This previous post  went in-depth into the Telia Foreign Corrupt Practices Act enforcement action which contemplates a net $483 million settlement (after accounting for various credits and deductions for contemplated Swedish and Dutch enforcement actions) – the 5th largest net FCPA settlement of all-time.
Set forth below are several additional issues to consider from the enforcement action.
No Books and Records Findings
Off the top of my head, I can recall only one prior instance (BNY Mellon) of an SEC FCPA enforcement action not involving books and records violations or findings. The Telia action is the second instance which is odd given that the SEC found that the “bribe payments were funneled through payments for sham lobbying and consulting services to a front company controlled by the official.”
The DOJ’s resolution documents stated:
“In or around September 2012, Swedish public television broadcast a documentary that exposed Telia’s corrupt dealings with the Foreign Official and the Shell Company in Uzbekistan, and caused Telia to initiate an internal investigation. Soon thereafter, the Swedish Prosecution Authority also opened an investigation into Telia’s corrupt dealings in Uzbekistan.”
One can assume that the U.S. FCPA inquiry began shortly thereafter.
Thus, from start to finish it appears that Telia’s FCPA scrutiny lasted approximately five years. If the DOJ and SEC want their FCPA enforcement actions to be viewed as credible and effective, it must resolve instances of FCPA scrutiny much quicker against a cooperating company. Indeed, here is what the DOJ stated about Telia’s cooperation.
“The Company received full credit for its cooperation with the Fraud Section and the Office’s investigation, including conducting a thorough internal investigation; making regular factual presentations to the Fraud Section and the Office; providing to the Fraud Section and the Office all relevant facts known to it, including information about the individuals involved in the conduct …; voluntarily assisting in making former employees available for interviews in the United States; producing documents to the Fraud Section and the Office from foreign countries in ways that were consistent with relevant foreign data privacy and security laws; and collecting, analyzing, translating, and organizing voluminous evidence and information for the Fraud Section and the Office.”
All Three Prongs of the FCPA
I don’t recall an FCPA enforcement action against a single company that invoked all three prongs (dd-1, dd-2, and dd-3) of the FCPA’s anti-bribery provisions. Yet, the DOJ’s criminal information against Telia did.
As to dd-1, between 2002 and 2007 Telia had shares traded on a U.S. exchange and was thus an “issuer.”
As to dd-2, the information alleged: “during Telia’s entry to the Uzbek telecommunications market, Telia and its subsidiaries used both U.S. citizens and U.S. companies (collectively “Telia agents”) to aid in establishing a corrupt relationship with the Foreign Official. Each Telia agent was a “domestic concern” as that term is used in the FCPA.”
As to dd-3, the information alleged: “during Telia’s entry to the Uzbek telecommunications market, at least one Telia executive sent emails in furtherance of the corrupt scheme “while in the territory of the United States” as that term is used in the FCPA.”
No Monitor, No Reporting Obligations
Given the egregiousness of the conduct in the Telia enforcement action ($331 million in bribes including allegations regarding executive management conduct including certain attempts to structure business transactions in Uzbekistan in ways to evade the FCPA), it is surprising that no monitor was imposed upon the company. Indeed, the prior VimpelCom FCPA enforcement action  based on the same alleged core conduct involved a corporate monitor.
Moreover, the Telia enforcement action imposes no post-enforcement action reporting obligation on the company whatsoever. This is rather astonishing given that seeming garden variety (compared to the allegations in the Telia action) FCPA enforcement actions (such as Las Vegas Sands and Analogic to name just a few), while not imposing a formal monitor, nevertheless impose post-enforcement action reporting obligations on the company. Indeed, in this Davis Polk press release  (the firm represented Telia), the firm gives itself a pat on the back.
“The Department of Justice also concluded that no independent compliance monitor was warranted and the resolution includes no ongoing self-reporting requirement on the state of the company’s compliance program.”
The above seems to be further to the point made in this recent post  that a troubling aspect of FCPA enforcement is inconsistent and unpredictable results.
It has been highlighted numerous times on these pages.
The root cause of many FCPA enforcement actions are foreign trade barriers and distortions. The narrative is rather simple.
- Trade barriers and distortions create bureaucracy.
- Bureaucracy creates points of contact with foreign officials.
- Points of contact with foreign officials create discretion.
- Discretion creates the opportunity for a foreign official to misuse their position by making bribe demands.
The following is not meant to excuse the conduct at issue in the Telia enforcement action, only to put it in the proper perspective.
Granted the telecommunications sector is heavily regulated in most countries, yet in the Telia enforcement action we nevertheless learn:
“Throughout the relevant period, the telecommunication industry in Uzbekistan was highly regulated by the government. Telecommunication operators in the country were regulated by the Communications and Information Agency of Uzbekistan (“ACI”), now called the State Committee for Communication, Information and Telecommunication Technologies. ACI issued the licenses, frequencies, channels, and number blocks necessary for Telia to operate in that country. Throughout the relevant period, private parties could not sell or purchase licenses, frequencies, channels, or number blocks in Uzbekistan.”
If the Uzbekistan telecom market was free of trade barriers and distortions, perhaps the conduct at issue would not have happened.
Statute of Limitations
As egregious as the Telia conduct was, there is still a thing called statute of limitations. In the words of the Supreme Court:
“Statute of limitations are intended to ‘promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared. They provide ‘security and stability to human affairs. [They] are ‘vital to the welfare of society [and] ‘even wrongdoers are entitled to assume that their sins may be forgotten.’ […] It ‘would be utterly repugnant to the genius of our laws if actions for penalties could ‘be brought at any distance of time.’”
The SEC’s enforcement action is based on allegations of conduct that occurred between 2007 – 2010 (in other words 7 – 10 years prior to the enforcement action).
Likewise, the DOJ’s enforcement action is based on allegations of conduct that occurred between 2007 -2010 (with the addition of one paragraph which alleges contemplated conduct in October 2012 that never occurred).
Kokesh Seems Not To Have Mattered
Related to the above issue, as highlighted here  in June the Supreme Court unanimously held in SEC v. Kokesh that disgorgement is a penalty and thus disgorgement actions must be commenced within five years of the date the claim accrues.
The net $208.5 million disgorgement contemplated by the SEC’s order is based on conduct well beyond five years old.
However, as highlighted in this post , Kokesh (not to mention other Supreme Court decisions and other legal principles) only matter to the extent companies under FCPA scrutiny do not roll over and play dead.
Elevate Your FCPA Research
There are several subject matter tags in this post. However, only subscribers to FCPA Professor's premium search feature can see and use them in research. Efficient and cost-effective FCPA research is just a click away.