Richard Craig Smith, Guy Singer, John E. Kelly and Gloria Salcedo Padula
January 6, 2010
The United States Department of Justice (“DOJ”) closed out 2009 with another enforcement action involving violations of the Foreign Corrupt Practices Act (“FCPA”). On December 31, 2009, the DOJ announced that it had entered into an agreement with UTStarcom Inc. (“UTSI”) in which UTSI agreed to pay $1.5 million in fines for violating the FCPA by providing travel and “other things of value to foreign officials,” specifically, employees of state-owned telecommunications companies in the People’s Republic of China. See U.S. Department of Justice Press Release UTStarcom Inc. Agrees to Pay $1.5 Million Penalty for Acts of Foreign Bribery in China, December 31, 2009.
UTSI, a United States corporation listed on the Nasdaq, is an international telecommunications company which manufactures and sells network equipment and handsets. UTSI conducts business in China through its wholly-owned subsidiary UTStarcom China Co. Ltd. (“UTS-China”). In its announcement, the DOJ stated that UTSI acknowledged responsibility for the conduct of UTS-China and its employees, who paid for the travel expenses of Chinese officials of state-owned telecommunication companies. The trips were purportedly for training purposes at UTSI facilities in the United States, including Hawaii, Las Vegas and New York City. UTSI, however, has no facilities in these cities and conducted no training there. UTS-China nonetheless recorded these expenses as “training,” although the expenses were made to “obtain and retain lucrative telecommunications contracts.” The DOJ announcement does not specify whether UTS-China did obtain or retain these contracts, although obtaining or retaining business is not a necessary element under the anti-bribery provisions of the FCPA. The FCPA only requires that the payer makes the payment with the intent of “obtaining or retaining business” in return.
In addition to the $1.5 million fine, the agreement requires UTSI to implement strict internal controls and to fully cooperate with the DOJ. However, the agreement recognizes UTSI’s voluntary disclosure, thorough internal investigation, and remedial efforts. As a result of the above factors, the DOJ agreed not to prosecute UTSI or its subsidiaries for the violations of the FCPA. Id.
On the same date, the United States Securities and Exchange Commission (“SEC”) charged UTSI in the U.S. District Court for the Northern District of California with violations of the anti-bribery, books and records, and internal control provisions of the FCPA. UTSI, however, agreed to settle the charges by paying another $1.5 million penalty. The SEC’s complaint alleges that UTSI paid nearly $7 million in travel between 2002 and 2007 for the trips discussed above. The SEC further alleges that UTSI provided other “gifts and benefits to foreign government customers, including paying for them to attend executive training programs at U.S. universities.” According to the SEC, UTSI paid sham consultants in China and Mongolia while knowing that the payments would end up in the hands of foreign officials. See U.S. Securities and Exchange Commission Litigation Release No. 21357 SEC Charges California Telecom Company with Bribery and Other FCPA Violations, December 31, 2009.
Under the settlement agreement, UTSI also agreed to provide the SEC with annual FCPA compliance reports and certifications for four years. Id.
Richard Craig Smith
John E. Kelly
Gloria Salcedo Padula