuses
where Coke products have been banned.
The suit comes at an awkward time, when Coke is seeking to improve
its image by rebutting allegations of wrongdoing more strongly and
trumpeting initiatives to make it a better corporate citizen. In
March, the company signed up to the United Nations Global Compact,
a voluntary code of conduct for international businesses, designed
to promote human rights, protect the environment and tackle
corruption. “This is a natural evolution of our company’s long-held
commitment to responsible corporate citizenship,” said Neville
Isdell, Coke’s chief executive.
The Maqsudi story is one the company would rather went away. The son
of a wealthy Afghan family of Uzbek descent, Mr Maqsudi is a
naturalised US citizen. The family had business and political
connections in Uzbeki’ -stan, cemented by his 1991 marriage to Ms
Karimova, and he was a logical partner for Coca-Cola as it eyed
markets in the former Soviet Union.
But in August 2001, it all went badly awry after the marriage
disintegrated and Ms Karimova returned to Uzbekistan from the US
with the couple’s two children. In a telephone interview Mr Maqsudi
said that, despite winning a custody order from courts in New
Jersey, where he lives, he has not seen his children again.
The arbitration claim alleges that following the separation “Ms
Karimova and her father directed the full power of the government
of the Republic of Uzbekistan at destroying Mr Maqsudi’s investment
in Uzbekistan”, particularly his majority stake in the Coke bottling
operation. Within 10 months of the relationship breaking up, the
Uzbek courts confiscated Mr Maqsudi’s share in the plant, to
liquidate debts allegedly owed by Roz Trading, his Cayman Islands
company that held 55 per cent of the bottling operation. Much of
that stake would later end up in the hands of companies with close
ties to Ms Karimova, who has built a business empire since her
Coke endured an 18-month shutdown of the plant that ended only last
year but, despite attempts by the Uzbek government to gain control
of its share as well, the company has managed to retain its stake
in the operation. The filing alleges that, rather than coming to
the aid of its joint-venture partner, the company collaborated with
the Uzbek government and discouraged US authorities from intervening
on Mr Maqsudi’s behalf.
“Coke made a corporate decision that they were going to save their
interests in Uzbekistan,” says Stuart Newberger of Crowell &
Moring, the lead lawyer on the case. Allan Gerson, a Washington
lawyer who led the first suit against Libya on behalf of victims of
the Lockerbie bombing and is also counsel on the case, says the
company should have helped Mr Maqsudi. “Coca-Cola fully understood
this was vengeance,” he adds.
Coca-Cola denies those charges and says in a statement that “there
was no collaboration and we are confident this will be upheld in
any court or arbitration proceedings”. Throughout the dispute,
Coca-Cola Export Corporation, its export arm, has been a minority
shareholder and “is not responsible for the dispute between Roz
Trading and the government of Uzbekistan”.
The Uzbek government, the third shareholder in the plant, is also
named as a party to the arbitration claim. It did not respond to
calls to its embassy in Washington. In a response last month to
notification that a claim might be filed at the Vienna tribunal,
the Uzbek government told Mr Maqsudi’s lawyers: “Your statement
that your client’s participation in management was effectively
impeded and also that any actions against your client have been
performed illegally was a surprise for us.”
Mr Karimov, a former Communist party boss, has ruled Uzbekistan
since 1991. Human Rights Watch has called the regime’s record
“disastrous”, citing torture and crackdowns on human rights groups.
In the aftermath of the September 11 attacks, the US government
overlooked that record because Mr Karimov was seen as an important
ally. He allowed the US to use an air base in the country as a
staging ground for the war in Afghanistan. But relations have
deteriorated since the government suppressed an uprising in the
town of Anizhan last year, killing hundreds. Mr Karimov recently
banned many western non-governmental organisations and expelled
some US troops.
Coke says in its statement that it has “a strict Code of Business
Conduct that is applicable everywhere we do business”, adding that
it “adheres to the local laws and regulations of each country as
well as applicable US laws”.
The case alleges that the company, while it may have obeyed local
laws, violated its joint-venture obligations to Mr Maqsudi in order
to protect its investment. Mr Newberger says he believes the
decision was made at the highest levels of Coke’s management in
A 2004 US Supreme Court decision in a case involving Intel opened
the door to plaintiffs demanding documents from the headquarters of
American companies for cases involving foreign proceedings. Mr
Maqsudi’s lawyers may thus be able to get their hands on minutes of
directors’ meetings and other internal correspondence to try to
demonstrate Coke’s complicity.
One key to making that case will be an exchange of letters in
September 2001, which appears to show that top management and
directors at Coke were well aware of the dispute. Farid Maqsudi,
Mansur’s older brother and partner in Roz Trading, wrote to Douglas
Daft, then Coke’s chairman and chief executive, following a raid on
the plant that came just days after Ms Kari’ -mova returned home.
The letter said that agents of the Uzbekistan government
“systematically detained, harassed, interrogated and terrorised the
management and employees” at the Coke bottling operation. Nick
Evangelopolous, the plant’s general manager at the time, was held
for 24 hours by the police and later said he had fled the country
in fear of his life.
In the letter to Mr Daft, Farid Maqsudi pleaded for the company to
weigh in against the abuses, saying that “for the Coca-Cola company
to sit by and permit these police-state tactics to victimise the
employees of CCBU, let alone collaborate with the perpetrators, is
to betray the business principles that have made Coca-Cola one of
the world’s most respected brands”.
Two weeks later, Mr Daft wrote back expressing regret and saying
that the Maqsudis’ personal turmoil was “undoubtedly disheartening.
. . However, I believe it is conducive to our long-term business
interests to separate the issues”. In a later letter, the company
called the dispute “a family matter in which we are not involved
and do not wish to become involved”. The Maqsudis’ efforts to
enlist Coke directors of the time, such as Warren Buffett, were
Much of the case could turn on events shortly after the August 2001
raid on the plant. The suit includes a letter that appears to show
that Coke, instead of challenging the raid and questioning the
legitimacy of the tax audit, told the US embassy in Tashkent that
the audit was legitimate. That reassurance helped to keep the US
government from intervening at a time when, Mr Maqsudi says,
pressure on the Karimov government might have been effective.
Coke is likely to argue that it was caught in the middle of a
dispute between the Maqsudis and the Uzbek government. Like many of
Coke’s bottling plants around the world, the Tashkent plant bought
concentrate from Coca-Cola but largely managed its own affairs. The
company also points out that it, too, suffered significant losses
because of the shutdown of the bottling facility.
Sonya Soutus, vice-president of Coca-Cola International, says the
group’s reputation is being sullied by an affair over which it had
little control. “Taking into account the difficulty of our
situation, there is quite a bit of evidence that proves we did
everything we possibly could in the best interests of our
stakeholders and the business in Uzbekistan.”
Yet whatever its outcome, as Coke seeks to present itself globally
as a good corporate citizen, the dispute is likely to serve as a
reminder to it and other multinationals of the perils of doing
business with autocrats.