Approximately ten years ago, a Venezuelan telecommunications company (a wholly-owned subsidiary of a Spanish telecommunications) allegedly bribed Venezuelan officials.
The end result is a $85 million U.S. Foreign Corrupt Practices Act enforcement action against the Venezuelan telecommunications company.
The DOJ recently announced that “Telefónica Venezolana C.A. (Telefónica Venezolana), a Venezuela-based subsidiary of Telefónica S.A. (Telefónica), a publicly traded global telecommunications operator based in Spain, will pay over $85.2 million to resolve an investigation by the Justice Department into a scheme to bribe government officials in Venezuela to receive preferential access to U.S. dollars in a currency auction.
The root cause of many FCPA enforcement is a real-world business condition and in this regard the following is relevant to the Telefónica Venezolana enforcement action.
Telefónica Venezolana wanted to buy equipment from two Venezuelan subsidiaries of multinational telecommunications equipment and systems companies. However, those companies did not accept payment from Telefónica Venezolana in bolivars and instead required payment in stable currencies such as the U.S. dollar.
Problem was, Telefónica Venezolana “overwhelmingly collected payments from its customers in bolivars and developed significant bolivar reserves” but “due to strict currency controls … Telefónica Venezolana was unable to exchange its bolivar reserves for stable currencies.”
The Venezuelan government began to sponsor currency exchanges (or auctions) that allowed domestic companies in critical industries to apply to exchange Venezuelan bolivars for U.S. dollars at favorable rates and in significant quantities to enable domestic companies to import the necessary goods and equipment from suppliers that would not accept payment in Venezuelan bolivars.
In 2014, the Venezuelan government held a national currency exchange auction specifically for the telecommunications industry administered through the Central Bank of Venezuela called Sistema Complementario de Administraction de Divisas (SICAD). As alleged by the DOJ, “although called an “auction” SICAD was in fact a selective government program through which the Venezuelan government chose: (i) which companies would receive access to foreign currency at favorable exchange rates; (ii) for which purposes or goods; and (iii) if awarded, how much currency a company would be permitted to exchange.
The stage is now set for the rest of the story.
Under the heading “Overview of the Bribery Scheme,” the DOJ alleges:
“During the Relevant Period [2014-2015], Telefónica Venezolana, through certain of its officers, employees, and agents, and while acting as an agent of Telefónica, together with its co-conspirators, knowingly and willfully conspired and agreed with others to corruptly provide payments to, and for the benefit of, foreign officials in Venezuela, including Foreign Official 1 and Foreign Official 2, to secure an improper advantage and to influence those foreign officials in order to obtain and retain business by receiving preferential access to U.S. dollars in a government-sponsored currency auction that allowed Telefónica Venezolana to purchase equipment for its telecommunications network.”
Foreign Official’s 1 and 2 are both described as Venezuelan nationals “who served as a high-ranking Venezuelan government official.”
“Specifically, in or around 2014, Telefónica Venezolana participated in a currency auction in Venezuela that allowed Telefónica Venezolana to exchange Venezuelan bolivars for U.S. dollars. To ensure its success in the action, Telefónica Venezolana recruited two suppliers, Company A [a wholly-owned Venezuelan subsidiary of a multinational telecommunications equipment and systems company] and Company B [a wholly-owned Venezuelan subsidiary of another multinational telecommunications equipment and systems company], to make approximately $28,870,099 in corrupt payments to Intermediary 1 [a Venezuelan national] and Shell Company 1 [a company incorporated in Panama owned and controlled by Intermediary 1] that were intended, at least in part, to benefit Venezuelan government officials, including Foreign Official 1 and Foreign Official 2. To conceal the bribe payments, Telefónica Venezolana covered the cost of the bribes by agreeing to purchase equipment from Company A and Company B at inflated prices, using the U.S. currency obtained in the auction.
Telefónica Venezolana knew that a significant portion of the approximately $28,870,099 would be paid as a ‘commission’ that was intended, at least in part, for the benefit of Venezuelan government officials to influence the results of the currency auction. As a result of its corrupt payments, Telefónica Venezolana was permitted to exchange and subsequently received over $110 million through the currency auction, which it used to purchase equipment from Company A and Company B.
In furtherance of the scheme, Telefónica Venezolana, together with others, utilized and caused the use of means and instrumentalities of interstate commerce to communicate with each other and other individuals regarding the scheme. The conspirators also routed corrupt payments totaling more than $22 million into and out of correspondent bank accounts at financial institutions in New York, New York.
In total, in or around August 2014, the Venezuelan government awarded approximately $172,046,000 to 16 telecommunication companies as part of the currency auction. Between the two bids it corruptly orchestrated, Telefónica Venezolana received approximately 65% of the total currency awarded in the auction. Telefónica Venezolana was able to deploy those funds (less the $28,870,099 paid to Intermediary 1 though Shell Company 1) to buy network equipment from Company A and Company B and thereby continue providing telecommunications services to customers in Venezuela.”
According to the DOJ, shortly before the SICAD auction was publicly announced Executive 1 (a senior executive of Telefonica Venezolana) “was summoned to an impromptu meeting” with, among others Foreign Official 1 and Foreign Official 2 who informed Executive 1 that if Telefónica Venezolana would only be awarded U.S. dollars through the auction if it paid a commission on any funds awarded, implying that the commission would personally benefit Foreign Official 1 and Foreign Official 2.
