Largest South Korean Telecom Company Agrees to Pay $6.3 Million to Settle FCPA Allegations

On February 17, 2022, the Securities and Exchange Commission (“SEC”) announced that KT Corporation (“KT” ) settled allegations that it violated the books-and-records and internal accounting controls provisions of the Foreign Corrupt Practices Act (“FCPA”) in the Republic of Korea and Vietnam.  KT is South Korea’s largest comprehensive telecommunications provider, maintains its principal executive offices in South Korea, and its American Depositary Shares trade on the New York Stock Exchange.

According to the SEC’s order instituting cease-and-desist proceedings (the “order”), KT agreed to pay approximately $3.5 million in civil penalties and $2.8 million in disgorgement and prejudgment interest.  KT consented to the entry of the order without admitting or denying its allegations.  The SEC alleges that the FCPA violations come as a result of KT’s failure to maintain sufficient accounting controls over expenses, such as executive bonuses and gift cards.  For example, KT had no anti-corruption policies in place for donations, vendors, subcontractors, or third-party agents when the conduct occurred.

Among other schemes alleged in the order, between 2009 and 2013 in South Korea, KT’s high-level officers allegedly maintained slush funds that they used to provide government officials with gifts and entertainment.  Per the order, the alleged bribes included “illegal political contributions to members of the Korean National Assembly serving on committees relevant to KT’s business” funded by inflating executive bonuses to create a $1 million slush fund.  In addition, KT maintained no records of the gift recipients.  In 2014, after the bonus scheme became public and an executive officer was charged criminally, KT allegedly continued to use a slush fund for illegal gifts by buying gift cards and converting them to cash.  KT allegedly paid approximately $393,574 in political contributions to 99 Korean politicians and spent $910,211 in improper gift and entertainment expenses.  KT also gave approximately $1.6 million to three organizations at the request of high-level government officials and booked all the payments incorrectly, either as charitable donations or a sponsorship.

Between 2014 and 2018, KT’s alleged FCPA violations also took place in Vietnam.  There, the SEC alleges, KT provided approximately $645,000 to third parties, such as a construction firm and a local agent, through advance payments and reimbursements, to funnel payments to high-level officials in order to obtain government contracts.

The SEC order noted that KT did not self-report.  However, KT cooperated with the government investigation by conducting its own internal investigation, providing documents, including translations of key documents, and making witnesses available.  KT took other remedial action, including terminating certain employees and enhancing its internal controls, that the SEC noted in its decision to settle the matter.  KT also agreed that it would report to the SEC at least every six-months for the next two-years about the status of its remediation and implementation of compliance measures. 

The SEC’s settlement highlights the importance of effective internal controls, accounting oversight, and comprehensive anti-corruption policies.