On December 31, 2009, the SEC sued Alameda, California–based telecommunications company UTStarcom, Inc., with violations of the Foreign Corrupt Practices Act for authorizing millions of dollars in unlawful payments by its wholly owned Chinese subsidiary to foreign government officials in Asia. UTStarcom agreed to settle the SEC’s charges and pay a $1.5 million fine to the SEC and another $1.5 million to the Department of Justice. One of the items cited as violating the FCPA was a payment of nearly $7 million between 2002 and 2007 for hundreds of overseas trips by employees of Chinese government-controlled telecommunications companies that were customers of UTStarcom, purportedly to provide customer training. In reality the trips were entirely for sightseeing.
a. Why would such payments by UTStarcom violate the FCPA?
b. The FCPA permits a company to assert an affirmative defense against allegations of violating the FCPA if the payments were lawful under the written laws of the foreign country. Do you believe it is ethically appropriate to allow such a defense when illegal payments are made? Why or why not?