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Issues To Consider From The VimpelCom Enforcement Action

Issues [1]This prior post went in-depth into the recent Foreign Corrupt Practices Act enforcement action against VimpelCom (and a related entity) that resulted in a net $397.5 million FCPA settlement – the 5th largest FCPA settlement amount of all-time (see here [2] for the current top-ten list).

This post highlights additional issues to consider.

Did VimpelCom Get Off Too Lightly?

The resolution documents contain numerous allegations about VimpelCom executive officers as well as various VimpelCom corporate committees that were engaged in the improper conduct. The allegations in the VimpelCom action are egregious and paint a picture of a culture of corruption at VimpelCom with high-level executives seeking legal cover at nearly every turn to facilitate the alleged bribery scheme.

Yet VimpelCom was offered a DPA, notwithstanding the fact that it did not voluntarily disclosure.

During last week’s conference call announcing the VimpelCom enforcement action (see here for the transcript [3]), Assistant Attorney General Leslie Caldwell was asked why VimpelCom was offered a DPA while Unitel LLC, a business entity headquartered and incorporated in Uzbekistan, was required to plead guilty. Caldwell generally stated that this resulted from the fact that most of the alleged improper conduct was engaged in Unitel, not VimpelCom.

Having read the DOJ’s resolution documents, I question how Ms. Cadlwell could have made this statement as the documents contain numerous allegations about VimpelCom executive officers as well as various VimpelCom corporate committees that were engaged in the improper conduct. Again, the allegations in this case are egregious and paint a picture of a culture of corruption at VimpelCom with high-level executives seeking legal cover at nearly every turn to facilitate the alleged bribery scheme.

The 2010 article “The Facade of FCPA Enforcement [4]” highlights various pillars that contribute to the facade of FCPA enforcement including how seemingly clear-cut instances of corporate bribery, per the government’s own allegations, are resolved without actual prosecuted anti-bribery violations.

VimpelCom joins other corporate FCPA enforcement actions such as BizJet International, Daimler AG and Siemens AG that also involved egregious instances of corporate bribery, yet did not result in actual prosecuted anti-bribery violations.

Was the Unitel Criminal Charge Even Viable?

A former high-ranking DOJ FCPA enforcement attorney once explained to me that the corporate FCPA resolution process often begins in reverse where the DOJ and the company agree on the end result (i.e., which corporate entity will accept responsibility) and then the negotiating parties work backwards to craft a resolution document that will be acceptable to both parties.

Indeed, the “sausage making” metaphor rightly applies to certain DOJ corporate FCPA enforcement actions as the alleged conduct at issue is “sliced and diced” in a way to yield resolution documents that avoid the potential collateral consequence of debarment from government contracting, both in the United States and elsewhere, as well as other negative collateral consequences.

When it comes to this topic, the issue in the VimpelCom enforcement action is not whether egregious bribery took place, again as stated above, it surely did. Rather the issue is the form of the resolution and whether the Unitel criminal charge was even viable.

As highlighted above, Unitel is a business entity headquartered and incorporated in Uzbekistan. In “FCPA-speak” it is thus a “person other than an issuer or domestic concern” under dd-3 and can only be subject to the FCPA’s anti-bribery provisions to the extent “while in the territory of the United States, [there is corrupt] use of the mails or any means or instrumentality of interstate commerce” in furtherance of a bribery scheme.

While the Unitel criminal information [5] does contain allegations regarding “use of the mails or any means or instrumentality of interstate commerce,” is does not contain any “while in the territory of the U.S.” allegations. Perhaps because of this, Unitel was not charged under dd-3, but rather charged with conspiracy (18 USC 371) to violate the FCPA’s anti-bribery provisions and the information specifically cites dd-1 (the statutory prong applicable to issuers).

The problem with this enforcement theory is that it conflicts with the recent decision [6] in U.S. v. Hoskins (and other decisions both in the FCPA context and otherwise) which hold that a person can not be charged with conspiring to violate a statutory provision that substantively does not apply to the person.

Where Should the Money Go?

This is not so much a legal question, but a policy question that can be asked in connection with FCPA enforcement actions against foreign companies.

Even though the global settlement announced last week involved a Dutch component, the fact remains that net $397.5 million is going into the U.S. treasury because a Bermuda company that was headquartered in Moscow, Russia until 2010 when it moved its headquarters to Amsterdam, the Netherlands (VimpelCom) and an Uzbek entity (Unitel) bribed Uzbek officials.

Against this backdrop, I will repeat what I stated in this 2010 speech [7]: when a non-U.S. company allegedly bribes non U.S. officials, I don’t know exactly where the money should go, but I am pretty sure the best answer is not the U.S. treasury.

Root Causes

An analysis of root causes in FCPA enforcement actions is not meant to excuse the conduct at issue, but rather to better understand why the conduct took place.

The root cause of the VimpelCom enforcement action appears to be that pursuant to local law, or at the very least local practice, VimpelCom needed a local partner in Uzbekistan in order to enter that market. The rest, as they say, is set forth in the resolution documents.

This again demonstrates that trade barriers and distortions are often the root causes of bribery and a reduction in bribery will not be achieved without a reduction in trade barriers and distortions.