Terra Telecommunications: Buying a Smaller Phone Bill

The Terra Telecommunications FCPA case exposed bribes paid for smaller phone bills and other business advantages in dealings with Haiti Teleco, according to the court’s account of the criminal case against two Terra executives. The payments traveled through supposed consultants while the benefit appeared in the carrier’s bills. For someone who knows the minutes, the credits or the payment approvals, that connection is the story.

Terra was a Florida company that bought phone time from foreign vendors and resold the minutes to customers in the United States. Haiti Teleco was one of its main vendors. The criminal trial examined what Terra’s president and executive vice president authorized, what the intermediaries did with the money, and why employees of a telephone company counted as foreign officials.

Why Haiti Teleco Mattered

Haiti Teleco combined a commercial service with government control. The original indictment described it as the country’s state-owned national telecommunications company and sole provider of non-cellular telephone service to and from Haiti. International carriers paid it a set rate for each minute of calls to Haiti. That put the official negotiating the carrier agreement in a position to influence both the price and the bill.

The trial evidence recounted by the court showed that Haiti had granted Teleco a monopoly and tax advantages. Haiti’s national bank owned 97 percent of the company, and the Haitian president appointed its board.

The court treated Teleco’s employees as foreign officials under the Foreign Corrupt Practices Act because the government controlled the company and treated its service as a government function. An insider may know those relationships from negotiating with the carrier, well before anyone asks about a suspicious payment.

What the Terra Payments Bought

Terra’s debt supplied the immediate incentive for the arrangement. According to the court’s account of the criminal trial, by October 2001 the company owed Teleco over $400,000. Terra’s comptroller testified that the president asked him to negotiate a payment plan or offer a side payment to Teleco’s international-relations director.

The director rejected the payment plan and agreed to remove minutes from Terra’s bills in exchange for half of what Terra saved. The comptroller testified that he brought the proposal back to the president and discussed it with the executive vice president and general counsel. The director also proposed disguising the payments through sham companies.

The economic result was larger than the outgoing payments. The court’s trial account described approximately $822,000 paid to that director and his associates while Terra’s bills fell by over $2 million. We see a remarkable bargain: a reseller paid to have part of its debt disappear, and the official responsible for the relationship shared in the savings. The indictment charged that the arrangement defrauded Teleco of revenue on the telephone service it supplied.

The original indictment alleged a wider set of advantages, including preferred rates, credits against sums owed and continued connection to Teleco’s lines. It dated the alleged conspiracy from around November 2001 through around March 2005. Those are concrete forms of telecommunications bribery: the payment can change the cost of carrying calls or keep the connection operating. The benefit can appear in a billing adjustment as readily as in a new contract.

Consulting Agreements Without Consulting

The court’s account of the criminal trial describes how J.D. Locator became the first payment channel. Terra’s general counsel drafted a consulting agreement with the company, which belonged to a friend of the Teleco director. Terra’s president and executive vice president authorized payments through check-request forms used to write checks without invoices.

J.D. Locator’s owner testified that he knew the payments were not for consulting and never intended to provide those services. He retained ten percent and passed the rest onward, usually to the Teleco director or the director’s business associate. The contract supplied a description for the transfer. The supposed consultant supplied no consulting.

The indictment separately alleged that the executives caused the payments to be recorded as commissions or consulting fees in financial, banking and accounting documents. That is what makes sham consulting contracts useful to a bribery scheme: the paperwork offers a reason to pay, while the recipient and the business decision explain the real purpose. Here, the person approving a check and the person reconciling the Teleco bill could see different parts of the same arrangement.

A New Official, a New Payment Company

The court’s trial account described a second channel after the international-relations position changed hands. With Terra still behind on its bills, its president helped the new director form Telecom Consulting Services Corporation. The director’s sister was the company’s president.

The intermediary’s president signed a commission agreement with Terra’s president. Terra’s executive vice president authorized the first transfer, and further transfers followed despite the absence of invoices. The court linked those payments to the foreign bribery charges against the Terra executives and the later disbursements to the money-laundering charges.

The original indictment also charged the intermediary’s president. It alleged that she controlled the company’s bank account and, at her brother’s direction, distributed funds through checks, cash withdrawals and purchases for his benefit. The indictment thus alleged that the person receiving Terra’s money also controlled how it reached the official.

What the Criminal Trial Established

Terra’s president and executive vice president were tried together and found guilty of violations of the Foreign Corrupt Practices Act, conspiracy and money laundering. The court’s opinion identifies the president as the majority owner and chief executive and the executive vice president as the minority owner responsible for operations. Its account ties both executives to payment authorizations and the meeting about reducing Teleco’s bills.

The executive vice president’s criminal judgment records the separate offense categories. The court’s account also identifies the Internal Revenue Service’s investigation, during which Terra’s president admitted bribing Teleco officials.

On the receiving side, the later Teleco director’s criminal judgment records convictions for money laundering and conspiracy to commit money laundering. His position negotiating carrier contracts and the transfers through Telecom Consulting connect that proceeding to the same business relationship. Each person’s role matters because approving the payment, disguising it and receiving its benefit leave different records.

The Insurance Application Told Its Own Story

Terra’s effort to obtain political-risk insurance supplied evidence of what its executives knew about Teleco. According to the court’s opinion, the insurance broker testified that the coverage Terra sought was available only for contracts with a foreign government. An application sent by the general counsel, copying both executives, identified Teleco as government-owned.

The same correspondence went further when the insurer questioned its recourse against the Haitian government. The court quoted the general counsel’s email:

We see the convenience: Terra offered the carrier’s government connection as a reason to advance its insurance application. Those same business records later helped show the executive vice president’s knowledge of that connection. The useful evidence sat in the insurance file as well as the payment file.

The Same Disguise in Other Telecom Deals

In its administrative order, the Securities and Exchange Commission alleged that Telia used supposed consulting services to conceal payments for additional licenses and a fiber-optic lease in Uzbekistan. Where Terra’s case concerned cheaper bills and continued connection, Telia’s involved permissions and assets needed to operate the network.

According to the Securities and Exchange Commission’s order, MTS received a warning about an intermediary’s connection to an official. The order describes what the company learned and how it responded:

Those cases make the consultant’s identity and work commercially important. A payment approval can describe expertise or services while the ownership file shows an official’s connection. Someone who knows what the intermediary actually contributed can explain why the company’s description fails to account for the deal.

What an Insider Can Connect

The Terra case puts carrier bills, payment approvals, intermediary ownership and insurance correspondence in the same picture. A finance employee may know who authorized the check, while a colleague managing the carrier relationship knows why the minutes or credits changed. We connect that knowledge with the records showing who benefited and what the company said it was buying.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Foreign-bribery reporting uses separate agency programs, and we work through that choice with you.

You Know Why the Bill Changed

If you know why a carrier’s bill shrank while a consultant kept getting paid, tell our whistleblower experts about the arrangement. We develop the case with you, bring in FCPA whistleblower lawyers who understand cross-border telecom transactions, and remain your partners throughout the case.