Background. In September 2016, Marriott acquired StarwoodHotels and Resorts Worldwide Inc. The parties closed the transaction without obtaining the Commission’s prior consent to transfer control of 65 wireless FCC licenses held by Starwood to Marriott. Section 310(d) of the Communications Act and Section 1.948 of the Commission’s Rules required the parties to secure prior consent from the FCC before closing the transaction.
Voluntary Disclosure. In February 2017, Marriott admitted to the FCC that it closed its acquisition of Starwood without obtaining the agency’s prior consent to transfer control of the various FCC radio licenses.
FCC Investigation. The Commission’s rules set forth baseline penalties for various rule violations. The baseline penalty for an unauthorized transfer of control is $8,000. In this instance, however, the various FCC licenses were held by multiple independent companies. The FCC’s rules required each entity to file separate transfer of control applications for independent approval by the FCC. No applications were filed, and the FCC took an aggressive stance. Instead of viewing this as a single violation (stemming from one large transaction), the FCC treated each application that was not filed as a separate rule violation. The FCC found multiple rule violations and, as a result, significantly increased Marriott’s financial penalty.
Resolution. Marriott agreed to pay $504,000 and implement a compliance plan to promote ongoing compliance with the FCC’s rules.
On the heels of this eye-popping settlement, it is helpful to understand a little more about the FCC’s Enforcement Procedures.
FCC Enforcement Procedures
Investigations typically are initiated by the FCC’s Enforcement Bureau after it receives a complaint, through an inspection, by a referral, or resulting from a voluntary disclosure. In this instance, Marriott voluntarily disclosed its violation directly to the FCC’s Wireless Bureau, which then referred the case to the agency’s Enforcement Bureau.
After an investigation is initiated, the Bureau typically sends the subject of the investigation a Letter of Inquiry (LOI) posing a series of questions related to the alleged violation. The recipient typically has 30 days to respond to the LOI, though it may request additional time.
If the Bureau reviews the LOI responses and believes a rule violation has occurred, it has a few options. It may: (i) take no further action; (ii) issue a Notice of Apparent Liability (NAL); or, (iii) negotiate a settlement agreement with the target company (aka a “Consent Decree”).
- NAL – Alleges a rule violation occurred, finds the recipient apparently liable for a fine or penalty (typically termed a “forfeiture” in FCC parlance).
- Consent Decree – Voluntary settlement between the LOI recipient and the FCC. A Consent Decree may require the recipient to admit wrongdoing, pay a fine to the federal government, and implement a compliance plan to guard against future rule violations.
Marriott negotiated a Consent Decree. Perhaps even more onerous than the substantial fine is the FCC-mandated compliance plan. Marriott’s Compliance plan has several burdensome components, including:
- Compliance Officer – Designate a senior corporate manager to serve as the Compliance Officer.
- Operating Procedures – Establish operating procedures that all covered employees follow to ensure compliance with the FCC’s transfer of control rules.
- Compliance Manual – Develop and distribute a compliance manual to all covered employees.
- Compliance Training Program – Establish and implement a compliance training program and train all covered employees on the FCC’s transfer of control rules within 120 days.
- Report Noncompliance – Report any noncompliance within 15 days of discovering such noncompliance.
- Compliance Report – File four periodic compliance reports with the FCC over the next three years. Each report must be certified by the Compliance Officer and provide a detailed description of the steps the company has taken to promote compliance with the FCC’s transfer of control rules.
It is never good to be in the crosshairs of the FCC’s Enforcement Bureau. And corporate transactions are ripe for potential FCC rule violations because FCC licenses are commonly overlooked by transactional teams. Since mergers and acquisitions raise unique FCC licensing issues, such transactions require heightened awareness from both parties. Only by closely tracking all FCC-licensed assets can companies involved in corporate transactions ensure compliance with all FCC requirements.