UTStarcom to Pay Fine for China Bribery
IP-based networking equipment maker UTStarcom said it agreed to pay a $3 million penalty to the Securities and Exchange Commission and the Department of Justice over bribes paid in China. The case, filed in the U.S. District Court for the Northern District of California, is another wake-up call for U.S. companies to comply with the Foreign Corrupt Practices Act (FCPA), SEC officials said in an interview.
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Though the SEC didn’t identify the Chinese companies involved, staff attorney Steven Buchholz said they were among UTStarcom’s largest customers in China, a crucial market for UTStarcom. The company has for the past decade sold equipment to three of China’s biggest government-owned telecom companies, according to news releases: China Netcom, China Telecom and China Mobile. UTStarcom’s subsidiary in China paid for sightseeing trips and accounted for the entire cost as training expense, Buchholz said. On many trips, the employees of customers visited popular tourist destinations where UTStarcom had no facilities, and no training was done, he said. Between 2002 and 2007, UTStarcom spent up to $7 million on about 225 trips for customers’ employees under training provisions in systems and contracts, a court filing said. Little documentation of the trips was kept, and the company didn’t have adequate internal controls to determine whether trips were actually for training, the SEC said.
Offering sightseeing trips in exchange for contracts isn’t new in the telecom sector in countries like China, Buchholz said, citing Lucent Technology’s violation of the FCPA before it was acquired by Alcatel. Lucent was accused of involvement in bribery from 2000 to 2003. The wrongdoing was said to include inviting Chinese company and government officials for free sightseeing in the U.S. in exchange for telecom equipment projects. Alcatel-Lucent agreed to settle the case by paying $2.5 million in fines.
Regardless of how the conduct would be treated elsewhere, U.S. public companies engaging in bribery and improperly using payments of any kind have to be held accountable under U.S. law, Buchholz said. U.S. companies have become more sensitized to the need for FCPA compliance programs, said Michael Dicke, associate director of the SEC’s San Francisco regional office.
UTStarcom was satisfied with the settlement because it had spent significant time and energy to resolve the matter, a spokeswoman said. The company can now concentrate on its growth opportunities, she said. The SEC further alleged that UTStarcom provided lavish gifts and all-expenses-paid executive training programs in the U.S. for actual and potential foreign-government customers in China and Thailand. UTStarcom also was said to have hired people affiliated with foreign government customers to work in the U.S. and provided them with work visas, when they didn’t actually work for the company. The SEC also said UTStarcom made improper payments to sham consultants in China and Mongolia, knowing they would pay bribes to foreign government officials.