Africa's largest telecom operator, MTN, is facing mounting allegations of corruption in a deal involving Iran that could potentially damage the company's reputation and affect its expansion drive.

Istanbul-based Turkcell alleges that in 2004, MTN improperly paid South African and Iranian government officials to win an Iranian license in 2005. The license had initially been awarded to Turkcell by the Iranian authorities after a 2003 tender. Turkcell was, however, prevented from securing the license, and MTN, a South African-based telecom company that submitted a runner-up bid, secured it.

Turkcell also accuses MTN of promising Iran that MTN could deliver the South African vote at the International Atomic Energy Agency (IAEA), in support of the country's controversial nuclear program, in exchange for the GSM license. Turkcell further alleges that MTN promised and procured defense equipment for Iran otherwise prohibited by national and international laws.

These acts, Turkcell said, successfully frustrated its ability to close on the license that it had legitimately won through an international tender process.

"MTN's actions deliberately resulted in Turkcell losing its rightfully-won telecommunications opportunity and in MTN taking over the license, cause substantial direct harm to Turkcell," said Turkcell in a statement last week.

Turkcell has filed a lawsuit in the U.S. District Court for the District of Columbia against MTN, claiming not less than US$4.2 billion plus interest over MTN's alleged corrupt practices in Iran. Turkcell said it decided to file the lawsuit in the U.S. because both companies have extensive business dealings in the U.S. and because of the allegations that MTN breached international law.

MTN, has however, been issuing statements to clear its name against the allegations.

Iran is MTN's fastest-growing branch, with more than 34 million subscribers. MTN has a 49 percent share in Irancell, owned and controlled by Iran Electronic Development Co.

MTN President and CEO Sifiso Dabengwa said talks between MTN and Turkcell have broken down as a result of Turkcell's demands for damages and its threat to file a lawsuit in the U.S.

"Turkcell's threat to abuse the U.S. legal system to pressure and extort money from MTN will not succeed," said Dabengwa in a statement last week.

Dabengwa said that MTN was not the cause of Turkcell losing the license in Iran. He said Turkcell's own "failures to meet Iranian legal and commercial requirements" caused its exit from the license process.

Although MTN believes there are no legal merits to Turkcell's claims and no legal basis for the U.S. court to consider them, the company has set up an independent investigation headed by British Supreme Court Judge Lord Hoffmann in a bid to resolve the matter outside the court.

MTN said Lord Hoffmann, who was born in South Africa, is widely regarded as a preeminent legal figure in the U.K. over the past 20 years and has a strong reputation for independence.

But Turkcell has declined to cooperate with the independent investigation that MTN has set up.

Last month, Dabengwa complained that MTN was finding it difficult to move money in and out of Iran and to import network equipment to improve service levels because of the sanctions from the U.S. and the E.U. over the country's nuclear program.