On September 21, 2017, US authorities announced the third largest global resolution of violations of the Foreign Corrupt Practices Act (“FCPA”). The Department of Justice (“DOJ”), the Securities and Exchange Commission (“SEC”), and Dutch authorities entered into a $965 million resolution with Swedish telecommunications firm Telia Company, AB. The DOJ investigation was handled by the Fraud Section of the Department’s Criminal Division along with the United States Attorney’s Office for the Southern District of New York (“SDNY”).
Telia’s resolution was based on corrupt payments it made to a government official in Uzbekistan related to Telia’s efforts to move into the Uzbekistan telecommunications market through its acquisition of Uzbek telecommunications operator Coscom. Coscom was charged with and pleaded guilty to conspiring to make corrupt payments in violation of the FCPA. Bribery payments to this same government official were the focus of the $795 million FCPA resolution by Amsterdam-based telecommunications company VimpelCom with US and Dutch authorities in 2016, as well as simultaneous DOJ civil forfeiture complaints seeking $850 million held in European banks.
Significantly, the Telia resolution is the first major corporate FCPA resolution for DOJ under the Trump administration, and reflects consistency with prior administrations’ approach to global anti-corruption enforcement, although the resolution differs from the VimpelCom resolution in not requiring Telia to retain a corporate monitor. The resolution also offers further evidence of how DOJ intends to work with foreign partners in multi-jurisdictional enforcement efforts. The SEC resolution is particularly notable for its aggressive assertion of SEC jurisdiction over a foreign company that de-registered as a US issuer nearly a decade ago, and for Telia’s disgorgement of ill-gotten profits based on conduct that occurred largely before the otherwise applicable statute of limitations period. In addition, the Telia resolution, like many corporate resolutions before it, was not accompanied by an announcement of US charges against the individuals involved, though reports indicate that Swedish authorities have charged three former Telia executives. The lack of US charges shows the difficulties faced by US investigators in obtaining timely evidence against high-ranking individuals in corporate cases, particularly when the relevant conduct occurred primarily abroad and when American investigators must work cooperatively with foreign law enforcement counterparts.
As part of the global resolution, Telia admitted that, between 2007 and 2010, it paid at least $330 million in bribes to an Uzbek government official to obtain and retain business that generated more than $2.5 billion in revenues. Telia made these bribe payments to allow it to enter the Uzbekistan telecommunications market by acquiring Coscom, an Uzbek telecommunications operator then owned by a US company, and by obtaining government-controlled licenses, frequencies, and number blocks necessary for Telia’s operation.
The bribery payments were concealed as lobbying or consulting payments and were funneled through Takilant, a company controlled by the government official and another third party. As set forth in the resolution documents:
- In 2007, a Telia subsidiary provided Takilant with $80 million in exchange for the government official providing Telia with government-regulated assets, such as licenses, frequencies, and number blocks, as well as assistance with regulatory matters. At the same time, Takilant paid the subsidiary $50 million for a 26% ownership stake in Coscom. It was understood that the net result of the transactions was an effective payment to the government official of $30 million and the 26% stake in Coscom.
- The agreement also included a put option that guaranteed Takilant the right to sell its ownership stake back to Telia in 2010 for a minimum of $85 million, which essentially guaranteed Takilant a $35 million profit. In fact, when Takilant exercised that option for its interest in just 20% of Coscom, Telia paid Takilant $220 million for the shares – well more than the $85 million guarantee and over 340% of the $50 million value paid by Takilant just three years earlier.
- Telia paid a $9.2 million bribe to Takilant to facilitate Coscom’s acquisition of a number of series and network codes, as well as to continue to conduct business in Uzbekistan.
- Finally, Telia paid $15 million of a debt Takilant owed to a third-party and an additional $55 million directly to Takilant to acquire government-regulated 4G licenses and a fiber-optic lease agreement.
As part of the resolution, Telia entered into a deferred prosecution agreement with DOJ and Coscom agreed to plead guilty to conspiracy to violate the FCPA. Telia also consented to the entry of a ceaseand-desist order by the SEC. The $965 million global resolution consists of $548.6 million in criminal penalties and $457 million in disgorgement and interest. The disgorgement amount will be offset by $40 million that the company is forfeiting to DOJ and by an additional up to $208.5 million that may be disgorged to Swedish and/or Dutch authorities. The criminal penalties will be offset by up to $274 million in criminal penalties to be paid to Dutch authorities. Although the resolution imposed significant financial penalties, it did not impose a compliance monitorship, which is often a feature of major corporate resolutions.
This resolution is significant for a number of reasons:
First Major DOJ Corporate Resolution of Trump Administration. The Telia resolution is the first major corporate resolution by the DOJ under the Trump Administration. After a record number of enforcement actions last year, the first three quarters of the new administration have been comparatively slow, with only a handful of enforcement actions to date. It is important not to read too much into the terms of the resolution, given that the case was under investigation long before the administration transition and given that the heads of both the DOJ Criminal Division and the SDNY US Attorney’s Office are acting career officials. Nonetheless, the structure and rationale behind the resolution are broadly consistent with prior practices, signaling that, at least for the moment, the key FCPA enforcement agencies are continuing the enforcement practices of the last two administrations.
