Ericsson, KT Provide Lessons on FCPA Compliance for Telecoms Industry, Law Firm Says
The failures of Telefonaktiebolaget LM Ericsson and Korea Telecommunications Corporation (KT) provide poignant lessons on how to beef up protection against corruption risks, particularly within the telecommunications sector, lawyers at Hogan Lovells said in an analysis posted on the firm's website Oct. 11. The sector "is particularly vulnerable to corruption," meaning compliance functions must look to "double down on their efforts to ensure that robust and efficient processes" are implemented and stress-tested, the post said.
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Partners Crispin Rapinet and Liam Naidoo, senior associate Reuben Vandercruyssen and associate Nick Roper looked at Ericsson's and KT's violations of the Foreign Corrupt Practices Act. In 2019, Ericsson admitted to illegal payments to secure government contracts and collusion to falsify its records, leading to a $1 billion settlement. In February this year, the company further said an internal investigation revealed it may have been making payments to the Islamic State in Iraq since 2011. An SEC investigation is ongoing.
KT also entered into a settlement with the SEC after allegations it violated the FCPA by making payments and sending bonuses and gifts to government officials in Korea and Vietnam to secure government contracts. One element of KT's FCPA failure was a lack of sufficient internal controls to monitor the illegal operations, the lawyers noted. Hogan Lovells said these cases "serve as useful case studies of practices to avoid."
The telecom sector faces high risks for companies looking to obtain licenses for new contracts in "developing jurisdictions." Ericsson's case shows the need to "prioritise compliance over the desire to obtain first mover advantage by engaging in corrupt practices," while KT's situation shows the issues surrounding "insufficient oversight and monitoring to identify corruption," the firm said.
"Compliance functions must double down on their efforts to ensure that robust and efficient processes and practices are not only implemented, but are also frequently stress-tested and critically reviewed to prevent and detect instances of bribery and corruption," the post said. "... Compliance functions need to react, and quickly so, to this changing and challenging landscape. Any failure to do so is likely to be an expensive oversight, both financially and reputationally."