Last week, the U.S. Department of Justice announced that a subsidiary of Spanish company Telefónica S.A. agreed to pay $85.2 million to resolve an investigation into a scheme to bribe government officials in Venezuela.
The enforcement is unusual not just because there is no parallel resolution with Securities Exchange Commission, but because the amount of the fine is lower than the improper advantage that the subsidiary received. This may signal that the DOJ had other interests in mind as it pursued the case – perhaps against Chinese equipment makers.
Under Venezuela’s strict currency controls, most companies cannot exchange domestic bolivars for foreign notes; instead, they have to use a government platform that takes bolivars from local companies and pays out U.S. dollars to their foreign vendors, using a fixed official exchange rate. Because the official rate artificially values the bolivar much higher than the free-market does (and because free market exchanges are illegal), allocations under the platform are highly oversubscribed. The subsidiary, Telefónica Venezolana, improperly paid nearly $29 million to access this platform in 2014.
To do so, it needed help from two of its vendors – described by the DOJ as “multinational telecommunications equipment and systems” companies. They agreed to pad their invoices and, when paid their U.S. dollars, pass those extra funds along to a shell company that would then pay out the bribes.
The settlement documents reveal that, all in all, Telefónica Venezolana was able to exchange about 1.27 billion bolivars for $115 million. What they do not say is that, at market rates, that same sum would have cost 5.77 billion bolivars or more. Instead, they simply describe the exchange rate as “favorable.”
That favorable difference was worth at least $90 million, meaning the penalty amount does not even amount to disgorgement.
So what does the DOJ gain from this settlement, and why did it gloss over the scope of the Telefónica subsidiary’s gains?
While there may have been some sympathy for Telefónica Venezolana, which faced price controls and runaway inflation and had to take massive losses as a result, it may also have been that the DOJ was ultimately more interested in the case as a way to collect evidence about the company’s vendors.
The vendors are not identified by name, but some of the main players in Venezuela’s telecommunications sector work with Chinese suppliers. Similarly, Spanish media have reported in May that Telefónica was facing a fine from U.S. regulators with respect to Chinese vendors in Venezuela.
And the settlement documents include an interesting, seemingly extraneous detail – that employees from one of the vendors used U.S.-based email accounts in furtherance of the bribe. It is completely meaningless with respect to the Telefónica case, where jurisdiction is already clearly established; but given that many US email services are not available from Mainland China, it’s possible that these accounts were accessed while in the US – thus hinting at the jurisdictional hook needed to bring FCPA charges against that vendor.
At least one of the potential vendors has been reported to be the subject of FCPA scrutiny, and both are the targets of U.S. political ire.
To be sure, the DOJ would be brushing up against the statute of limitations, and we may yet see an announcement from the SEC. But given that these companies have been frequent targets of U.S. regulators and politicians, this enforcement might foreshadow more actions against Chinese telecom suppliers.
FCPA Compliance Consultant
Recent policy shifts and guidance from U.S. regulators have underscored the importance of implementing well-designed and effective compliance programs, especially for multinational, matrixed organizations operating in high-risk jurisdictions. With U.S. agencies actively pushing for stronger anti-corruption measures, compliance professionals face the daunting task of aligning corporate procedures with an increasingly complex and rapidly evolving regulatory landscape.
The highest levels of the U.S. government are echoing a resounding call for collaboration and cooperation—fulfilling their commitment to combat corporate crime. Notably, Deputy Attorney General Lisa O. Monaco and Assistant Attorney General Kenneth A. Polite, Jr. have been vocal advocates for anti-corruption reforms. Illustrative of their commitment, the DOJ has announced the creation of the International Corporate Anti-Bribery Initiative (ICAB). Additionally, in late 2023, the U.S. adopted the Foreign Extortion Prevention Act (FEPA) which establishes criminal liability for foreign officials who demand or receive bribes from any U.S. person or company while located in the U.S. Companies must account for this expansion of U.S. bribery law—which formerly criminalized only the offering or giving of bribes—by updating their compliance programs to address and adequately train employees on the demand-side of bribery.
