Lessons Learned and Trends from MTS FCPA Enforcement Action and Criminal Indictment of Karimova and Akhmedov (Part III of III)

The MTS FCPA enforcement action stands as one of several significant prosecutions in FCPA history.  The breadth and depth of MTS’ corruption scheme stands as another example of systemic bribery cultures.  The details of the enforcement action underscore several important trends and enforcement policies.  Let’s review some of the more significant lessons learned and trends.

Application of FCPA Corporate Enforcement Policy: MTS was not able to earn any benefits under the FCPA Corporate Enforcement Policy for a variety of reasons.  First, MTS did not voluntarily disclose its conduct. In fact, DOJ initiated the investigation after sending an inquiry to MTS based on information learned during the VimpelCom and Telia Sonera investigations.  Second, MTS failed to fully cooperate and delayed responding to requests and producing information to DOJ and the SEC.  Third, MTS’ remediation efforts wewre deficient and it failed to discipline senior executives involved in the conduct.

Individual Prosecutions:  The indictment of Karimova and Akhmedov reflects DOJ’s increased focus on individual prosecutions.  This is not surprising because this was the objective of the Yates Memorandum and the FCPA Corporate Enforcement Policy.  Last year, there was a significant uptick in individual criminal prosecutions, and so far, DOJ is on a pace to increase individual prosecutions this year.  The Cognizant prosecution of the former president and general counsel was an important prosecution, and the prosecution of noptorious corrupt official  Karimova shows that DOJ is dedicating more time and effort in prosecuting individual violators.

Culture, Culture and Culture:  The factual statement surrounding the MTS scandal shows that during an eight year period, 2004 to 2012, MTS was committed to a systemic bribery scheme to advance its telecommunications business in Uzbekistan.  When the new MTS executive properly raised concerns about financial transactions with Karimova-controlled shell companies, the MTS executive was isolated and contained.  Similarly, when the due diligence report confirmed or raised risks associated with these shell companies, MTS executives suppressed the information and failed to disclose such information to a US law firm retained to review the transaction and to the board in reviewing and approving the transactions.  MTS’ culture was built on a culture of bribery and MTS ignored important controls requiring senior management and board review of transactions.

United States Jurisdiction:  MTS fell under DOJ and SEC prosecution for three basic reasons:  (1) MTS traded stock on a US stock exchange and filed SEC reports; (2) MTS actors used email accounts based in US servers; and (3) Many of MTS’ illegal bribery payments traveled through US-based correspondent accounts.  Aside from the SEC jurisdiction, the two prongs for US jurisdiction, demonstrate the aggressive approach and dangers of minimal US contact resulting in US jurisdiction under the FCPA.  There is no evidence to suggest that MTS officials “knew” that they were using email accounts housed on US servers nor is there any evidence that they knew that financial transactions traveled through US-based correspondent banks.

Adherence to Internal Controls:  On paper, MTS apparently had compliance and accounting controls governing acquisitions, as well as charitable and sponsorship payments.  Notwithstanding these policies and controls, MTS executives ignored or circumvented these policies.  This course of conduct begs the question of where were the enforcers, the gatekeepers and internal actors with authority to prevent improper transactions?  In the end, a culture of bribery trumped written internal controls and no one from the board, senior management or legal/compliance appeared to stop the suspect transactions.

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