Bribery Scheme Costs Telecom Company $850 Million

24 September 2019 10:40am

risk management

The telecommunications sector has taken some hits in recent years when it comes to anti-bribery and corruption compliance. Earlier this month, the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) announced a settlement related to FCPA violations by Russia’s largest telecommunications provider, Mobile TeleSystems PJSC (MTS). The result? $850 million in penalties, forfeiture and disgorgement. Download our new factsheet on bribery and corruption risk.

Bribes to win business a losing proposition

The March settlement comes on the heels of two other significant resolutions for similar bribery schemes with officials in Uzbekistan—a $965 million resolution with Swedish company Telia in 2017 and a $795 million resolution with Netherlands-based VimpelCom Limited.

All of these cases share a common denominator on the investigation side—cooperation from regulatory authorities and enforcement agencies around the globe, including those in the Netherlands, Norway, Sweden, Switzerland, Latvia, UK, Ireland and France.

The latest case resulted from an estimated $420 million in bribes made to an Uzbek official related to the former President of Uzbekistan. The payments were disguised as acquisition costs, option payments and charitable donations.

According to Charles E. Cain, Chief of the SEC Enforcement Division’s FCPA Unit, “The company engaged in egregious misconduct for nearly a decade, secretly funneling hundreds of millions of dollars to a corrupt official.  Building business on a foundation of bribery leaves the business and American investor interests at the mercy of corrupt officials.”  
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But the cost of bribery and corruption goes beyond penalties and prosecution for those involved.

Lise Kingo, CEO & Executive Director of the UN Global Compact writes, “From legal and reputational risks, to the financial costs of corruption, to the erosion of trust among employees, shareholders and other stakeholders, there is a high risk to businesses that fail to effectively combat corruption. No company, no matter the size or the sector, is immune to corruption, and the potential for damage is considerable.”

The world pays the price for unchecked corruption

Analysis by the International Monetary Fund (IMF) has found that bribery alone costs the global economy nearly $2 trillion annually. Moreover, Transparency International’s analysis for its annual Corruption Perceptions Index finds:

  • A rise in populist leaders who use corruption as an issue to get elected, then undermine anti-corruption laws and weaken democratic institutions after gaining power.
  • A lack of effective anti-bribery and corruption mechanisms in newly-democratic countries, which leads to high levels of corruption and low performance of democratic institutions.
  • Weakening of the rule of law—in both established democracies and emerging ones.

In its 2018 release of the Corruption Perceptions Index, Transparency International reports, “Our findings suggest that strengthening institutions that provide democratic checks and balances, bridging the gap between laws and their implementation, and supporting public accountability and press freedoms, are interventions that can contribute to not only fighting corruption but also to the preservation and consolidation of  democratic institutions and norms.”

How can you combat corruption?

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