Commentary: When there’s smoke in compliance

Corporate compliance programs must protect against costly violations of the Foreign Corrupt Practices Act.

   The recent announcement that telecommunications giant Mobile TeleSystems (MTS) agreed to pay a penalty of $850 million to the U.S. Justice Department and Securities and Exchange Commission to settle allegations of violating the Foreign Corrupt Practices Act should be a constant reminder to U.S. companies’ compliance organizations to constantly and carefully mind the activities of their overseas subsidiaries and affiliates.
   Although MTS is a Russian-based company, it was still accountable to the FCPA due to its listing on the New York Stock Exchange.
   MTS voluntarily disclosed to the SEC that its business in Uzbekistan from 2004 to mid-2012 was positively influenced by $420 million in bribery payments made to an Uzbek official with influence over the country’s selection of telecommunication services providers. MTS reportedly generated more than $2.4 billion from the deal when it exited the Uzbek market in 2016.
   The Uzbek official and MTS employees involved in the misconduct used a variety of means to hide the money trail, including hiding them among acquisition costs, option payments, purchases of regulatory assets and charitable donations.
   MTS was not alone in this Uzbek bribery foray. Two other companies paid hefty fines for FCPA violations in Uzbekistan, including VimpelCom ($795 million) of the Netherlands in 2016 and Telia ($965 million) of Sweden in 2018.
   Bribing government officials to obtain business is an egregious illegal act that can land companies and their executives significant federal government fines and penalties and possible jail time, as well as subject them to haunting, negative publicity in the media. 
   During my more than 35 years as an export compliance consultant to numerous American companies, I’ve always advocated the notion that when there’s smoke in one area of compliance, you might find fires in others. 
   Many U.S. multinationals, especially those with competitive overseas sales and distribution operations, run the risk of having foreign managers or staff who don’t believe that U.S. regulations apply to them. These individuals may find noncompliant ways to re-export U.S.-made items to individuals and entities, including governments, in countries that are otherwise subject to strict U.S. export licensing. Thus, bribes may enter the export equation.
   Effective internal accounting controls are not only good policy, they are required by law for publicly traded companies. When business executives engage in bribery and payoffs to obtain contracts, an uneven marketplace emerges and honest competitors are disadvantaged. FCPA cases demonstrate how loose controls and an anemic compliance environment can foster foreign bribery and fraud by a company’s overseas subsidiaries. 
   Companies and institutes must invest in a culture of compliance, appoint qualified compliance personnel, grant the proper authority to the compliance officer and provide global training/education throughout the organization.
   Those individuals in charge of corporate compliance should not only constantly monitor and audit their export transactions for wrongdoing, but include necessary checks of financial records for anomalies that may be “red flags” that bribery has occurred. 

   DiVecchio, principal of Boston-based DiVecchio & Associates, has provided export compliance consulting services to U.S. exporters for more than 35 years. He may be reached by email at pauldivec@earthlink.net.