Latin Node, Inc: Better Rates, Fewer Minutes on Paper

Latin Node, Inc pleaded guilty in an FCPA case under the Foreign Corrupt Practices Act over bribes for network access and favorable calling rates in Honduras and Yemen. The payments went through intermediaries, but the commercial benefit belonged to the company buying access. If you worked on carrier agreements, call billing or payment approvals, this case reaches the ordinary records you would recognize.

The privately held Florida company provided wholesale telecommunications services using Internet protocol technology. Its case follows interconnection agreements, the price of carrying calls and the paperwork used to conceal payments. The broader telecommunications bribery pattern also reaches licenses, spectrum and network expansion.

What the Honduran Payments Bought

Latin Node admitted paying intermediaries to obtain an interconnection agreement with Hondutel, Honduras’s state-owned telecommunications company, and to reduce the rate per minute under that agreement. In the Justice Department’s April 7, 2009 account of the company’s guilty plea, Latin Node admitted approximately $1,099,889 in payments from approximately March 2004 through June 2007. The company knew some or all of that money would reach Hondutel officials as bribes.

The agreement bought access to a working network. The later executive indictment explains that Latin Node wanted to use Hondutel’s lines to carry long-distance calls between the United States and Honduras. Its monthly accounts were supposed to report the minutes used and the applicable rate.

The company’s plea announcement says every Honduran payment it describes came from Latin Node’s Miami bank account with approval from senior executives. Recipients included a member of the committee responsible for awarding interconnection agreements, Hondutel’s deputy general manager, who later became general manager, and a senior attorney for Hondutel. The people receiving payments occupied positions inside the public customer’s commercial decisions.

Here, the public officials were inside the customer, and the advantage Latin Node admitted buying was access and a lower operating cost. The rate negotiation and the intermediary payment belonged to the same business decision.

What the Yemen Payments Bought

The Yemen payments sought favorable interconnection rates through a third-party consultant. In its account of the company’s criminal case, the Justice Department described 17 payments totaling approximately $1,150,654 from approximately July 2005 to April 2006. Latin Node made them knowing that some or all of the money would pass to Yemeni officials.

Each payment came from the company’s Miami bank account. The Justice Department also reported that company emails showed executives believed the potential recipients included Yemeni government officials. The consultant’s name on the payment was one part of the transaction. The executives’ understanding of who would benefit supplied another.

For a finance or commercial employee, that connection can sit across records maintained by different teams. One team sees the consultant, another sees the rate negotiations, and management’s emails can explain why money moved between them.

The Executive Case Put Call Billing Inside the Scheme

The separate executive indictment filed in December 2010 alleged that Latin Node’s founder and chief executive and its business-development executive arranged bribes for lower rates and other advantages at Hondutel. It described responsibilities across the business: the chief executive set policy and sales prices, the business-development executive handled Honduran business, the commercial executive managed carrier relationships, and the chief financial officer approved payments and wires. The business-development executive later pleaded guilty to the conspiracy count, as the judgment filed in April 2012 records.

The Contract Rate Stayed, the Reported Minutes Fell

The indictment alleged that executives instructed employees to report fewer minutes than Latin Node actually used. The purpose was to obtain the benefit of an orally agreed lower rate before Hondutel signed a written reduction. Keeping the contract rate on the statement while shrinking the minutes could produce the lower bill management wanted.

Hondutel’s collections employees were still sending discrepancy notices because they did not know about the unofficial rate arrangement, according to the indictment. It alleged that the business-development executive discussed bribing collections employees to resolve those disputes. A disagreement over call charges had become another payment opportunity.

The indictment describes an August 2007 email in which the business-development executive told employees how to prepare the invoices. It gives this English rendering of the Spanish message:

If you handled traffic records or reconciled carrier accounts, the comparison is concrete: actual minutes, billed minutes and the rate written into the agreement. In the indictment’s account, management supplied a formula for making those records disagree. The calls stayed on the network. The minutes disappeared from the bill.

Consulting Paperwork for the Buyer

The indictment also alleged that the approaching sale to eLandia prompted plans for sham consulting agreements. In an April 2007 email described in the filing, the business-development executive told Honduran officials that no government official could appear on the contracts. He would continue authorizing the payments, but they would pass through Servicios IP, a Guatemalan firm named in the email.

The same filing describes an August email to a Hondutel collections employee about a payment to her daughter’s account for consulting services. The executive wanted a receipt for eLandia’s auditors. The indictment renders his message as saying that “everything has to be done in a transparent manner,” while telling the employee that she and another collections employee could not appear in the transaction.

We see a remarkable definition of transparency in that alleged instruction. The auditor was to receive a receipt for a transaction whose actual participants had been deliberately left out. The paperwork needed to be seen. The people getting paid needed to disappear.

What Latin Node’s Buyer Found

eLandia International discovered the improper payments after acquiring Latin Node and promptly disclosed them to the Justice Department, according to the company’s plea announcement. The parent investigated, cooperated with the department and removed senior Latin Node managers involved in or aware of the violations. The FBI’s Miami Field Office and the Miami Field Office of U.S. Immigration and Customs Enforcement investigated the criminal case.

The acquisition story gives the proposed consulting agreements a specific purpose. The executive indictment alleged that management wanted formal paperwork before the buyer examined the business, and that the absence of written confirmation of the lower rate could create a problem during acquisition diligence. After the deal closed, the parent’s investigation exposed the payments. The records used to explain an attractive contract to a buyer can also reveal how that contract became attractive.

For an employee reviewing an acquired subsidiary’s business, the customer agreement is only part of the commercial picture. The payment approvals, consultant’s work and actual beneficiary explain how the terms were obtained. Latin Node’s case puts those questions inside a real acquisition, where management’s account of its customer relationships mattered to someone buying the company.

The Records a Telecom Insider Would Recognize

The most useful whistleblower evidence connects the business advantage to the payment and the record that disguised it. Latin Node’s case makes those connections unusually specific: call minutes against carrier statements, a rate agreement against approval emails, and a consultant’s receipt against the person who actually received the benefit.

The indictment also described a payment route through LN Comunicaciones, Latin Node’s Guatemalan subsidiary. That subsidiary maintained its own bank account, funded entirely from Latin Node’s Miami account. A transfer recorded by one company could therefore be part of a payment arranged and funded elsewhere in the group. Someone who understands both accounts can explain a path that either company’s ledger shows only in part.

Your knowledge of the work can explain the gap between what an expense is called and what it bought. A person who negotiated the rates may recognize a supposed consultant as someone connected to the customer, while a billing employee may know why the reported minutes changed. We work with insiders to connect those observations to the decisions, approvals and money behind them.

The Telecom Pattern Beyond Latin Node

Other telecom cases used sham consulting contracts to conceal an official’s benefit. In its criminal deferred prosecution agreement, VimpelCom admitted using fake consulting contracts for which no work was performed, with backdated documents and acceptance certificates. The supposed service provided a business explanation for the transfer.

In Telia‘s case, the Securities and Exchange Commission found that a sham consulting agreement paid an official-linked company’s debt to a third party. Latin Node’s payments bought interconnection access and better rates, while these other transactions used consulting paperwork to conceal an official’s benefit. Across those cases, the person who knows what work was performed and whose decision changed can explain what the contract’s service description leaves out.

You Know Why the Minutes Changed

If you know why a carrier bill lost minutes or why a consultant was paid when an official changed the rate, speak to one of our Whistleblower Experts. We build your strongest foreign bribery whistleblower case around your understanding of the telecom business, bring in foreign bribery whistleblower lawyers who can pursue the cross-border payments, and stay beside you throughout the case.