DOJ And SEC Bring Major FCPA Enforcement Actions Against Swedish Telecom Firm, Imposing One Of Largest FCPA Penalties In History
On September 21, 2017, the Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) announced significant enforcement actions against Telia Company AB, a Swedish telecommunications firm, for alleged violations of the Foreign Corrupt Practices Act (“FCPA”). United States v. Telia Company AB, No. 1:17-cr-00581 (S.D.N.Y. 2017); In the Matter of Telia Company AB, Admin. Proc. No. 3-18195 (September 21, 2017) (“Order”). Specifically, the DOJ charged Telia and its Uzbek subsidiary, Coscom, with conspiring to violate the anti-bribery provisions of the FCPA by offering and paying at least $330 million in bribes to a shell company in Uzbekistan under the guise of payments for lobbying and consulting services that never actually occurred, while the SEC alleged that Telia violated the anti-bribery and internal accounting controls provisions of the FCPA through the same conduct. Telia’s subsidiary Coscom pleaded guilty in U.S. District Court for the Southern District of New York; meanwhile, Telia entered into a three-year deferred prosecution agreement (“DPA”) with the DOJ, and the SEC instituted settled administrative proceedings against the company. In aggregate, Telia agreed to pay criminal penalties of approximately $548 million to resolve the DOJ charges and related charges filed by the Public Prosecution Service of the Netherlands, and agreed to pay approximately $457 million in disgorgement to settle the SEC allegations. Because of certain offsets, Telia’s total payments to the DOJ, SEC, and foreign regulators will be approximately $965 million. However, Telia was not required to engage a compliance monitor, in light of the company’s remediation and the state of its compliance program.
The allegations contained in both the DPA and the Order (together, the “Charging Documents”) are substantially similar, and describe illicit payments made to a government official in Uzbekistan. The alleged bribery scheme is similar to the scheme that was the subject of the VimpelCom enforcement action in February 2016, and involved the same government official. According to the Charging Documents, from 2007 to at least 2010, Telia paid at least $330 million in illicit payments to a government official in Uzbekistan to obtain and retain business that generated more than $2.5 billion in revenues for Telia. Initially, payments were allegedly made to enable Telia to acquire a United States-based telecommunications company which owned a subsidiary with operations in Uzbekistan—Coscom—and to enter the telecommunications market in Uzbekistan. Once Telia had established a foothold in the Uzbek telecom market, additional bribes were allegedly paid first to obtain rights to 3G frequencies, and subsequently to obtain rights to certain 4G frequencies.
According to the Charging Documents, the bribe payments were funneled through payments for sham lobbying and consulting services to a front company controlled by the foreign official. The Charging Documents also make clear that at least one executive and other members of Telia management were complicit in, or at the very least aware of, the bribery scheme. An unusually large number of facts were alleged in the Charging Documents to support jurisdiction over the foreign defendants. For example, the Order noted that “Most of the transactions with Government Official A were denominated in United States dollars, and communications concerning [the government official] were conducted, in part, using electronic mail accounts on United States-based servers.” Order ¶ 3. Similarly, the DPA noted that: (1) Telia used U.S. citizens and U.S. companies which were domestic concerns to aid in establishing a corrupt relationship with the foreign government official; (2) certain members of Telia management and Telia agents used U.S.-based email accounts in furtherance of the scheme; (3) Telia and Coscom made numerous corrupt payments that were routed through U.S. financial institutions; and (4) during Telia’s process of entering the Uzbek telecommunications market, at least one company 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. United States v. Telia Company AB, No. 1:17-cr-00581, Criminal Information, ¶¶ 15-17. These facts are indicative of the means by which the U.S. enforcement agencies can bring bribery schemes that transpire almost entirely overseas within their jurisdiction.
Pursuant to its agreement with the DOJ, Telia agreed to pay a total criminal penalty of $548,603,972, which included a $500,000 criminal fine and $40 million in criminal forfeiture that Telia agreed to pay on behalf of its Uzbek subsidiary, Coscom. The DOJ also agreed to credit the $240 million criminal penalty to be paid to the Dutch prosecutor; Telia therefore will pay $274,603,972 of the total criminal penalty to the U.S., with the remaining $240 million being paid to the Netherlands. Pursuant to its resolution with the SEC, Telia agreed to a total of $457,169,977 in disgorgement of profits and prejudgment interest. The SEC also agreed to credit the $40 million in forfeiture paid to the DOJ pursuant to the DPA. Thus, the combined total amount of criminal and civil penalties to be paid by Telia and Coscom to the U.S. and foreign authorities will be $965,773,949.
In the criminal charging documents, the DOJ stated that Telia received a 25% discount off the bottom end of the penalty range calculated using the U.S. sentencing guidelines, which represents the maximum discount available under the DOJ’s FCPA pilot program. Although this might seem surprising, based on the large value of illicit payments made as part of the bribery scheme and the lack of voluntary self-disclosure by Telia, this percentage discount is in line with recent trends suggesting that companies will generally receive a discount as long as they do not refuse to cooperate altogether with the DOJ’s and the SEC’s investigations. See Shearman & Sterling LLP, Recent Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act at 7 (July 5, 2017). In fact, the last two instances in which a company received a sanction within the Sentencing Guidelines range were the 2014 cases of Alstom and Marubeni, where the authorities alleged that neither company initially cooperated.
Telia was not required to engage a compliance monitor by either the DOJ or the SEC, in light of the company’s remediation and the state of its compliance program. This is relatively surprising, both in light of the scope of the bribery scheme and recent trends in FCPA enforcement by the DOJ. In February 2016, Andrew Weissmann, then the Chief of the DOJ’s Fraud Section, stated that the DOJ would review its approach to the use of monitors, and that year nine companies that were subject to FCPA enforcement actions saw the DOJ or the SEC impose a corporate monitor requirement as part of the sanction (VimpelCom, Olympus, Las Vegas Sands, LATAM, Och-Ziff, Embraer, Odebrecht, Braskem, and Teva). This trend appeared to be continuing in 2017, with the cases of Biomet, SQM, and Orthofix all involving the imposition of a corporate monitor. Nonetheless, the two major enforcement actions of 2017 thus far—Rolls-Royce and Telia—have not required the engagement of a compliance monitor.
Telia’s global resolution of FCPA charges represents the first major FCPA enforcement action under the Trump administration, and constitutes one of the largest penalty amounts imposed pursuant to the FCPA. The settlement also represents the most recent example of continued cooperation between U.S. regulators and foreign regulators in FCPA investigations, with penalties similarly being split between the jurisdictions involved.
The Telia enforcement actions also represent the latest FCPA matters to involve Uzbekistan. In February 2016, Amsterdam-based VimpelCom paid $795 million to resolve U.S. and Dutch charges of bribing an Uzbek official. That same month, the DOJ filed civil forfeiture actions to recover nearly $1 billion in bribe money that VimpelCom, Telia, and MTS of Russia allegedly paid to the foreign official involved in this enforcement action—Gulnara Karimova, the eldest daughter of the late Uzbek President Islam Karimov. Given that MTS has not been the subject of an FCPA enforcement action, it may well be that we have not yet seen the end of FCPA enforcement actions arising out of the Uzbek telecommunications market.