Last month, the Justice Department and Securities and Exchange Commission announced a stunning resolution under the FCPA, the Telia Company AB enforcement action. It became Number 1 on the Top Ten list of all-time FCPA settlements with a total amount of $965 million. It also had the highest amount of disgorgement at $457 million. The bribery amount was over $331 million and the corruption went up to the very top of the company. The case had several key areas for consideration by the compliance practitioner.
FCPA enforcement. While certainly the lion’s share of the work on this case was done under the prior administration, the matter provided clear guidance that under Attorney General Jeff Sessions, the Justice Department will actively and aggressively prosecute clear legal wrongdoers. For companies with systemic, wide-ranging corruption baked into their business plans, the price will be steep. Further, if there is involvement with the very top management, not only will the cost be high for the company but the risk for individuals for their personal freedom might also be put in jeopardy. Sweden is moving to prosecute the company’s former CEO, the head of the business unit where the bribery occurred, and one other senior executive.
This case also puts into perspective many of the FCPA declinations and declinations with disgorgement that were announced earlier this year. When you couple both types of declinations with some of the enforcement actions from 2016, you see the continuum of enforcement strategies and how the Justice Department and SEC make fines and penalty assessments. One of the goals of the FCPA Pilot Program was to provide greater transparency and clarity for companies regarding such decisions. The Telia case shows the spectrum involved and how major cases differ from more routine FCPA enforcement actions.
Bribery schemes. There were multiple bribery schemes involved in this case. Telia used corrupt third parties to create sham consulting contracts for which no services were delivered. This gives the compliance professional an opportunity to review your third-party agent agreements to determine several factors. First, is there a business justification, questionnaire, and due diligence in the file? Was the due diligence evaluated and were any red flags cleared? Was the relationship managed after the contract was signed? Were the services billed for delivered? Finally, did the third party execute annual attestations and certifications required under the compliance terms and conditions in the contract?
While certainly the lion’s share of the work on this case was done under the prior administration, the matter provided clear guidance that under Attorney General Jeff Sessions, the Justice Department will actively and aggressively prosecute clear legal wrongdoers.
The largest bribes were paid through the grant of an equity interest to the foreign official’s shell company in the entity doing business in Uzbekistan. Does your organization have any such arrangements, perhaps as required by local content requirements? Finally, if there is a buy-out of the local organization from the entity, is it at a pre-negotiated price, per the contract or is there an uplift?
Role of the board. Was the Telia board lied to throughout this multi-year bribery and corruption joyride by Telia senior management, were they incompetent, or something else? Whatever the reasons for the board’s failure during the entire course of the bribery scheme, it provides the compliance practitioner with a teachable moment for your board. You can educate your board that they need to provide oversight on all the high-priority, high-risk operations, such as the company’s due diligence and monitoring program for managing third-party risks. Your board needs to know about high-risk business opportunities and how the company is handling such risks.
International cooperation and one pie. This case continues the trend of literally world-wide cooperation around anti-corruption investigation. The following countries were noted in both the Justice Department and SEC press releases for aiding the U.S. enforcement effort: Sweden, Norway, Switzerland, the United Kingdom, Austria, Belgium, Cyprus, France, Ireland, the Isle of Man, Latvia, Luxembourg, Norway, Cyprus, British Virgin Islands, the Cayman Islands, and Bermuda. This cooperation has significant implications for any company that may find itself with potential corrupt acts involving bribery.
The one-pie concept of penalties also came into play again. While the conduct of Telia was obviously as egregious as it gets, the company was not whip-sawed by multiple national prosecutors. Just as there was cooperation between countries on the enforcement phase, there was cooperation on the penalty phase.
Finally, this case demonstrates the Justice Department and SEC at their finest when combatting the global scourge of bribery and corruption. Naysayers claim the United States has no interest in such prosecutions, and the Telia case shows not only the need for vigorous U.S. prosecution of bribery and corruption but also how such professionalism promotes U.S. business interests, both inside and outside the United States. All-in-all a stunning result for the prosecutors involved.