Today, lessons learned. Over the past several blog posts, I have taken a deep dive into the Telia Company AB (Telia) Foreign Corrupt Practices Act (FCPA) enforcement action. Anytime you have new No. 1 in the all-time FCPA enforcement list, it is stunning result. Both the FCPA total penalty and the amount of profit disgorgement agreed to by Telia were new records in the FCPA Blog Top 10 list. One very large kudos is due the Department of Justice (DOJ), Securities and Exchange Commission (SEC) and numerous other foreign regulators, prosecutors and investigators for putting this matter together for resolution. Today I would like to conclude this series with some of the lessons to be learned from the matter for the compliance practitioner.

There were multiple resolution documents filed or made public. The SEC settled via a Cease and Desist Order (Order). The SEC issued a Press Release. The DOJ issued an Information (Telia Information) and a Deferred Prosecution Agreement (Telia DPA), both for Telia and issued an Information and DPA for Coscom LLC (Coscom Information), a Plea Agreement and also issued a Press Release. The breadth and scope of Telia’s illegal conduct was about as far-ranging as one could imagine.

FCPA Enforcement

While certainly the lion share of the work on this case was done under the prior administration, the fact that it was not announced until some nine months into the current administration gives some clear guidance that the DOJ under Attorney General Sessions will actively and aggressively prosecute clear legal wrong doers. Frankly, you will not see a case more clearly than the Telia matter. For companies with systemic, wide-ranging corruption baked into to their business plans, the price will be stiff. Further if there is involvement with the very top management, as was demonstrated in this case, the cost will not only be high for the company but the risk for individuals for their personal freedom can also be put in jeopardy. Sweden is moving to prosecute the company’s former Chief Executive Officer (CEO), the head of the business unit where the bribery occurred and one other senior executive.

This case also puts into perspective many of the FCPA declinations and declinations with disgorgement which were announced earlier this year. When you couple both types of declinations with some of the enforcement actions from 2016, you see the continuum of enforcement strategies and how the DOJ and SEC make fines and penalty assessments. One of the goals of the FCPA Pilot Program was to provide greater transparency and clarity for companies regarding such decisions. The Telia case shows the spectrum involved and how major cases differ from more routine FCPA enforcement actions.

Bribery Schemes

There were multiple bribery schemes involved in this case. Telia used corrupt third parties to create sham consulting contracts for which no services were delivered. This gives the compliance professional an opportunity to review your third-party agent agreements to determine several factors. First, is there a business justification, questionnaire and due diligence in the file? Was the due diligence evaluated and were any red flags cleared? Was the relationship managed after the contract was signed? Were the services billed for delivered? Finally, did the third party execute annual attestations and certifications required under the compliance terms and conditions in the contract?

The highest amount of bribes were paid through the grant of an equity interest to the foreign official’s shell company in the entity doing business in Uzbekistan. Does your organization have any such arrangements, perhaps as required by local content requirements? Is the local organization meeting its contractual requirements? Finally, if there is a buy-out of the local organization from the entity, is it at a pre-negotiated price, per the contract or is there an uplift? If so, what is the business justification for the uplift?

There were a couple of ‘small’ bribes paid out in this case. One for $9.2MM and one for $2MM. Given the massive ongoing fraud, these amounts were almost lost in the shuffle. Perhaps they were simply taken out of petty cash. Whatever their source, you should use this opportunity to see who has access to petty cash in high-risk or emerging markets in your organization. Also, it would be a propitious time to check not only the spending authorization limits of such persons but also the internal controls around such authorizations.

Role of the Board

Was the Telia Board lied to throughout this multi-year bribery and corruption joy ride by Telia senior management, were they incompetent or something else? Whatever the reasons for the Board’s failure during the entire course of the bribery scheme, it provides the compliance practitioner with a teachable moment for your Board. You can educate your Board that they need to provide oversight on all the high-priority, high-risk operations, such as the company’s due diligence and monitoring program for managing third-party risks. In a high-risk area, such as Uzbekistan, the Board should inquire into the due diligence that was conducted, how any red flags were resolved, and then outline the risk mitigation strategies. Your Board needs to know about high-risk business opportunities and how the company is handling such risks.

International Cooperation and One Pie

This case continues the trend of literally world-wide cooperation around anti-corruption investigation. The following countries were noted in both the DOJ and SEC Press Releases for aiding the US enforcement effort: Sweden, Norway, Switzerland, the UK, Austria, Belgium, Cyprus, France, Ireland, the Isle of Man, Latvia, Luxembourg, Norway, Cyprus, British Virgin Islands, the Cayman Islands and Bermuda. Truly world-wide cooperation.

This cooperation has significant implications for any company which may find itself with potential FCPA, UK Bribery Act or similar legal violations. You will need to consider a simultaneous self-disclosure since there is such robust cooperation now. It will mean cooperation with a variety of law enforcement organizations literally across the globe. Also, this leads to the next point on the one pie concept.

As noted in the DOJ Press Release, the one pie concept of penalties also came into play again, as “In related proceedings, Telia reached a settlement with the U.S. Securities and Exchange Commission (“SEC”) and the Public Prosecution Service of the Netherlands (“PPS”). Under the terms of its civil resolution with the SEC, Telia agreed to pay $457,169,977 in disgorgement of profits and prejudgment interest. Finally, Telia agreed to pay the PPS a criminal penalty of $274 million, which, together with the criminal penalty paid to the United States, yields total criminal penalties of $548,603,972.”

While the conduct of Telia was obviously as egregious as it gets, the company has not been whip sawed by multiple national prosecutors. Indeed, as noted in the citation above, there has been cooperation between countries on the penalty phase, with the US giving credit for penalties available under the US Sentencing Guidelines to payments to other countries. However, to garner this one pie, the company must fully cooperate with all involved, which Telia apparently did.

Finally, this case demonstrates the DOJ and SEC at their finest when combatting the global scourge of bribery and corruption. Naysayers claim the US has no interest in such prosecutions and the Telia case shows not only the need for vigorous US prosecution of bribery and corruption but also how such professionalism promotes US business interests, both inside and outside the US. All-in-all a stunning result for all the prosecutors involved.


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© Thomas R. Fox, 2017