As with many of the corporate resolutions announced in 2016, the DPA expressly set forth its calculations in reaching the applicable fine amount – calculations it has included in recent corporate resolutions as a way to improve transparency in the penalties that DOJ seeks. The announcement here may indicate that DOJ will continue to apply similar factors in determining criminal penalty amounts as it did over the last year. Here, the nearly $550 million criminal fine reflects a discount of 25% off the bottom of the otherwise applicable US Sentencing Guidelines fine range to account for the company’s cooperation; extensive remedial measures, including terminating personnel involved in the misconduct and enhancing the company’s compliance program and internal controls; and the company’s lack of a prior criminal history.
One significant difference from the VimpelCom resolution is that the DPA does not impose a requirement for Telia to retain a corporate monitor. The VimpelCom resolution required the company to retain a monitor for three years. The Telia DPA, however, states that “based on the Company’s remediation and the state of its compliance program, the Fraud Section and the [US Attorney’s] Office determined that an independent compliance monitor was unnecessary.” Although it is possible that this difference reflects changed thinking at DOJ about the costs and benefits of corporate monitorships, here as well it is important not to read too much into the available facts. The misconduct set forth in the Telia statement of facts ended largely in 2010, or seven years prior to the resolution, giving the company a comparatively lengthy period of time to respond to compliance deficiencies discovered during the investigation and an opportunity to argue that a monitorship was not necessary. By contrast, there was a substantially shorter lapse of time between the conduct at issue in VimpelCom and the resolution of that case.
Global Resolution. The settlement also reflects the continued pattern of global resolutions in which US authorities cooperate with foreign enforcement authorities and enter into an agreement with the defendant company that apportions liability among multiple relevant jurisdictions. US authorities, including officials from the new administration, have lauded these resolutions as a way to streamline anticorruption enforcement and encourage cooperation by offenders. At the same time, these resolutions benefit the companies involved because DOJ typically agrees to offset a certain percentage of US penalties to account for penalties paid to foreign enforcement authorities for the same conduct. In this case, Telia was granted a reduction of up to 50% off the otherwise applicable US criminal fine to account for penalties assessed by Dutch authorities, and the same discount from the SEC disgorgement amount to account for disgorgement to the Dutch and Swedish authorities. (A similar formula was used in the VimpelCom resolution.) The resolution thus reflects that DOJ continues to act in accordance with its prior policies in this area.
In recent speeches, senior DOJ officials have also suggested that such offsets may in the future not be afforded to companies that choose not to cooperate with investigations, or that engage in “forum shopping.” Because Telia cooperated with the investigation, this resolution does not implicate the first suggestion. Telia was also afforded offsets despite a failure to self-report the misconduct, indicating that a mere failure to self-report misconduct does not constitute “forum-shopping” as envisioned by the DOJ remarks. For more, please see "DOJ Must Beware Unintended Consequences, as Multilateral Settlements Rise," Global Investigations Review (2017) by David Bitkower, Nicholas Barnaby and Marguerite Moeller.
Aggressive SEC Theory of Jurisdiction. The SEC asserted jurisdiction over Telia based on the company’s registration as a United States issuer in 2002 upon its merger with Sonera Corporation. Telia issued and maintained a class of publicly traded securities until September 5, 2007, a period which overlapped with the alleged corrupt payments for only a short period of time. Telia nonetheless agreed to entry of the SEC’s order.
The resolution also included a significant disgorgement to the SEC for conduct that occurred almost entirely prior to 2012, or before the otherwise applicable statute of limitations period. In Kokesh v. SEC, the Supreme Court recently held that SEC claims for disgorgement are subject to the five-year statute of limitations set forth in 28 U.S.C. § 2462. Telia’s agreement to disgorge funds from more than five years ago – and the fact that the investigation has been open for some time – may indicate that the company signed an agreement to waive the statute of limitations. Companies often sign such agreements as part of the negotiation process with DOJ and the SEC. The Telia resolution may thus serve as an example of why the Kokesh decision, unless it is extended, may not have a decisive effect on SEC disgorgement penalties in large-scale corporate cases.
Individual Prosecutions. Finally, the Telia resolution is notable because it was not accompanied by the announcement of any US charges for the individuals involved, although reports indicate that Swedish authorities have brought charges against several former employees of the company, including the former Chief Executive Officer. In 2015, then-Deputy Attorney General Sally Yates announced a policy emphasizing the need to prioritize prosecutions of individuals in cases involving corporate crime. And just two weeks ago, the current Deputy Attorney General, Rod Rosenstein, indicated that he planned to review that policy, also with an eye toward emphasizing individual accountability. But despite this emphasis, there have been a number of recent corporate resolution announcements, particularly in FCPA cases, that thus far have not been followed by an announcement of charges against individual defendants. This divergence is further evidence of the difficulties faced by US investigators in obtaining timely evidence against high-ranking individuals in corporate cases, particularly when the relevant conduct occurred primarily abroad and when American investigators must work cooperatively with foreign law enforcement counterparts.