FCPA Enforcement Targets Telecommunications Sector
Kelley Drye Client Advisory
Telecommunications companies have been frequent targets for enforcement actions under the Foreign Corrupt Practices Act (“FCPA”), the U.S. anti-bribery and anti-corruption statute, and the pace and aggressiveness of enforcement is increasing. The FCPA intends to deter and punish bribes paid to foreign officials to obtain or secure business opportunities abroad. Because telecom companies frequently compete for foreign government contracts, and foreign government officials play key roles in the administration of domestic telecommunications industries, the structure of the industry creates heightened FCPA compliance risks. Moreover, under the FCPA, payments to officials of state owned enterprises can often be considered subject to the FCPA, increasing the scope of potential violations and penalties significantly. It appears that the enforcement agencies believe they have sent enforcement messages to the industry many times and they now appear to be running out of patience. Companies should take this opportunity to step back and evaluate their programs objectively to identify and mitigate these risks. This Kelley Drye Client Advisory provides key information you should know about the FCPA.
Increased enforcement of FCPA violations
Last year, enforcement reached record levels. The telecommunications sector continues to be a major target for the Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) for enforcement actions, including September’s $965.7 million settlement with Swedish company Telia and the $795 million settlement with VimpelCom Limited.
The agencies have clear instructions to refocus on targeting senior directors and officers for individual sanctions as a method of encouraging better company compliance. For example, the former CEO of Magyar Telekom was fined and barred for five years from serving as an officer or director of an SEC registrant, and a former director of Cinergy Telecommunications was sentenced to time served and three years of supervised release – highlighting increased personal risk for senior personnel of telecom companies.
FCPA jurisdiction applies broadly, including outside the U.S. in many cases
The FCPA applies to situations in which: 1) a covered individual or entity; 2) makes or promises to make a corrupt payment; 3) to a foreign official. The agencies interpret all of these elements broadly and very little contact with the U.S. economy is required to trigger jurisdiction. Telecommunications traffic routed to or from the United States, emails that touch U.S. servers, transactions in dollars and other small steps have been cited by the agencies as sufficient to bring an enforcement action.
Covered individuals and entities are issuers (companies traded on a U.S. exchange), domestic concerns (citizens, nationals, or residents of the U.S., and business entities principally located in the U.S. or organized under U.S. laws), and any other person or entity acting while in the U.S. Again, crucially, the actions of employees, agents, and other personnel affiliated with issuers and domestic concerns can create FCPA liability even if undertaken entirely outside of the U.S. The majority of the activity sanctioned in the Telia and VimpelCom settlements occurred wholly outside of the U.S.
A payment may include anything of value, including providing expensive meals, entertainment, or travel, as well as direct or indirect monetary payments. Many enforcement cases involve third party intermediaries, some who claim special access to decision makers. There is not technically a minimum value; the critical question is whether the payment would “influence” a foreign official. Therefore, there is a practical de minimis threshold, though it is determined on a case-by-case basis.
A foreign official is an officer or employee of a foreign government, including any agency or instrumentality thereof. This can include senior officials as well as more junior employees.
Companies can mitigate risk with compliance programs
The best protection against FCPA risk, as well as the best defense against an FCPA violation, is the adoption and implementation of a robust FCPA compliance program. The agencies are less likely to punish actions when companies have effective compliance programs and the violation is inadvertent, or occurred despite a solid compliance program. Telecom companies without an up to date compliance program are taking a real risk in the current environment. The best programs have buy-in and involvement from key senior personnel within the organization and include training, a review process, diligence regarding third parties in international deals, and reporting elements to preserve a culture of compliance and to detect and remediate any potential compliance gaps. Prevention and detection of risky payments is also key.
Kelley Drye’s Communications and International Trade groups are highly experienced in this area and are available to discuss whether your company’s compliance program is adequate to the particular risks your company faces. Please contact the authors below, or your usual Kelley Drye contact for more information.