Today, I conclude my exploration of the VimpelCom Foreign Corrupt Practices Act (FCPA) enforcement action. As I said yesterday, this case will be studied for some time as a textbook example of bribery schemes used intentionally by a company to defraud its shareholders and circumvent the law. Indeed with the conduct seemingly going high up into the senior management ranks both with VimpelCom and its Uzbeki subsidiary Unitel LLC (Unitel) one might rightly ask how the company was able to secure such a favorable deal and why no individuals were prosecuted?
It would certainly seem that if Frederic Bourke was prosecuted and went to jail for conscious avoidance, the Board of Directors of VimpelCom engaged in similarly serious conduct. I suppose you might argue that they were deceived just like everyone else by the bribery schemes but given the higher duty of a Board member, one might think that would lead to higher scrutiny of transactions the Board itself recognized as high risk. The same would be true for all the other individuals identified in the resolution documents. VimpelCom may well be thanking their lucky stars that this case did not arise after the implementation of the Yates Memo, when the company would have been required to turn over all investigative materials on all Board members, executives, senior managers and others who were involved in the various bribery schemes.
The next issue is the amount of the overall penalty assessed against the company. VimpelCom itself received a Deferred Prosecution Agreement (DPA). Its subsidiary Unitel did plead guilty to one criminal count and for both parties conduct. The DPA noted that VimpelCom “received full cooperation and remediation credit of 25% for its substantial cooperation with the [DOJ]” and “received additional credit of 20% for its prompt acknowledgement of wrongdoing by Company personnel after being informed by the Offices of their criminal investigation, and the Company’s willingness to resolve promptly its criminal liability on an expedited basis”. Finally, VimpelCom did engage in extensive remediation so perhaps the answer is simply staring us in the face that even if you do not self-report a FCPA violation, the Department of Justice (DOJ) will give a significant discount if you immediately accept your criminal guilt and aggressively move towards remediation. Here I can only say kudos to the counsel involved in both the investigation and remediation. Perhaps it should be double kudos.
In addition to the other systemic issues I have discussed in previous posts, there is the issue of opinion of counsel letter, which VimpelCom both strategically used internally to justify its bribery schemes and then tried to use with the government as a defense to its bribery scheme. Generally put, if you have an opinion of counsel letter saying something is not a violation of the law, it should help to defeat any claim of intent, as required for a criminal FCPA finding. However, if your company hides facts it knows from your counsel that is prima facie case of intent and indeed may actually be proof of your criminal intent.
Even if you are not concerned about the criminal intent element, if you seek an opinion of counsel letter to demonstrate you have engaged in requisite due diligence, this is also sadly lacking. The management of third parties, such as the agents and resellers used by Unitel in this case, requires a full five-step process. It begins with a business justification, then questionnaires accurately and fully completed by the third party. Further, it must specifically identify both owners and beneficial owners. Next you must engage in an appropriate level of due diligence for the risk ranking and this due diligence must be evaluated. Thereafter a contract must be put in place with full compliance terms and conditions, specifically including audit rights. Finally, you have to manage the contract after it is executed. That means you must wed the contract requirements to the services delivered. None of these five steps were present in Unitel’s relationship with the foreign official
The other thing about an opinion of counsel letter is that it is no good if it is just plain wrong. BNP Paribas tried to rely on an opinion counsel letter to defend its money laundering operations in negotiation with the government. The company paid a $8.9 bn fine for its illegal acts which had been blessed in an opinion of counsel letter. Simply put, if the outside counsel gets it wrong; either because you failed to provide the facts known to your company or if the lawyers are simply negligent in rendering an opinion, the opinion of counsel letter is not worth the price of the paper it is written on.
Finally, for any outside counsel who might be reading this blog post, your obligation is to do more than simply take the facts presented by you as the gospel truth. If you do accept the facts presented, such as there are no government officials as owners or beneficial owners of a proposed third party partner, without performing some modicum of appropriate level of due diligence, you may open yourself up to a malpractice claim.
While I am on the subject of lawyers, a word about the VimpelCom in-house counsel who most likely committed criminal acts by limiting the information presented to outside counsel to fraudulently obtain a favorable opinion of counsel that the transaction passed FCPA muster. This is one of very few FCPA enforcement actions where company counsel was an active part of the bribery scheme. Assuming this lawyer is not located in the United States does not in any way ameliorate this conduct. I hope the appropriate bar organization or legal society where that lawyer practices is looking quite closely at his or her conduct.
Having questioned the final resolution and bashed the lawyers involved; let me end with a few words about how the system worked. This case was a stunning development in the area of multi-jurisdictional cooperation and investigation. The DOJ Press Release publicly thanked, “law enforcement colleagues within the PPS [Public Prosecution Service of the Netherlands], the Swedish Prosecution Authority, the Office of the Attorney General in Switzerland and the Corruption Prevention and Combating Bureau in Latvia, as well as Belgium, France, Ireland, Luxembourg, Norway and the United Kingdom.”
There are still other companies, which may be prosecuted for the corruption in Uzbekistan telecom industry. Further, the ill-gotten gains for the foreign officials involved in the corruption is being sought out as well. The DOJ Press Release also noted, “seeking forfeiture of $550 million held in Swiss bank accounts which represent proceeds of illegal bribes paid, or property involved in the laundering of those payments, to the Uzbek official by VimpelCom and two other telecommunications companies operating in Uzbekistan. A previous complaint filed by DOJ seeks $300 million in proceeds of illegal bribes paid, or property involved in the laundering of those payments, by these companies to the same Uzbek official.”
Both the DOJ and Securities and Exchange Commission (SEC) are to be commended for concluding this matter. There were several other US government agencies involved, including the Inland Revenue Service – Criminal Investigation (IRS-CI), the IRS Global Illicit Financial Team, and Homeland Security Investigations (HIS), who assisted in the investigation.
The ramification of what began in 2005 in Uzbekistan may be with us all for some time.
Having questioned the final resolution and bashed the lawyers involved; let me end with a few words about how the system worked.Click to tweet
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© Thomas R. Fox, 2016