With U.S. corporations paving the way with reinforcing its already robust system of accountability, multinational compliance programs must prepare to be held to the same standards for their workforces. Compliance professionals are thus challenged to enhance the management, communication, and reinforcement of anti-corruption measures amid escalating enforcement risks. Multinational compliance programs are expected to foster a ‘culture of compliance’ and establish effective, multidirectional internal communications that facilitate smooth information flow and shape employee engagement and perception of the organization’s mission, values, and culture. To achieve this objective, multinational, organizations will look to revamp their compliance programs to be more dynamic, data-driven, and deeply integrated at all levels of the organization.
Partner, Ropes & Gray
Those attending the TRACE London Forum last week enjoyed captivating talks including “Taking on Putin” by Sir William Browder (“Bill”), an accomplished investment banker and the author of Red Notice and Freezing Order, and “EVs, Energy & Microchips: How China’s Emerging Supply Chain Dominance Has the West Scrambling” by Sandy Garossino, a reporter for Canada’s National Observer. Although their topics may seem far apart, a common theme resonated across them. With mesmerizing real-life stories and eye-popping statistics, they left the audience with a better understanding of how corrupt regimes preserve their power by creating and funding distractions that stoke human rights abuses.
Bill captivated the audience with a heartfelt story of his continuing pursuit of justice for Sergei Magnitsky, his former lawyer in Russia who, while gravely ill and imprisoned without access to medical treatment, was beaten to death by several Russian Police for his investigation of corruption by Russian President Vladimir Putin and his henchmen. Largely through the efforts of Bill, 35 countries have enacted Magnitsky Acts, which empower enforcement officials to freeze the assets of kleptocrats and human rights violators.
These laws have angered, not restrained Putin. Funded by enormous sums tithed by Russian Oligarchs who fear him, Putin maintains a tight grip on power to avoid the cruel fate that he imposed on Magnitsky, Navalny, and so many others. As Bill explained, Putin’s professed motivation for invading Ukraine out of historical and patriotic necessity is a laughable ruse. Rather, Putin simply seeks to remain the apex predator in Russia’s kleptocratic food chain to avoid the alternative – ending up on the menu. Putin preserves his power by using the national treasury to fund the war in Ukraine as a distraction, so the focus and blame are on others rather than on him and his corrupt regime.
Sandy Garossino spoke of a different sort of power – electric – and used mind-boggling graphs to depict how China is a generation ahead of the West in Electric Vehicle (EV) technology, production, and supply chain fundamentals. EV batteries and solar power are the new oil, and geopolitically they could power China to essentially become OPEC 2.0. Some Western countries have blocked or slowed imports of Chinese EVs in hopes their national industries will catch up. But as Garossino points out, given the opportunity to buy a very inexpensive EV from China, consumers in the West will quickly and even happily forget that their purchase will assist in China’s human rights abuses.
Specifically, success in the global EV market will result in a continuous stream of funds for China’s government that will reinforce its confidence and its treasury, helping to fund its continuing systematic abuse and destruction of the cultures of Uigurs, Tibetans, and other minorities within China, as well as funding China’s aggression towards Taiwan and in the South China and Philippine Seas.
Like Putin, China’s leadership understands that engaging in human rights abuses are a self-preservation tactic in that they distract the people from the real challenges to be resolved. Success in the EV market also will help China’s leadership to distract the people from problems created by weak sectors in the country’s economy, especially real property and banking, and serve as a point of nationalistic pride for Chinese – all to the benefit of the current regime.
Attending the Forum last week to hear from experts how corrupt regimes maintain their grip on power was daunting but also invigorating. On the bright side, the Forum’s audience of skilled corporate compliance officers are to a person actively engaged in the struggle against human rights abuses. By ensuring their companies and colleagues comply with law and company shared values, and through their anti-bribery, anti-money laundering, sanctions, and other efforts day in and day out, compliance officers are continually working to keep resources out of the hands of those who would use or contribute them toward abusing human rights.
General Counsel