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UZBEKISTAN: Coca-Cola accused over Uzbek venture

by Edward Alden in Washington and Andrew Ward in AtlantaFinancial Times
June 13th, 2006

Coca-Cola has been hit with an arbitration claim seeking more than $100m in damages, alleging that the the world's largest soft drinks maker conspired with the government of Uzbekistan against a joint venture partner who fell out of favour with the country's authoritarian ruler, Islam Karimov.

The claim was made by a company owned by Mansur Maqsudi, an American of Afghan descent who was married to Mr Karimov's daughter, Gulnora, until a messy separation in 2001.

It alleges that Coke "undertook to conspire with the government of Uzbekistan" to strip Mr Maqsudi's majority share in Coke's bottling facility in Tashkent, the largest in Central Asia.

The case was filed last week before an arbitration tribunal in Austria, under the terms of the 1992 joint venture between Coke, Mr Maqsudi's trading company ROZ Limited, and the Uzbek government.

Central Asia is among the world's least developed soft drink markets, but Coke is expanding aggressively in the region as it seeks fresh growth to offset slowing sales in the US and Europe.

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The claim comes as the company is already trying to repair its image in the face of lawsuits from labour groups in the US over allegations that it turned a blind eye to human rights abuses at its bottling plants in Colombia and Turkey. Those charges have fuelled student boycotts in the US and Europe, and prompted Coke to rebut more aggressively charges of wrongdoing.

The Uzbek case will raise similar issues. "Coke did more than just stand by with arms folded," said Stuart Newberger of Crowell & Moring, the lead lawyer on the arbitration. "They were affirmatively working with the government of Uzbekistan."

Coke strongly denied the charge, saying in a statement that "this allegation is categorically false. Unequivocally, there was no collaboration and we are confident this will be upheld in any court or arbitration proceedings."

Mr Maqsudi went into business with Coke in 1992 to help the company open its first bottling plant in Tashkent. By 1997 the plant was generating $118m in annual sales and was twice selected by Coke as its "bottler of the year."

But the relationship began to sour in 2001 following Mr Maqsudi's separation from his wife, when she left their New Jersey home with the couple's two children and later defied a court order to return.

Following the separation, agents for the country's national security service, the successor to the KGB in Uzbekistan, raided the bottling plant under the guise of a tax audit. Within 10 months, the Uzbek courts had stripped ROZ of its share in the bottling plant.

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