Costs of Compliance Failure: Deferred Prosecution Agreement Breach

A multinational telecommunications company has pleaded guilty to breaching the anti-bribery provisions of the US Foreign Corrupt Practices Act and must pay a $206 million penalty. In this blog, we look at the judgement by the US Department of Justice, and highlight the legal, financial, reputational and strategic risks of a compliance failure. We also outline how Nexis® Solutions can help companies to improve their due diligence process to mitigate these ever-growing risks.

Major fine is the latest in a long-running investigation

The $206 million settlement was announced by the US Department of Justice (DOJ) on 2^nd March. But to understand it fully we need to go back to 2019, when the telecommunications company paid a penalty of over $520 million to resolve the US regulator’s investigation into alleged bribery of government officials and falsification of records in China, Vietnam, Indonesia, Kuwait and Djibouti.

As part of the 2019 settlement, the Sweden-based company entered into a Deferred Prosecution Agreement (DPA) with the DOJ. DPAs allow companies to defer being prosecuted if they meet certain conditions. In this instance, the conditions were:

• To “cooperate with the DOJ in any ongoing investigations”
• To “enhance its compliance program”.
• To “retain an independent compliance monitor” for three years.

Now, nearly four years later, the DOJ found that the company “breached the DPA by violating the agreement’s cooperation and disclosure provisions”. The regulator cited three main compliance failures:

• Failure to “truthfully disclose” all evidence related to the alleged bribery schemes in Djibouti and China.
• Failure to “promptly report and disclose” evidence and allegations of conduct relating to its business activities in Iraq that may also breach the Foreign Corrupt Practices Act (FCPA).
• Failure to disclose “other potential violations” of the FCPA’s anti-bribery or accounting provisions.

The outcome is that the company will now plead guilty to the original charges which had been deferred. It must also pay over $206 million in fines, and the independent compliance monitor which was imposed in 2019 will be extended by a further year.

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Greater incentives for compliance…and greater punishments for complacency

DPAs are becoming more widely used by global regulators to incentivize companies to improve their compliance and due diligence processes, and voluntarily disclose any evidence of wrongdoing uncovered by these processes. If a company is granted a DPA, it can defer a criminal conviction and may receive a reduced fine if it complies with the conditions imposed.

For example, in December 2022 the US Department of Justice announced a settlement of $160 million with a conglomerate based in the US over alleged bribery in Brazil. The regulator noted that this amount reflected a 25% reduction on the possible fine to recognize that the company proactively disclosed new evidence and subsequently strengthened its compliance program.

The US has further strengthened the incentives offered to companies for compliance and cooperation by updating its Corporate Enforcement Policy in January 2023. We are seeing the same trend across Europe – the French regulators agreed a DPA (known as a “CJIP”) with an aerospace firm in November 2022, while the UK’s Serious Fraud Office brokered three DPAs in 2021.

But this latest fine by the DOJ shows there is no room for companies to be complacent. Even if they have been awarded a DPA, they will subsequently face significant costs if they do not make genuine efforts to strengthen their compliance approach and carry out thorough due diligence on their activities and those by third parties. The same risk applies to any company, even if they are not under investigation.

Regulatory enforcements bring many kinds of cost

This case should serve as a warning that a perceived failure of due diligence or compliance exposes a company to a multiplicity of risks. This includes:

• Legal risk of the guilty plea and regulatory judgement.
• Financial risk which is reflected in the fine, and often accompanied by a loss of business contracts and/or a decline in share price.
• Strategic risk of interruption to business activities while the company is focusing on the investigation, and the need to invest further time and effort into improving compliance.
• Reputational risk of years of negative media headlines during the investigation and when the fine is announced – in this case, in influential publications like the Financial Times to CNBC.

Additional damage to this company’s reputation was inflicted by a recent statement by the US Attorney General Damian Williams. He said, “the company’s breach of its obligations under the DPA” indicate that it “did not learn its lesson, and it is now facing a steep price for its continued missteps.” Consumers, employees and investors increasingly want to work for companies that can demonstrate an ethical approach to business, and this censure from a senior US lawmaker is unlikely to instill this confidence.

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Nexis Solutions: cutting through the noise to surface insights to mitigate regulatory risks

Companies need to mitigate the legal, financial, strategic and reputational risks of a failure of regulatory compliance and due diligence. The best way to do this is by leveraging data and technology to strengthen your due diligence process. This will help you to better detect any indication of wrongdoing happening within your business or by a customer, supplier or other third party.

Nexis Solutions helps firms to implement a more efficient and effective due diligence process to identify and mitigate third party risk by providing companies with authoritative data from the most relevant sources. This includes news data, PEPs and sanctions, watch lists; ESG risk scoring; company information, and more.

We support firms to deploy technology across these sources to improve their approach to due diligence and risk management. For example:

• Nexis Diligence+™ supports an effective due diligence process with our extensive archives and news searches going back more than 40 years.
• Nexis® Data+delivers an unrivalled collection of licensed and web content, deep archives and data, through our flexible data APIs.