News of a proposed $1.4 billion fine has raised the compliance stakes relating to international efforts to prevent financial crime when companies deal with foreign governments and their agencies, foreign companies and intermediaries.
In early September, Bloomberg Technology reported that Telia AB, the dominant telephone and mobile network operator in Sweden and Finland, had said in a statement that the fine had been proposed after it cooperated in a lengthy investigation under the United States' Foreign Corrupt Practices Act (FCPA).
Telia chairman Marie Ehrling admitted in the statement that the company's entry into the former Soviet republic of Uzbekistan had been "done in an unethical and wrongful way and we are prepared to take full responsibility". She said the fine was "very high" – it's equal to about 14% of Telia's annual revenue – and the company was analysing the offer while still in discussions with authorities.
In Stockholm trading in Telia's stock immediately fell 1.2%, contributing to a 12% fall since the beginning of the year. The investigation is known to have slowed down the Swedish carrier's efforts to sell its wireless business in other former Soviet countries.
The statement didn't detail Telia's offences, but under the FCPA, it is an offence to bribe public officials such as government ministers, customer officers and low-level employees of government-owned companies. The US legislation applies to US companies doing business in other countries and also non-US companies with a registered office in the US. The Telia probe was led by the US, but also involved Dutch, Swedish and Swiss authorities.
The proposed $1.4 billion fine is almost double the largest fines imposed for FCPA violations so far – the $795 million VimpelCom agreed to pay in February this year to settle graft claims relating to its dealings in Uzbekistan; and the $800 million Siemens AG paid in 2008 after pleading guilty to bribing foreign officials around the globe. Siemens also agreed to pay an additional $856 million to settle related charges in Germany.
These compliance failures demonstrate that, while bribery may be seen as a necessary part of business in countries where fines and enforcement are low, governments and regulators elsewhere are increasing prevention and punishment for offences carried out abroad.
Understanding due diligence
The Telia case is a further call to action for businesses to conduct reasonable due diligence to ensure that they and the individuals they employ, or third parties they work with do not become, involved in financial crime.
Due diligence requires an understanding of every way a business has contact with customers, suppliers, and their employees. This includes third party intermediaries that assist in some aspect of foreign business. Third parties have been involved in 90% of FCPA cases brought by the US government.
A key principle behind effective due diligence is that the level of screening and investigation on a particular entity should be adjusted depending on the perceived level of risk of corruption. This allows a company to judge what is reasonable and proportionate, noting that different types of third parties are likely to require different levels of due diligence.