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South Korean Telecom Agrees $6.3m Settlement with SEC Over Bribe Allegations

Financial Crime Knowledge & Training

South Korea’s largest telecom provider is to pay $6.3m to settle a US Securities and Exchange Commission (SEC) action over alleged bribes.

KT Corp, which is publicly traded and listed on the New York Stock Exchange, engaged in multiple schemes to make improper payments in Korea and Vietnam, the regulator said. These actions violated the Foreign Corrupt Practices Act (FCPA), which aims to prevent the bribing of government officials of foreign countries and requires companies to maintain reasonable record keeping practices. 

Between 2009-2017, weak accounting controls enabled KT Corp executives to create slush funds made up of charitable donations, third-party payments, executive bonuses and gift card purchases, the SEC said. These were used for gifts and bribes to government officials in Korea and Vietnam to influence business decisions.

The Wall Street Journal reports that KT Corp has about 22 million mobile, 14 million fixed-line, and 9 million internet subscribers throughout Asia, Africa, Europe and the Americas. It recently fired some employees and enhanced its controls.

KT Corp agreed to the SEC’s order without admitting or denying that it violated the books and records and internal accounting controls provisions of the Securities Exchange Act of 1934. It will pay $3.5m in civil penalties and $2.8min disgorgement. It has been ordered to report its progress to the SEC over the next two years.

In November 2021, South Korean authorities indicted KT Corp and 14 executives for criminal violations related to illegal political contributions from the slush funds.

Typology of Concern: Bribery and Corruption

In our State of Financial Crime 2022 survey, bribery and corruption was the typology firms told us they’re most concerned about when submitting suspicious activity reports – it was chosen by 42% of respondents. 

For nearly a decade, KT Corp failed to implement sufficient internal accounting controls with respect to key aspects of its business operations, while at the same time lacking relevant anti-corruption policies or procedures and enabling bribery and corruption. 

The illegal contributions to South Korean and Vietnamese officials in this case highlights the importance of conducting appropriate due diligence on Politically Exposed Persons (PEPs) and Relatives & Close Associates (RCAs).

Given the potential penalties, firms should also be aware of their FCPA risk exposure. Any company that has dealings with foreign officials should consider FCPA compliance as a priority and take steps to ensure that employees operate in accordance with the legislation. 

A key takeaway for firms is the importance of sound internal controls and processes – particularly relating to higher-risk businesses like charities, and third parties where the final destination of money may be unclear or less transparent. Firms need to keep these processes up to date and ensure they are fit for purpose. 

Clear anti-corruption policies should be documented in line with the firm’s wider risk-based approach, taking into account the geographies and markets that they operate in. This then needs to be clearly communicated via regular training and updated as risks change over time. 

Firms should consider instigating a whistleblower program to enable employees to flag erroneous behavior by colleagues. This is also a reminder of the importance of a firm’s wider culture in relation to transparency and risk management. 

Finally, this case highlights how something that may not appear to be directly related to  financial crime – e.g. accounting controls – can open up financial crime risks when there are no checks and balances or controls in place.

Uncover details about the State of Financial Crime in 2022 in our new guide.

South Korea’s largest telecom provider is to pay $6.3m to settle a US Securities and Exchange Commission (SEC) action over alleged bribes. KT Corp, which is publicly traded and listed on the New York Stock Exchange, engaged in multiple schemes to make improper payments in Korea and Vietnam, the regulator said. These actions violated the Foreign Corrupt Practices Act (FCPA), which aims to prevent the bribing of government officials of foreign countries and requires companies to maintain reasonable record keeping practices.  Between 2009-2017, weak accounting controls enabled KT Corp executives to create slush funds made up of charitable donations, third-party payments, executive bonuses and gift card purchases, the SEC said. These were used for gifts and bribes to government officials in Korea and Vietnam to influence business decisions. The Wall Street Journal reports that KT Corp has about 22 million mobile, 14 million fixed-line, and 9 million internet subscribers throughout Asia, Africa, Europe and the Americas. It recently fired some employees and enhanced its controls. KT Corp agreed to the SEC’s order without admitting or denying that it violated the books and records and internal accounting controls provisions of the Securities Exchange Act of 1934. It will pay $3.5m in civil penalties and $2.8min disgorgement. It has been ordered to report its progress to the SEC over the next two years. In November 2021, South Korean authorities indicted KT Corp and 14 executives for criminal violations related to illegal political contributions from the slush funds.

Typology of Concern: Bribery and Corruption

In our State of Financial Crime 2022 survey, bribery and corruption was the typology firms told us they’re most concerned about when submitting suspicious activity reports - it was chosen by 42% of respondents.  For nearly a decade, KT Corp failed to implement sufficient internal accounting controls with respect to key aspects of its business operations, while at the same time lacking relevant anti-corruption policies or procedures and enabling bribery and corruption.  The illegal contributions to South Korean and Vietnamese officials in this case highlights the importance of conducting appropriate due diligence on Politically Exposed Persons (PEPs) and Relatives & Close Associates (RCAs). Given the potential penalties, firms should also be aware of their FCPA risk exposure. Any company that has dealings with foreign officials should consider FCPA compliance as a priority and take steps to ensure that employees operate in accordance with the legislation.  A key takeaway for firms is the importance of sound internal controls and processes - particularly relating to higher-risk businesses like charities, and third parties where the final destination of money may be unclear or less transparent. Firms need to keep these processes up to date and ensure they are fit for purpose.  Clear anti-corruption policies should be documented in line with the firm’s wider risk-based approach, taking into account the geographies and markets that they operate in. This then needs to be clearly communicated via regular training and updated as risks change over time.  Firms should consider instigating a whistleblower program to enable employees to flag erroneous behavior by colleagues. This is also a reminder of the importance of a firm’s wider culture in relation to transparency and risk management.  Finally, this case highlights how something that may not appear to be directly related to  financial crime - e.g. accounting controls - can open up financial crime risks when there are no checks and balances or controls in place. Uncover details about the State of Financial Crime in 2022 in our new guide.

Originally published February 24, 2022, updated February 24, 2022

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