UTStarcom settles Chinese bribery claims for US$3m

US-based network equipment maker UTStarcom has been fined US$3 million for bribing employees at state-owned telecommunications firms in China.

The fine includes payments of US$1.5 million each to the US Department of Justice (DoJ) and Securities and Exchange Commission (SEC). According to a complaint filed by the SEC, a wholly-owned Chinese subsidiary of UTStarcom paid close to US$7 million between 2002 and 2007 for hundreds of trips for employees of state-owned telecommunications companies in China who were UTStarcom’s customers.

The trips, which included popular US tourist destinations such as Hawaii, Las Vegas, and New York, were supposedly for training purposes, and were recorded as such in UTStarcom’s financial accounts, according to the DoJ. However, the company did not have any facilities in the said locations, and conducted no training. The true purpose of these trips, according to the agencies, was sightseeing, and for UTStarcom to obtain and keep lucrative supply contracts.

The SEC has also alleged that UTStarcom gave lavish gifts and all-expenses paid executive training trips in the US for existing and potential customers in China and Thailand. The company also hired, and provided them with work visas, individuals who were affiliated with foreign state-own companies that were customers. In reality, the individuals did no work for UTStarcom. The California-based company also made improper payments to sham consultants in China and Mongolia, with the knowledge that funds would eventually be used to bribe foreign government officials.

“UTStarcom spent millions of dollars on illegal bribes to win and keep customers in Asia. It is important for corporate America to recognise that resorting to these methods of boosting profits contributes to a culture of corruption that cannot be condoned under US law,” said Marc Fagel, director of the SEC’s San Francisco office.

As part of an agreement, which did not require the company to admit or deny the wrongdoings, UTStarcom will also be required to implement stronger internal controls, and will be required to make annual FCPA (Foreign Corrupt Practices Act) compliance reports to the SEC. The DoJ said it has taken into account the fact that UTStarcom internally investigated and then self-disclosed the violation, cooperated with a probe by the department, and undertook remedial actions. Because of this, the agency said it will not prosecute the company or its subsidiaries for making the improper payments, provided it continues to satisfy the terms of the agreement.