California-based telecoms equipment maker UTStarcom Inc. agreed today to pay the Justice Department $1.5 million in criminal fines and the SEC an additional $1.5 in penalties to resolve Foreign Corrupt Practices Act violations in China and Thailand.
Its employees, according to the DOJ’s release, “arranged and paid for employees of Chinese state-owned telecommunications companies to travel to popular tourist destinations in the United States, including Hawaii, Las Vegas and New York City.” Although the trips were supposed to be for training at UTSI facilities, UTSI had no facilities in the destinations and conducted no training. The company’s China subsidiary falsely recorded “training” expenses” when the purpose was actually ” to obtain and retain lucrative telecommunications contracts.”
The SEC’s complaint, filed in the Northern District of California, alleged that UTStarcom spent nearly $7 million between 2002 and 2007 on “lavish gifts and all-expenses paid executive training programs in the U.S. for existing and potential foreign government customers in China and Thailand.” The company also made improper payments to sham consultants in China and Mongolia while knowing that they would pay bribes to foreign government officials. As examples of the antibribery offenses, the SEC complaint alleged that:
On at least ten occasions between 2001 and 2005, UTSI provided or offered full time employment with UTSI in the U.S., including salaries and other benefits, to employees of government customers or their family members in China and Thailand. These offers were made for the purpose of obtaining or retaining business from the customers.
The complaint also said:
While UTSI’s bid was under consideration, UTSI’s general manager in Thailand spent nearly $10,000 on French wine as a gift to agents of the government customer, including rare bottles that cost more than $600 each. The manager also spent $13,000 for entertainment expenses for the same customer in an attempt to secure the contract.
The SEC charged the company with violating the antibribery, books and records, and internal controls provisions of the FCPA (Sections 30A, 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934).
The DOJ said it gave UTStarcom a non-prosecution agreement because of the company’s “voluntary disclosure, thorough self-investigation of the underlying conduct, the cooperation provided by the company to the Department, and the remedial efforts undertaken by the company.”
The case began in 2005 when the U.S. Embassy in Mongolia sent the DOJ allegations that bribes were paid or offered on the company’s behalf to a Mongolian government official. The company launched an internal investigation in 2006 into possible illegal payments in China and Thailand and self-disclosed to the DOJ and SEC. It later said violations may have occurred in Mongolia, Southeast Asia, India, and China.
UTStarcom designs, manufactures and sells network equipment and handsets. It was founded in 1991 by Hongliang Lu, a Chinese-born, U.S.-educated entrepreneur. The company’s manufacturing and most of its large customers are in China.
UTStarcom, Inc. trades on Nasdaq under the symbol UTSI.
View a copy of the Justice Department’s December 31, 2009 release here.
Download a copy of the DOJ’s December 31, 2009 non-prosecution agreement here.
View a copy of the SEC’s Litigation Release No. 21357 and Auditing Enforcement Release No. 3093 (December 31, 2009) here.
Download a copy of the complaint in Securities and Exchange Commission v. UTStarcom, Inc., Case No. CV-09-6094 (JSW) (N.D. Cal. filed Dec. 31, 2009) here.