17 October 2017

Settlements in brief: record-breaking Telia case shows cross-border cooperation

Enforcement actions by criminal and supervisory authorities are settled regularly. In light of these developments, companies are advised to take appropriate measures. This month we highlight Telia Company’s USD 965 million settlement with Dutch, US and Swedish authorities. This settlement – the highest FCPA enforcement action to date – demonstrates that the Dutch Public Prosecution Service intends to meet its goal to increase its focus on domestic and foreign anti-corruption and anti-bribery enforcement. The settlement also provides a clear example of cross-border cooperation between various authorities.

This article also looks at the fines imposed by the AFM on two ABN AMRO entities for allegedly failing to timely report financial transactions under the Financial Supervision Act, as well as the settlement of Cartier parent company Richemont with the OFAC. These settlements demonstrate the need for an adequate compliance programme with regard to sanctions regulations and relevant risks for companies when doing business with foreign clients. Finally, we discuss Alere’s settlement in the US concerning bribery and accounting fraud charges.

Telia Company settles with Dutch, US and Swedish authorities for major FCPA and Dutch legislation violations

Following our In context article of November 2016, Stockholm-based telecommunications provider Telia Company entered into a global settlement with the U.S. Department of Justice (DOJ), the U.S. Securities and Exchange Commission (SEC), the Dutch Public Prosecution Service (DPPS) and the Swedish Prosecution Authority (SPA). According to multiple press releases from the various authorities, Telia violated the FCPA and Dutch legislation by making corrupt payments of approximately USD 330 million to win business in Uzbekistan. The overall settlement to be paid is more than USD 965 million, consisting of fines and disgorgements to the SEC, the DOJ, the DPPS and the SPA. The amount of the fine is USD 548 million, to be divided equally between the DOJ and the DPPS. The disgorgement consists of USD 457 million. Of that amount, USD 40 million is to be paid as a forfeiture to the DOJ. The remainder will be divided between the SEC, Sweden and the Netherlands.

According to the DOJ, Telia’s cooperation in the investigation and its implementation of remedial measures were taken into account by the authorities. Based on the company’s remediation and the state of its compliance programme, the authorities determined that, unlike Vimpelcom, an independent compliance monitor was unnecessary; for more information, see the DOJ’s deferred prosecution agreement.

The Telia settlement is part of a broader investigation into Vimpelcom (see In context March 2016) and Takilant Ltd, a shell company in Gibraltar. According to the DPPS, the criminal investigation revealed that from 2007 to 2010, Telia Company allegedly paid more than USD 314 million in bribes to Takilant, through three Dutch subsidiaries. Takilant was beneficially owned by a foreign official, Gulnara Karimova, the eldest daughter of former Uzbek president Islom Karimov, who controlled the Uzbek telecommunications market. Her approval was necessary to operate on the Uzbek market. Last year, the Amsterdam District Court ordered Takilant to forfeit EUR 123 million and pay a EUR 1.6 million fine.

The Telia Company settlement demonstrates the DPPS’s intent to meet its goal of increasing its focus on domestic and foreign anti-corruption and anti-bribery enforcement., as well as furthering cross-border cooperation between the different authorities. The Telia Company settlement ranks highest in FCPA enforcement actions to date. And the investigation into individuals continues: the DPPS is currently looking at the role certain individuals allegedly played in the corruption, and is sharing information from its investigation with countries where individuals can be prosecuted. We will continue to monitor this case and keep you informed.

 

Two ABN AMRO entities fined for failing to timely report transactions to Dutch supervisor AFM

The Netherlands Authority for the Financial Markets (AFM) has imposed two administrative fines of EUR 500,000 and EUR 400,000 to, respectively, ABN AMRO Bank N.V. (ABN AMRO) and ABN AMRO Clearing Bank N.V. (ABN AMRO Clearing). Both entities failed to timely report certain transactions to the AFM, in violation of provisions of the Financial Markets Supervision Act (Wft).

Based on applicable legislation, an investment company that carries out transactions in financial instruments which are admitted to trade on a regulated market must report these transactions as soon as possible – by the end of the next working day at the latest – to the AFM. The AFM uses this information to detect market abuse.

