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Telefônica Brasil Pays $4.125 Million for Hospitality-Related FCPA Violations

As the old adage provides – better late than never.  (Same applies for my somewhat tardy posting on this case).

Telefônica Brasil settled FCPA violations with the SEC for a pretty penny — $4.125 million in civil penalties in connection its hospitality program for the 2014 World Cup and 2013 Confederations Cup

According to the settlement agreement, Telefônica Brasil failed to maintain adequate internal controls over the hospitality program, which resulted in Telefônica Brasil providing tickets and hospitality to government officials who were directly involved with, or in a “position to influence, legislative actions, regulatory approvals, and business dealings involving the company.  In total, Telefônica Brasil provided World Cup tickets and hospitality to 93 government officials and Confederations Cup tickets and hospitality to 34 government officials. The tickets and hospitality were not accurately recorded in Telefônica Brasil’s books.  The SEC noted that “[t]his conduct arose in an environment in which the company failed to adequately enforce its corporate antibribery and anticorruption policies.

Telefônica Brasil is a subsidiary of a Spanish global telecommunications company and is the largest provider in Brazil.  The SEC’s jurisdiction hinged on the fact that Telefônica Brasil’s American Depositary Receipts are traded on the New York Stock Exchange.

Prior to the World Cup, Telefônica Brasil purchased a large number of tickets to the 2014 World Cup which was held in Brazil.  The stated purpose of the purchase was for “relationship-building activities with strategic audiences.”  The expenditure was approved by an executive expense committee, consisting of senior leaders.  The proposal included no mention nor analysis of providing tickets and hospitality to government officials although it was clear that tickets and hospitality would be provided to government officials.

The cost of each package, consisting of a ticket and hospitality was approximately $3200 (of which $2700 was the cost of the ticket and $500 was allocated for hospitality).  A total of 194 tickets were given to 93 government officials totaling $621,576 in expenses.  Most of the tickets were given to federal congressmen, senators, mayors and other government officials.

The year before, in 2013, Telefônica Brasil provided tickets and hospitality to attend games as part the Confederations Cup.  In March and April 2013, Telefônica Brasil provided 38 tickets and hospitality to 34 government officials at a cost of approximately $3085.

Telefônica Brasil maintained a general code of conduct that prohibited offering or accepting gifts, hospitality or other types of incentives “which may reward or influence a business decision,” as well as a policy that donations would not be made “if linked with political activity.”

However, the SEC observed that Telefônica Brasil did not have internal controls sufficient to implement or maintain these policies or procedures.  Also, Telefônica Brasil improperly recorded these transactions for general advertising and publicity purposes rather than tickets and hospitality given to government officials.

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