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Not just the US: Telecom Anti-Corruption Enforcement Across Borders

By GAN Integrity

Communications technologies now permit relatively simple and inexpensive cross-border voice and data traffic. Due to the size of capital investments, the involvement of governments and governmental officials, and the significant cash flows that result from strategic (or, in some cases, monopolistic) licenses to operate, the far-ranging telecom sector has become a prime target for corrupt actors – particularly in high corruption risk regions. In response, the anti-corruption enforcement authorities of many countries have similarly been drawn to the sector. One needs only to consider the many nations touched by the current ongoing investigations of VimpelCom for alleged bribery in Uzbekistan, to observe how a single set of allegations can lead to global enforcement attention:

  • the Netherlands (location of VimpelCom headquarters),
  • Norway (through VimpelCom’s 33% shareholder Telenor),
  • Uzbekistan (through its “first daughter” Gulnara Karimova and the company affiliated to her, Takilant), and
  • the United States (since VimpelCom is listed on a US stock exchange).

Other active investigations or enforcement actions related to Uzbekistan’s telecom industry have also been reported in Switzerland, Sweden, and France. Furthermore, as one looks outside of Uzbekistan, corruption in telecom has reportedly touched many more countries – Algeria, Azerbaijan, China, Costa Rica, Germany, Greece, Haiti, Hungary, Macedonia, Malaysia, Montenegro, Russia, Vietnam, and Zambia, just to name a few.

Some of these countries have frozen illicit funds or assets, barred companies subject to allegations of corruption from bidding on public contracts, or even convicted individuals to jail time. In short, the United States is far from the only country that cares about corruption in telecommunications.

What does this mean if you are an executive of a company in the telecommunications industry?

First, prepare for foreseeable risks before entering a new market. Many allegations of corruption in the telecom industry have arisen from companies entering new telecom markets and the specific risks associated with obtaining licenses to operate and/or bidding for public contracts. Prudent companies will engage in a careful risk analysis of the business culture of and key participants within any market before entering it – and then follow up this risk analysis with a critical evaluation of the procedures and controls that need to be put in place both before entering the market and after any license or contract has been won. Consider also whether a form of collective action using an independent integrity monitor will level the playing field for all project participants and actually increase the chances of success for the government involved.

Second, know your business partners. Empirically, the majority of corrupt activities occur through third party agents. The importance of thorough, documented, and risk-appropriate due diligence on third party consultants, brokers, and other agents cannot be over-emphasized. In particular, do the agents under consideration have expertise in the telecom industry, or do they simply have political connections? Are payment arrangements transparent and consistent with normal course of business practices? Is there an objective business need to use an agent at all?

Third, know your own company. Many large telecom companies are based throughout the world but own shares in numerous other entities elsewhere – with varying levels of direction and control. Even a minority position in a subsidiary involved in wrongdoing can subject a company to scrutiny, as Norway’s Telenor learned the hard way during the VimpelCom investigation. Consider where your company operates and the scope and reach of its operations. Do you know your local management teams and the concerns (including competitive and governmental pressures) they face when operating within a given local business culture? Do employees abroad have a good working relationship with your compliance personnel and function, such that they would feel comfortable calling if there were a problem? If not, take steps to get to know your company better – and to let your employees know you and your compliance personnel better as well.

Of course, these three basic principles apply to any global company in any business sector: know the market, know your agents, and know your company. Knowledge is power, and this information may help you avoid becoming embroiled in investigations both in the US and abroad.

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