The SEC announced its first FCPA enforcement action in 2022. South Korean telecommunications company, KT Corporation, agreed to pay $6.3 million to settle FCPA violations. As part of the settlement, KT Corp. agreed to pay $3.5 million in civil penalties and $2.8 million in disgorgement.
KT Corp. is South Korea’s largest telecommunications company. KT Corp. American Depositary Shares are traded on the New York Stock Exchange and KT Corp. files periodic reports with the SEC.
KT Corp. violated the FCPA’s books and records and internal accounting controls provisions stemming from its activities in South Korea and Vietnam. As explained in the SEC’s Order, KT lacked sufficient internal accounting controls over its expenses, which resulted in KT Corp. managers and executives generating slush funds for illegal purposes. Additionally, KT Corp. failed to adopt anti-corruption policies and procedures with respect to donations, employment candidates, vendors, subcontractors or third-party agents. As a result, KT Corp. employees were able to provide improper benefits to government officials and potential government customers.
The SEC’s enforcement action followed two criminal prosecutions in South Korea: the first in 2014 against KT Corp’s President for embezzlement; and in November 2021, against KT Corp. and 14 of its executives for illegal political contributions.
As explained in the SEC Order, between 2009 and 2018, KT Corp. made improper payments to government officials in South Korean and Vietnam. In South Korea, KT Corp. executives maintained a large slush fund from which they paid for entertainment and gifts to members of the National Assembly. In Vietnam, KT Corp. employees gave money to third-parties connected to Vietnam government officials to secure contracts to construct a solar power cell power system and to supply vocational colleges with hardware and software.
All of these payments, in Korea and Vietnam, were mischaracterized on KT Corp’s books and records. In total, KT Corp. mischaracterized $11.2 million in expenses and earned illegal profits of approximately $2.3 million.
As part of the settlement, KT Corp. agreed to submit a report every six months to the SEC on the status of remediation of its anti-corruption compliance program for a term of two years.
KT Corp. did not self-report the violations and cooperated with the SEC’s investigation. As part of its remediation, KT Corp. terminated several employees responsible for the misconduct; and enhanced its accounting controls and ethics and compliance program, including enhancement of its code of conduct and policies and procedures concerning expenses, and increased training on anti-bribery issues. KT Corp. continues to remediate its process around anti-corruption risk assessments, its audit program and other internal accounting controls relating to third-parties.