Co-authored with John M. McCoy III, Chief Ethics and Compliance Officer, Senior Vice President and Deputy General Counsel at Fox Corporation
U.S. regulators continue to scrutinize the sector. Here, we summarize some recent settlements, as well as the rise of fake news in bribery and corruption.
Corruption in the technology, media, and telecoms (TMT) sector is nothing new. As Transparency International noted, in telecoms “[w]ith its high revenue generation potential, its complex technical and governance structure, and its deep interrelations between public and private sector components,” the TMT sector “is particularly vulnerable to corruption.” – Sofia Wickberg, Overview of corruption in the telecommunications sector, Transparency International U4 Anti-Corruption Resource Center (8 April 2014).
Other sector players have also felt the brunt of regulators’ scrutiny. Hollywood studios, for example, have been the focus of industry-wide investigative sweeps by the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) as recently as 2012. Indeed, although recent headline-grabbing Foreign Corrupt Practices Act (FCPA) settlements with DOJ and the SEC have involved companies in the energy and infrastructure sectors, TMT companies remain a focus for U.S. and foreign regulators, even as new challenges arise in the industry.
Four notable settlements
One recent, significant TMT FCPA enforcement action was resolved in late December 2018. The SEC announced its settlement with Polycom, Inc., a California voice and video communications products company, for US$16 million. According to the SEC, Polycom’s Chinese subsidiary used third-party distributors and agents to make illicit payments to Chinese officials in exchange for securing deals for Polycom’s products. The SEC alleged that Polycom’s use of discounts was intended to cause its channel partners to make illicit cash payments to government officials. Although Polycom maintained records of the discounts, the justifications for them were false.
DOJ and the SEC were jointly responsible for 2019’s most significant TMT FCPA matter with the US$850 million settlement entered into with the Russian company Mobile TeleSystems PJSC (MTS), which has securities traded on the New York Stock Exchange. In what was the third installment of a tripartite investigation involving two other companies (VimpelCom and Telia), the MTS settlement focused on the widespread, billion-dollar corruption scheme involving Uzbek officials. According to the SEC, MTS paid Uzbek officials over US$420 million in bribes to facilitate MTS’s entry into the Uzbek telecommunications market.
The SEC was also responsible for a third noteworthy TMT enforcement action. This one involved Juniper Networks, Inc., a California-based networking and cybersecurity solutions company. On 29 August 2019, the SEC alleged that Juniper’s Russia subsidiary secretly agreed with its third-party distributors to fund leisure trips for customers, including Russian officials. Juniper’s Chinese subsidiary was also alleged to have fabricated records to conceal leisure trips with Chinese officials. Juniper settled the matter for US$11.7 million, noting that DOJ closed its investigation without taking any action.
Finally, DOJ and the SEC ended 2019 with a billion-dollar blockbuster FCPA settlement with Swedish company Telefonaktiebolaget LM Ericsson. Ericsson admitted that its Egyptian subsidiary made US$2.1 million in improper payments to foreign officials connected with Djibouti’s state-owned telecommunications company, and also admitted to books and records and internal controls violations in Djibouti, China, Vietnam, Indonesia, and Kuwait over a number of years. In addition to agreeing to the imposition of an independent compliance monitor as part of a deferred prosecution agreement with DOJ, Ericsson agreed to pay a US$520 million criminal penalty and more than US$539 million in disgorgement and prejudgment interest to settle the SEC claims.
These cases show that U.S. regulators continue to scrutinize the TMT sector. But the illicit schemes in question followed well-recognized patterns – illicit payments made via third parties or directly to the foreign officials themselves. The salient issue of corruption and “fake news,” however, is a relatively novel one. It will require TMT companies to ensure they are not engaging in conduct that runs afoul of the FCPA or anti-corruption legislation that applies in other jurisdictions.
Fake news and anti-corruption
Below, we use the definition of “fake news” formulated by Transparency International: “false information that is deliberately spread in the public sphere.” See Niklas Kossow, “Fake news and anti-corruption,” Transparency International Anti-Corruption Helpdesk Answer (6 September 2018).
Due to its proliferation in our society, particularly through social media, commentators generally have focused on the harmful effect fake news has on anti-corruption efforts. This is mainly through discrediting anti-corruption efforts of governments and individuals through misinformation campaigns. Less discussed are the risks TMT companies face in spreading fake news for the ultimate benefit of a foreign official.
It is undisputed that fake news has value. For an embattled foreign official, weaponizing fake news and deploying it against a political opponent can serve multiple interests. Arguably it could be characterized as something “of value” in an FCPA analysis. One need only look to recent scandals to come up with scenarios where TMT companies might attract attention from anti-corruption regulators through the dissemination of fake news or engagement in other related illicit activity for a business purpose.
To give a few examples, it has been widely documented that negative front-page newspaper coverage of government corruption scandals decreases if the government increases its investment in advertising with the newspapers in question. See, for example, Rafael Di Tella and Ignacio Franceschelli, “Government Advertising and Media Coverage of Corruption Scandals,” American Economic Journal, Volume 3 (October 2011). This shows front-page coverage of Argentine government scandals decreased as government advertising expenditures increased.
Consulting and public relations companies, too, have come under scrutiny for setting up fake Twitter accounts. These are used to spread fake news about political opponents in exchange for public contracts from the protected foreign officials. Similarly, telecoms companies have faced situations where government officials have asked for internet data or mobile phone usage on political opponents in exchange for favorable treatment from government regulators. In one of the more problematic examples, the requested mobile data was allegedly used to plot a political opponent’s whereabouts in what was eventually an unsuccessful assassination attempt on his life.
General counsel have their work cut out
Before, general counsel monitored their TMT companies’ activities to ensure no illicit payments were being made, directly or indirectly, to foreign officials. Now, general counsel must ensure their companies are not unwittingly (or wittingly) involved in potentially violative conduct by creating or disseminating fake news in exchange for favorable treatment from foreign officials or regulators. Critical to mitigating risk will be ensuring that interactions with regulators are properly documented, that a process exists for reviewing content to assure accuracy and compliance with other journalistic standards, and that mechanisms are in place to remove or otherwise address fake news spread by means of a company’s platform.