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Spot On Observations Regarding The Telefonica Brasil Enforcement Action

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Previous posts here and here discussed the SEC’s recent Foreign Corrupt Practices Act enforcement action against Telefonica Brasil (focused on the company hosting Brazilian officials at soccer matches in Brazil) as well as the many problematic issues associated with the expansive enforcement action.

The most recent edition of the always informative FCPA Update by Debevoise & Plimpton likewise takes issue which various aspects of the enforcement action. Kara Brockmeyer (the SEC’s former FCPA Unit Chief) is the lead author of the spot on article which states in pertinent part:

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The $300,000 Bogus Invoice

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[This post is part of a periodic series regarding “old” FCPA enforcement actions]

In 2001, the DOJ filed this criminal information charging Daniel Ray Rothrock (a Vice President of the Cooper Division of Allied Products Corporation with responsibility for international sales) with knowingly and willfully violating the books and records provisions of the Foreign Corrupt Practices Act.

According to the information, Cooper was engaged in the business of manufacturing and selling workover rigs and other oilfield well servicing equipment and one of its customers was RVO Zarubezhneftestroy (Nestro) and entity owned by the Russian government.

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Issues To Consider From The Telefonica Brasil Enforcement Action

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This previous post went in-depth into the recent $4.1 million FCPA enforcement action against Telefonica Brasil and this post continues the analysis by highlighting additional issues to consider.

What Is The U.S. Interest?

According to the SEC, Telefonica Brasil (a subsidiary of Spanish multinational Telefonica S.A. and the largest telecom company in Brazil with 34,000 employees and $14 billion in revenue) purchased 1,860 World Cup tickets for a total of approximately $5.1 million “for relationship-building activities with strategic audiences.”

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Further To The SEC’s Inconsistent Approach To Enforcing The FCPA’s Books And Records And Internal Controls Provisions

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I recognize that I can be a creature of habit, but when an issue – such as the SEC’s inconsistent treatment of FCPA violations – is so frequent I will keep on writing about it. So here goes the umpteenth post on this issue. (See here for other examples).

A basic rule of law principle is consistency. In other words, the same legal violation ought to be sanctioned in the same way. When the same legal violation is sanctioned in materially different ways, trust and confidence in law enforcement is diminished.

However, there sure does seem to be a lack of consistency between how the SEC resolves Foreign Corrupt Practices Act books and records and internal controls violations.

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An Instructive Example Of An FCPA Enforcement Action Having Nothing To Do With Foreign Bribery

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Conveying knowledge about the Foreign Corrupt Practices Act’s anti-bribery provisions is relatively straight-forward as there are specific elements or issues such as anything of value, foreign official, obtain or retain business, jurisdiction, facilitating payments and various affirmative defenses. Moreover, in some cases statutory definitions assist in the analysis.

Conveying knowledge about the FCPA’s other provisions – the books and records and internal controls provisions – is often more difficult because these provisions – aside from the term reasonable – are basically standardless as written. Indeed, in SEC v. Worldwide Coin the judge stated:  “The main problem with the internal accounting controls provision of the FCPA is that there are no specific standards by which to evaluate the sufficiency of controls; any evaluation is inevitably a highly subjective process in which knowledgable individuals can arrive at totally different conclusions.” Continue Reading

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