Coke finds mixing marriage and business is tricky in Tashkent
Daughter of Uzbek president splits with bottler, and now his firm is being probed

By Steve LEVINE and Betsy MCKAY
Staff Reporters of The Wall Street Journal

When the cola wars came to Uzbekistan in the mid-1990s, Coca-Cola Co. emerged the big winner. Many Uzbeks and foreigners concluded that the reason was a not-so-secret weapon: a partnership with the son-in-law of President Islam Karimov.

But last month, the president's 29-year-old daughter, Gulnora Karimova-Maqsudi, separated from her husband, Mansur Maqsudi, 34, president of Coke's local bottling company. And since then, the cola giant's fortunes in Uzbekistan have abruptly changed.

Tax inspectors, fire inspectors, customs inspectors, and even an antinarcotics official, have descended on Coke's main bottling plant in the Uzbek capital of Tashkent. A week ago, authorities detained the bottling company's local general manager for 24 hours, while investigators tore through his office and that of the manager of the Maqsudi family's trading company in Tashkent, according to officials with the two companies.

Government investigators have taken away piles of documents from the companies and questioned about 10 current and former employees of the bottling concern, company officials said. The authorities also have temporarily detained some local Coke truck drivers and verbally harassed some merchants selling the soft drink, bottling company officials added. The Tashkent offices of Coca-Cola itself, a separate entity from the bottler, have been undisturbed.

Coke officials at the company's Atlanta headquarters are trying to be diplomatic, stressing their desire to cooperate with the sudden, sweeping investigation. It remains to be seen whether the Uzbek government comes up with evidence of wrongdoing, but the Maqsudi family has already concluded that something else is driving the government's behavior.

"You have a powerful [woman] who, rather than following traditional divorce proceedings in court, is exerting her power in government," said Patrizia Zita, a family friend and New Jersey public-relations executive to whom the Maqsudis have referred all questions.

Mansur Maqsudi, who lives in New Jersey, where his family's trading company has an office, declined to comment. Ms. Karimova-Maqsudi, who had been living in New Jersey with her husband and two children until shortly before the separation, couldn't be reached for comment.

Officials with the Uzbek Foreign Ministry and state news agency, which serves as the official conduit for all press inquiries, didn't respond to more than a dozen requests for comment on the government investigation and the status of the Maqsudi-Karimova marriage. In private conversations with foreign diplomats, Uzbek officials have strongly denied the investigation has any connection to Mr. Maqsudi's relationship with the president's daughter, according to the diplomats.

However it is resolved, Coke's predicament illustrates the route to success that many local and foreign businesses have taken in the former Soviet Union -- a partnership with top government officials or people close to them. And if there is indeed a connection between the Maqsudi-Karimova separation and the government investigation, Coke's experience also demonstrates one potential peril of that strategy.

Not long after the 1991 Maqsudi-Karimova marriage, Mr. Maqsudi and his older brother, Fareed, approached Coca-Cola, offering to bottle the company's products in Uzbekistan. Coke at the time considered the possibility that a partnership with an in-law of the top Uzbek leader could be risky, according to a person close to the company.

But that worry was outweighed by the company's eagerness to establish itself in a region long known as a stronghold of rival PepsiCo Inc. With 25 million people, Uzbekistan is the largest nation in Central Asia, although it is poor, and its cotton- and gold-based economy has been declining. Critics say that President Karimov's brutal crackdown against alleged Muslim extremists has led to a broadened insurgency by guerrillas based in Afghanistan. The Maqsudis, ethnic Uzbeks who had emigrated to the U.S. from Afghanistan, are unusual in having both substantial capital and an intimate knowledge of this dicey market.

Apart from their Uzbek interests, the brothers operated a family electronics-export company in Manhattan. After their wedding in Tashkent, Mansur Maqsudi and his bride had flown to a reception in New York for their American friends, according to the family spokeswoman, Ms. Zita.

Coke and the Maqsudis formed a joint venture in 1994, investing about $1.7 million each. Mansur Maqsudi was named president of the new company, Coca-Cola Bottlers Uzbekistan. Through the family-owned Roz Trading Group Ltd., the Maqsudis eventually acquired a controlling 55% share of the venture, with Coke owning the rest.

