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“Offensive” Use Of The FCPA

Ordinarily, companies are in a defensive position when it comes to the Foreign Corrupt Practices Act.

However, in this new era, the FCPA is increasingly being used “offensively” to achieve a business objective or to further advance a litigating position.  Previous posts here [1], here [2], and here [3] have explored various examples of this dynamic.

The latest example of “offensive” use of the FCPA, as highlighted here [4] by the on-line news agency Main Justice, is in connection with the fight between Dish Network and Tokyo-based SoftBank for Sprint Nextel, the nation’s No. 3 wireless carrier.

As noted here [5], “in a letter submitted to the Federal Communications Commission, which is reviewing SoftBank’s $20 billion deal to acquire 70 percent of Sprint, Dish draws attention” to the 2009 FCPA enforcement action against UTStarcom.  (See here [6] for the prior post).

As noted in the prior post, UTStarcom agreed to pay $3 million via a DOJ non-prosecution agreement and an SEC civil settlement “for the actions of UTS-China [its wholly-owned subsidiary) and its employees and agents, who arranged and paid for employees of Chinese state-owned telecommunications companies to travel to popular tourist destinations in the United States, including Hawaii, Las Vegas and New York City.”  According to the DOJ, it agreed to the non-prosecution agreement based on the company’s “voluntary disclosure, thorough self-investigation of the underlying facts, the cooperation provided by the company to the Department, and the remedial efforts undertaken by the company.”  The SEC’s complaint also included allegations that the company: (i) “provided other gifts and benefits to foreign government customers, including paying for them to attend executive training programs at U.S. universities,” (ii) provided “foreign government customers or their family members with work visas and purportedly hir[ing] them to work for [the company] in the U.S., when in reality they did no work for the company,” and (iii) made payments to purported consultants in China and Mongolia who provided no documented services, under circumstances that showed a high probability that the payments would be used to bribe foreign government officials.”

The asserted connection between the 2009 FCPA enforcement action and the battle for Sprint?

Why of course, Softbank’s founder Masayoshi Son was on the board of UTStarcom during certain time periods relevant to the conduct at issue in the FCPA enforcement action.

In this [7] letter to the FCC, Dish asserted that the 2009 UTStarcom enforcement action “is relevant to the public interest analysis of the proposed transaction, and that it is incumbent upon … SoftBank to provide a full explanation of these matters.”

In this reply [8] Softbank stated that the UTStarcom enforcement action is not relevant to the proposed transaction.  In pertinent part, the letter states as follows.

“Those settlements do not involve SoftBank or Mr. Masayoshi Son, Chairman and CEO of SoftBank. The settlement documents do not name, implicate, or otherwise relate to SoftBank or Mr. Son, and are legally and factually irrelevant to this proceeding.”

“DISH suggests that these settlements raise a potential issue in this proceeding because Mr. Son at one time served as the Chairman of the Board ofUTSI.  Neither the DoJ or SEC settlement documents, however, even mention SoftBank or Mr. Son. This is hardly surprising. Mr. Son was not an operating officer of UTSI at any time and the alleged violations came to light years after Mr. Son left the Board, which he did in 2004. The FCPA-related misconduct, according to the settlement documents, involved an executive of the company’s Chinese subsidiary, UTStarcom China Co., Ltd.”

In this [9] reply DISH stated, in pertinent part, as follows.

“The ties between SoftBank, Mr. Son, and UTSI, which at minimum raise the question of whether Softbank was in control of UTSI during the relevant period, make SoftBank’s assertion that the non-prosecution agreement does “not relate to” either SoftBank or Mr. Son difficult to believe.”

“In light of the close involvement of SoftBank and Mr. Son with UTSI, SoftBank’s effort to discount the relevance of UTSI’s admitted misconduct appears misguided. SoftBank would better aid the Commission’s evaluation of its applications by providing additional information. For example, who were the employees of the government-controlled telecommunications companies who were the beneficiaries of the admitted misconduct? With what agencies or departments of the Chinese government were they affiliated? Were they involved in regulation of the telecommunications sector?”

The current era of FCPA enforcement has long tentacles. And with increasing frequency, the “offensive use” of the FCPA is one of them.