"Hold the phone" - the ball has yet to drop on the 2009 enforcement year.
Today, the DOJ and SEC announced (see here and here) resolution of an FCPA action against UTStarcom Inc. (UTSI)
The phone analogy is fitting as UTSI is a global telecommunications company that designs, manufacturers and sells network equipment and handsets.
This matter is the latest in a surge of FCPA scrutiny as to the telecommunications industry (Dec. 2009 individual indictments involving Haiti Teleco, April 2009 Latin Node, Inc. action, the Siemens matter concerned (in part) its telecommunications division, Dec. 2007 enforcement action against Lucent Technologies - among others).
According to the DOJ release, UTSI acknowledged responsibility (pursuant to a non-prosecution agreement) "for the actions of UTS-China [its wholly-owned subsidiary) and its employees and agents, who arranged and paid for employees of Chinese state-owned telecommunications companies to travel to popular tourist destinations in the United States, including Hawaii, Las Vegas and New York City."
The release notes that the "trips were purportedly for individuals to participate in training at UTSI facilities" but that "UTSI had no facilities in those locations and conducted no training." According to the release, "UTS-China then falsely recorded these trips as 'training' expenses, while the true purpose for providing these trips was to obtain and retain lucrative telecommunications contracts."
Based on this conduct, UTSI agreed to "pay a $1.5 million penalty, implement rigorous internal controls and cooperate fully with the Department."
According to the release, DOJ agreed to the non-prosecution agreement based on the company's "voluntary disclosure, thorough self-investigation of the underlying facts, the cooperation provided by the company to the Department, and the remedial efforts undertaken by the company."
In a parallel action, the SEC announced that UTSI settled FCPA anti-bribery, books and records, and internal control charges by agreeing to pay a $1.5 million penalty and provide the SEC "with annual FCPA compliance reports and certifications for four years."
According to the SEC complaint (here), "[b]etween 2002 and 2007, UTSI paid nearly $7 million for hundreds of overseas trips by employees of Chinese government-controlled telecommunications companies that were customers of UTSI, purportedly to provide customer training" when "[i]n reality, the trips were entirely or primarily for sightseeing."
The SEC's allegations are broader than the DOJ's and the complaint also notes the following:
"During the same time period, UTSI provided other gifts and benefits to foreign government customers, including paying for them to attend executive training programs at U.S. universities. UTSI also provided foreign government customers or their family members with work visas and purportedly hired them to work for UTSI in the U.S., when in reality they did no work for the company. UTSI also made payments to purported consultants in China and Mongolia who provided no documented services, under circumstances that showed a high probability that the payments would be used to bribe foreign government officials."
According to the SEC complaint, the executive training sessions "covered general management topics and were not specifically related to UTSI's products or business." The complaint further alleges that expenses in connection with these sessions included "travel, tuition, room and board, field trips to nearby tourist destinations, and a cash allowance of between $800 and $3,000 per person."
The SEC's complaint also contains this allegation as to Thailand:
"In 2004, as part of its effort to expand its business outside China, UTSI submitted a bid for a sales contract to a government-controlled telecommunications company in Thailand. While UTSI's bid was under consideration, UTSI's general manager in Thailand spent nearly $10,000 on French wine as a gift to agents of the government customer, including rare bottles that cost more than $600 each. The manager also spent $13,000 for entertainment expenses for the same customer in an attempt to secure the contract."
None of the alleged government owned or controlled telecommunications are identified and for those of you scoring at home, this is yet another FCPA anti-bribery enforcement action based on the government's untested and unchallenged legal theory that employees of alleged state-owned or state-controlled entities are "foreign officials" under the FCPA.
This is not the first time a telecommunications company has settled an FCPA enforcement action in late December based on improper travel/training benefits.
In late December 2007, Lucent Technologies Inc. settled an enforcement action based on substantively similar allegations (see here, here and here).