Based on the above allegations, the DOJ charged Telefónica Venezolana with conspiracy to violate the FCPA’s anti-bribery provisions.
The criminal charge was resolved through a three year deferred prosecution agreement which sets forth the following relevant considerations.
“a. the nature and seriousness of the offense conduct … including the Company’s participation in a corrupt bribery scheme to obtain U.S. dollars through a government-run currency exchange program in Venezuela;
b. the Company did not receive voluntary disclosure credit … because it did not voluntarily and timely disclose ….;
c. the Company received credit for its cooperation …. because it cooperated with the investigation and demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct; the Company also received credit for its cooperation and remediation …. [for among other things]: (i) making regular factual presentations to the [DOJ] based on the information learned in the course of the Company’s internal investigation; (ii) voluntarily making employees based outside the United States available for interviews in the U.S.; (iii) producing a significant number of documents … while navigating foreign data privacy and related laws; (iv) collecting, analyzing, and organizing voluminous evidence and information for [the DOJ] accompanied by translations of documents; however, in the initial phase of the government’s investigation, the Company failed to timely identify, collect, produce, and disclose certain records and important information, which affected investigative efforts by the DOJ and reduced the impact of the Company’s cooperation.
d. the Company provided to the DOJ all relevant facts known to it … including information about the individuals involved in the conduct …
e. the Company also received credit … because the Company and Telefónica engaged in timely remedial measures, including (i) discipling certain employees involved in the relevant misconduct or that were otherwise made aware of the misconduct, including terminating employees; (ii) strengthening its anti-corruption compliance program by building and empowering an independent compliance function, appointing a Chief Compliance Officer with direct access to the Audit Committee of the Board of Directors, and investing in additional compliance resources throughout its global operations; (iii) overhauling its review and approval process for transaction with non-standard pricing, including by ensuring that the compliance function reviews all such transactions globally; (iv) reviewing, enhancing, and testing its broader internal controls for pricing and other transactions with the assistance of a foreign accounting firm; (v) strengthening processes for vetting, engaging, and monitoring third parties, including implementing additional controls concerning payments to third parties through a propriety software tool; and (vi) establishing risk assessment and audit processes to regularly review and upgrade the compliance program and otherwise mitigate business risks; and
f. Telefónica has committed to continuing to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth in Attachment C to this agreement.
g. Based on the Company’s and Telefónica’s remediation and the state of Telefónica’s compliance program, and the Company’s and Telefónica’s agreements to report to the DOJ as set forth in Attachment D … the DOJ has determined that an independent monitor was unnecessary;
h. the Company and Telefónica have no prior criminal history;
i. the Company and Telefonica have limited civil or regulatory enforcement matters, namely, a subsidiary of Telefonica, Telefonica Brasil S.A. resolved, without admitting or denying the charges, an action brought by the SEC in 2019 for alleged violations of the accounting provisions of the FCPA, in connection with hospitality provided to government officials for sporting events in Brazil in 2013 and 2014;
j. the Company and Telefonica have agreed to continue to cooperate with the DOJ:
k. accordingly … the DOJ has determined that the appropriate resolution of this case is a deferred prosecution agreement and a criminal penalty of $85,260,000, which reflects a discount of 20 percent off the 5th percentile of the otherwise-applicable Sentencing Guidelines fine range.”
The DPA sets forth a fine range of $101.5 million to $203 million.
In the DOJ release, Principal Deputy Assistant Attorney General Nicole Argentieri stated:
“Telefónica Venezolana bribed Venezuelan government officials to participate in a government auction through which it exchanged Venezuelan bolivars for U.S. dollars. The company concealed the illicit payments by purchasing equipment at inflated prices from two suppliers who paid the bribes on the company’s behalf. Telefónica Venezolana chose to support a corrupt regime to circumvent the difficulties of conducting legal business in Venezuela. This resolution is yet another example of the Justice Department’s commitment to fight corruption and hold companies accountable for their criminal conduct.”
U.S. Attorney Damian Williams for the Southern District of New York stated:
“Telefónica Venezolana, a subsidiary and agent of a U.S. issuer, agreed to line the pockets of corrupt Venezuelan officials to gain access to U.S. currency and maintain its position in the Venezuelan telecommunications market. Intermediaries then funneled the bribe payments through U.S. correspondent bank accounts. This office will not tolerate the use and abuse of the U.S. financial system to enrich corrupt foreign officials and those who maintain their market position by appeasing them.”
Executive Special Agent in Charge Kareem Carter of the IRS-Criminal Investigation Washington Field Office stated:
“This case is an example of the IRS Criminal Investigation (IRS-CI)’s and our law enforcement partners’ relentless effort to fight corruption and protect United States interests. We are committed to pursuing investigations into corporate fraud in an effort to protect consumers from bearing the costs associated with criminal activity.”
Executive Associate Director Katrina Berger of Homeland Security Investigations (HSI) stated:
“Telefónica Venezolana engaged in a complex and criminal financial fraud scheme, in which they bribed Venezuelan government officials to obtain access to U.S. dollars. Thanks to the cooperative efforts of HSI, IRS-CI, and the Justice Department, the perpetrators of this conspiracy will be forced to pay for their illicit actions. HSI will continue to collaborate with our law enforcement partners, at home and overseas, to investigate and bring to justice any corporations engaging in such financial crimes.”
DLA Piper attorneys Berge Setrakian and Eric Christofferson represented Telefonica.
