UTStarcom to pay US fines for bribing Chinese carriers

Telecommunications equipment vendor UTStarcom will pay a total of US$3 million in fines for violating U.S. bribery laws by giving employees of Chinese carriers free U.S. vacations that were reported as training programs.

UTStarcom, based in Alameda, California, reached a settlement with the U.S. Department of Justice in which it will pay a $1.5 million fine, the department announced on Thursday. In the settlement, the company took responsibility for the actions of UTStarcom China, the wholly owned subsidiary through which it does business in China, the DOJ said in a statement. In a related settlement on Thursday, the company also agreed to pay a $1.5 million penalty to the U.S. Securities and Exchange Commission, the DOJ said.

UTStarcom makes infrastructure for DSL (digital subscriber line), IPTV (Internet Protocol television) and other broadband services. It is primarily focused on the Asia-Pacific market, particularly China and India, and has been struggling against larger China-based rivals such as Huawei Technologies and ZTE. In recent years, the company has undergone restructuring, management changes and layoffs. Last year it began to wind down its handset operations, based in South Korea. In the third quarter of 2009, UTStarcom lost US$34.6 million [m] or $0.27 per share, including $8.9 million in restructuring charges.

Employees and agents of UTStarcom China arranged and paid for trips to tourist destinations in the U.S., including Hawaii, Las Vegas and New York, for employees of state-owned telecommunications carriers in China, the DOJ said. UTStarcom China said the trips were for training at UTStarcom facilities, but the company has no training facilities in those locations and no training took place, according to the department.

While UTStarcom China reported the cost of the travel as training expenses, they actually provided the trips in order to win and retain contracts with the carriers, the DOJ said. The actions violated the U.S. Foreign Corrupt Practices Act, which governs bribery of foreign officials.

In addition to paying the fine, UTStarcom agreed to implement rigorous internal controls. The DOJ agreed not to prosecute UTStarcom as long as it satisfies its ongoing obligations under the settlement. The DOJ acknowledged that the company voluntarily disclosed its violations and cooperated with the department.

UTStarcom could not immediately be reached for comment.

On Thursday, UTStarcom's shares on the Nasdaq stock market (UTSI) closed at $2.19, up $0.02.