Ahmet Bozer, president of Coca-Cola's Eurasian division, said Coke never received any special favors because of its ties to the president's family. "The relationship with the government has been kept at arm's length and has always been pure," he said.

The new venture was bad news for Pepsi, though. The Uzbek government ended a multiyear relationship with the Coke rival in 1994 and gave Coke access to the only big bottling plant in Tashkent that met the American companies' standards. Coke quickly became a consumer hit with Uzbeks, and Pepsi soon ceased production in the country. A Pepsi spokesman declined to comment.

Since 1994, Coca-Cola has invested more than $100 million in Uzbekistan, making it one of the country's largest foreign investors. Coke and other Coca-Cola soft drinks, such as Fanta, Sprite and an apple-flavored version of Fresca, appeared on store shelves there. The bottler, run day-to-day by Maqsudi-employed managers, expanded production to three plants.

In 1998, Ms. Karimova-Maqsudi entered a masters-degree program in Central Asian studies at Harvard University in Cambridge, Mass., while her husband simultaneously enrolled at Harvard's Kennedy School of Government. Described as glamorous and intelligent by former classmates, Ms. Karimova-Maqsudi encountered skepticism on the generally liberal Ivy League campus about her father's human-rights and political policies. "She is very savvy" and skillfully defended those policies, said one classmate, Jonathan Phillips.

At some point, the marriage hit the rocks. The couple officially separated in July, according to Ms. Zita, the family spokeswoman.

A few days after word of the separation spread in Tashkent, a government official there telephoned the bottling company to postpone a concert of foreign and local entertainers the company had planned to sponsor in early September, bottling-company managers said. Police also began stopping Coca-Cola trucks for no apparent reason, the company officials said.

Then, last Monday at about 6 p.m., men from the Uzbek intelligence and security agency, known as the SNB, arrived at the Maqsudis' Roz Trading office in Tashkent and announced there would be a search, according to company officials. Four hours later, the security men returned with an official letter, authorizing an examination of the company's books and the confiscation of company property. The SNB took away most of the office's 20 computers, said a company official who witnessed the scene.

Meanwhile, a small army of government officials arrived at the main bottling plant in another part of Tashkent. Tax inspectors led the plant's top two managers away. Other inspectors carted off files from the company's finance, procurement and purchasing departments, according to executives who were there.

Managers of the two companies telephoned the U.S. and British embassies. (Roz Trading is registered in the Cayman Islands, a British colony.) Company employees also alerted the Maqsudi brothers, who from their Montville, N.J., office launched a lobbying blitz. The Maqsudis contacted local congressmen and the State Department.

Separately, a Coke lobbyist in Washington met with the Uzbek ambassador to the U.S., Shavkat Khamrakulov, and phoned the State and Commerce departments. Last Tuesday, U.S. diplomats in Tashkent delivered a message to the Uzbekistan Foreign Ministry that the U.S. was concerned about the situation and expected the government not to hold any of the detainees for long periods, according to people familiar with the situation.

Within 36 hours of being detained, the Maqsudi employees were released. But the scrutiny continued. An officer with the national antinarcotics force even examined the cola syrup at the plant, suggesting that he was looking for some kind of drug contamination, company officials said. Managers shut down production for about 24 hours at one point, having decided they couldn't operate under such conditions.

By Friday, production had resumed, and the multifaceted inspection was continuing during normal working hours. At the Roz Trading office in Tashkent, though, the government men left the company's ransacked computers in a heap. One senior Maqsudi employee said the officials told him they were conducting a criminal investigation but weren't more specific.

Coca-Cola officials said the American company in recent days has received a letter from Uzbek tax authorities, officially informing Coke that the bottler's books would be audited for evidence of possible violations of law.

The Coke officials stressed their desire to accommodate the Uzbek probe. "Uzbekistan is an important country for us," said the company's Mr. Bozer. "We have a good relationship with the Uzbek government, and I don't see what has happened as taking away from that."