Comverse Technologies Inc. (CTI), a New York based provider of software for communication and billing services, resolved Foreign Corrupt Practices Act (FCPA) enforcement actions brought by the DOJ and SEC arising out of the acts of an indirectly owned overseas subsidiary and the subsidiary’s third party agent. CTI resolved the DOJ investigation via an NPA, and the SEC investigation by neither admitting nor denying the allegations contained in a civil complaint.
- The DOJ and SEC alleged (and CTI admitted in the NPA) CTI violated the FCPA’s books and records and internal controls provisions. CTI did so when it failed to prevent improper payments made by employees and a third party agent of an indirectly owned Israeli subsidiary, Comverse Limited, and recorded the bribes as legitimate commissions. The payments were made to individuals affiliated with OTE, a partially state-owned telecommunications firm in Greece, to obtain purchase orders from OTE and its subsidiaries. The books and records of Comverse Limited and its direct parent corporation, Comverse Inc., rolled up into CTI’s books and records.
- To facilitate and conceal the payments, certain Comverse Limited employees instructed the third party agent to establish an offshore entity and bank account in Cyprus, which funneled the improper payments to individuals connected to OTE, including employees of OTE subsidiaries. Comverse Limited employees made payments to the agent’s offshore entity. At the direction of Comverse Limited employees, the agent took 15% off the top of these payments and paid the remaining 85% in cash, directly or indirectly, to individuals connected to OTE. The agent’s Cyprus entity had no offices or employees and was described by the agent as “purely a money laundering operation.”
- CTI did not have adequate internal controls to detect or prevent such payments. For example, there was no third party agent due diligence process or independent review of the agent’s contract outside the sales departments.
- The NPA has a two year term and requires CTI to realize certain compliance undertakings, such as enhancing existing internal controls, and pay a $1.2 million penalty.
- The settled civil complaint requires CTI to disgorge $1.6 million in profits and prejudgment interest.
- The compliance undertakings required by the NPA are similar to those found in other recent prosecutorial agreements and are far less onerous than those found in the J&J enforcement action (see our earlier post).
- The CTI enforcement action represents yet another example of the ongoing FCPA investigations in the communications and software industries.