In February 2022, the SEC announced a settlement with Seoul, Korea–based KT Corporation for $6.3 million to resolve violations of the Foreign Corrupt Practices Act (FCPA). KT Corporation provides telecommunications services, including wireless Internet, in markets around the world. The SEC cited instances of improper payments by the company in Korea and Vietnam. The improper payments included charitable contributions, third-party payments, executive bonuses, and purchases made with gift cards. KT employees and executives used the payments for illegal political contributions to governmental officials. The SEC reported that KT’s improper payments were the result of weak internal controls and a lack of anti-corruption policies, both of which indicated a particularly weak to neat-the-top that made it clear that bribery and corruption would be tolerated within the company.

One particularly egregious example of corruption involved the CEO, who maintained a secret slush fund that he used to pay bribes. To put money into the slush fund, he granted fake bonus payments to senior executives who then cashed the checks and returned the cash to the CEO, who then kept the cash in a safe at the corporate headquarters. KT also engaged in adding personnel to the company’s payroll because they were close associates of corrupt government officials. For example, KT paid two individuals about $450,000 in salaries despite the fact that they did not meet hiring criteria regarding their competence. 

a. What are management’s responsibilities under the FCPA? What are auditors’ responsibilities under the FCPA? 

b. What are typical controls that management puts in place to ensure compliance with the FCPA? 

c. Use the resources on www.transparency.org to report the relative levels of corruption in South Korea and Vietnam as compared to in countries including North Korea, the United States, Canada, and Great Britain. Comment on differences, noting that higher levels of the corruption index indicate lower corruption. 

d. Use the following link to locate and report on a recent SEC action relating to the FCPA at the discretion of your instructor: 

https:// www.sec.gov/enforce/sec-enforcement-actions-fcpa-cases. Compare the KT Corporation case to the recent case in terms of the nature of the company, weaknesses in its internal controls, a history of the violation itself, and the fine that the SEC levied.