On Corruption Risk and Lucrative Deals

Compliance professionals have one more issue to consider from that FCPA enforcement action last month against Millicom for corruption in Guatemala. Let’s look at what the case can tell us about the tug of war between lucrative business potential and corruption risk.

This has been on my mind since the Justice Department reached the settlement on Nov. 11. The statement of facts for the case depicted every compliance officer’s worst nightmare: a joint venture in a highly corrupt country, where the JV itself was led by a former government official in said corrupt country. Duffel bags of cash flown around the country, millions of dollars in payoffs, some of that bribe money funded by drug cartels

Quite simply, what was Millicom thinking? How could any senior management team look at such a risky joint venture, in such a deeply corrupt country, and then conclude — sure, let’s do it? 

We should be fair to the Millicom of today, which has worked hard to improve its corporate compliance program in Latin America since the company took full control of that joint venture in 2022. That doesn’t mean we shouldn’t consider how Millicom got into this mess in the first place, at least a decade earlier. It’s a telling example of how corporations juggle business opportunity (read: money) and corruption risk, which is a challenge just about all corporate compliance officers will need to navigate at some point in your career. 

Business Temptations vs. Corruption Risk

Let’s first consider just how corrupt Guatemala is. I looked up the country’s ranking on the Corruption Perceptions Index from Transparency International, one of several indices that corporate compliance professionals commonly use to get a baseline understanding of the risks in a certain country. 

Figure 1, below, tells the tale. Guatemala has been a highly corrupt country for years (certainly since Millicom’s problems with its joint venture there first emerged in the early 2010s), and grew worse throughout the decade.

OK, doing business in Guatemala would be risky under any circumstance. Now let’s consider the specific circumstance of the joint venture that Millicom used to enter the Guatemala market in the 2010s.

That joint venture, Comunicaciones Celulares (Comcel), had the following features:

• Millicom owned 55 percent of the JV, but did not have any operational control or visibility into Comcel’s actions in Guatemala. 
• Comcel had originally been a state-owned telecommunications firm in Guatemala, until the government privatized the business in the 1990s.
• The owner of Comcel was Mario López Estrada, a former minister of telecommunications for Guatemala until he left government in the 1990s. Estrada took an ownership stake in Comcel and built it up from there. He was the controller of the 45 percent stake in the Comcel JV. Estrada died in 2023, the richest man in Guatemala.

So we have a high-risk JV partner in a highly corrupt country, and the JV structure left Millicom with no practical way to control or even see what was happening on the ground there. 

That brings us to the third dimension of this puzzle: Was the revenue upside from this highly risky venture really worth it to Millicom? 

Well, from the perspective of Millicom executives at the time, maybe. 

According to Millicom’s own financial statements, the company reported $641 million in Guatemala revenue in 2012, about 12.5 percent of all revenue that year. By 2018 Guatemala revenue was $1.37 billion, roughly 25 percent of total revenue. Guatemala was a growth region for Millicom as millions of people acquired smart phones and wireless data plans for the first time. See Figure 2, below.

Let’s also remember that in the early 2010s enforcement of the FCPA was still a relatively new phenomenon. Foreign businesses (Millicom is headquartered in Europe) were still learning that the FCPA applied to them too, and what a compliance program actually required. 

So yes, the corruption risks in this deal were sky-high; but the business opportunities in Guatemala were compelling, and the world was much less familiar with FCPA enforcement than we are today. That doesn’t excuse Millicom from getting into such a rotten and corrupt business arrangement, but it does demonstrate the trade-offs that companies make as they talk themselves into these situations.

Let me close with one fun fact. One of the people most responsible for making FCPA compliance a long-term corporate compliance priority is Lanny Breuer, who ran the Criminal Division of the Justice Department in the first term of the Obama Administration. Breuer spoke often about FCPA enforcement in the early 2010s, just as Comcel was gearing up its corrupt activities.

Fifteen years later, we have this Millicom FCPA enforcement. And who represented Millicom in talks with the Justice Department? One Lanny Breuer, these days a partner at law firm Covington and Burling. Small world.