ABN AMRO did not report 86,796 transactions between February 2010 and July 2015. After an AFM audit in November 2010, the AFM gave ABN AMRO instructions on how to improve its reporting of transactions under the Wft. According to the penalty decisions of the AFM, ABN AMRO should have completed the improvement by 1 January 2013. The AFM  decided to fine ABN AMRO for violation of the reporting duty as from that date. The violation of ABN AMRO Clearing concerns the failure to timely report 11,911 transactions between September 2014 and April 2016.

In issuing the fine, the AFM took into consideration the fact that ABN AMRO detected the violation itself and self-reported the violation to the AFM. Furthermore, ABN AMRO has fully cooperated with the AFM’s investigation and has since improved its system of transaction reporting, resulting in a system of full reporting. For this reason, the AFM decided to lower the fine from the base amount of EUR 500,000 to EUR 400,000. The AFM found no reason to lower the fine of ABN AMRO Clearing, considering that Clearing omitted to timely report transactions for the second time, after having received a clear first warning from the AFM in April 2015. Additionally, it was the German supervisor for the financial markets BaFIN that alerted Clearing to the failure of reporting certain transactions. AFM thus imposed a fine of EUR 500,000 on ABN AMRO Clearing. Neither entity lodged objections to the fines. These fine amounts have therefore become final.

It is very important for companies (particularly investment companies) to pay attention to the duty to timely report financial transactions under the Wft. If this duty is violated, companies should consider self-reporting the omission to the AFM.

 

Cartier parent company Richemont settles violations of drug kingpin sanctions

Richemont, the New York-headquartered parent company of luxury brand Cartier, has reached a settlement with the U.S. Office of Foreign Assets Control (OFAC) on 26 September 2017 for allegedly shipping jewellery to a Hong Kong-based company which is on the OFAC List of Specially Designated Nationals and Blocked Persons (the SDN list) as of November 2008. Richemont has agreed to pay USD 334,800 to the OFAC. Between October 2010 and April 2011, Richemont allegedly violated the Foreign Narcotics Kingpin Sanctions Regulations by exporting four shipments of jewellery to the Hong Kong-based company. According to the OFAC, the information and documentation provided by the individual buyer contained the same name, address, and country location for the Hong Kong-based company as appears on the SDN list; however, Richemont did not identify any sanctions-related issues.

According to OFAC, there were several aggravating factors, including Richemont’s failure to voluntarily self-disclose the alleged violations or exercise the minimal degree of caution or care with respect to the conduct that led to the apparent violations. Prior to shipping the goods, the company should have identified the sanctions-related issues relevant for the transaction. According to OFAC, Richemont should have realised that it was an entity doing business in an industry with a high risk of money laundering and, therefore, it had a duty to “exercise a minimal degree of caution or care with respect to the conduct that led to the apparent violations”.

This settlement highlights the need for companies doing business with countries or customers located outside the US to pay close attention to the relevant sanctions regulations. In order to avoid breaching sanctions against countries or customers subject to a sanctions regime or listed on the SDN list, it is important to have adequate sanctions compliance and risk policies in place.

 

Alere settles with the SEC for USD 13 million to resolve accounting fraud and FCPA offences

Massachusetts-based medical manufacturer Alere reached an agreement with the SEC on 28 September 2017 to pay more than USD 13 million to settle bribery and accounting fraud charges. The settlement consists of two components: a disgorgement of more than USD 3.3 million, plus an interest of almost USD 500 thousand and a penalty of USD 9.2 million.

Between 2011 and 2016, Alere allegedly engaged in improper premature recognition of revenue, resulting in a breach of general accepted accounting principles. The size of improperly booked transactions ranges from USD 25,000 to USD 2 million. Furthermore, Alere’s Colombian subsidiary is accused of improperly booking payments of approximately USD 275,000 to a government official in its books and records between 2011 and 2013. Additionally, Alere’s Indian subsidiary is also accused of improperly recording payments made by a distributor in its books and records. The Indian subsidiary allegedly paid local government officials a four percent commission through the distributor to encourage government officials to increase the order of medical testing kids from 200,000 kits to one million kits. The alleged improper payments made by Alere’s subsidiaries are said to have led to a profit of approximately USD 3.3 million. Alere is accused of failing to maintain a well-functioning internal control system.

Not only does this case illustrate the importance of proper financial accounting and compliance with general accepted accounting principles, it also illustrates the importance of maintaining a well-functioning internal control system. This could have prevented the improper payments made by Alere’s subsidiaries or could have led to early interference from Alere.