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Before the
Federal Communications Commission
Washington, D.C. 20554
)
)
In the Matter of )
File No. EB-03-IH-0738
NEC-Business Network Solutions, Inc. )
)
)
NOTICE OF DEBARMENT
AND ORDER DENYING WAIVER PETITION
Adopted: June 21, 2006 Released: June 30, 2006
By the Commission: Commissioners Copps and Adelstein concurring and
issuing separate statements.
Table of Contents
Heading Paragraph #
I. INtroduction 1
II. BackGRound 4
A. NEC's Criminal Conviction 10
B. Procedural History 14
III. DISCUSSION 18
A. Debarment Decision 20
B. Additional Precautionary Measures 28
C. Other Issues 29
IV. CONCLUSION 34
V. ORDERING CLAUSES 35
I. INtroduction
1. This item debars NEC-Business Network Solutions, Inc. ("NEC") from all
activities associated with the schools and libraries universal service
support mechanism, also known as the E-Rate program. NEC pled guilty
to and was convicted of serious fraud-related felonies against the
E-Rate program. We find NEC's conduct merits a debarment of at least
three years, as contemplated by our debarment rule, but in light of
several important factors, we will impose a debarment period of six
months from the effective date of this Order. These factors include
the Department of Justice's ("DOJ") strong support of NEC as the first
company to come forward and cooperate with DOJ's investigation, which
DOJ states advanced its law enforcement capabilities with respect to
E-Rate fraud; the mitigating steps NEC has taken to remedy its past
conduct and prevent additional wrongdoing in its future participation
in the E-Rate program; and the fact that NEC states that it has not
participated in the E-Rate program in the last few years.
2. In addition, as another precaution to protect the integrity of the
E-Rate program, this item imposes certain other measures to monitor
NEC's compliance with our rules during its first two funding years of
re-entry into the E-Rate program. We order the Universal Service
Administrative Company ("USAC" or the "Administrator") to review NEC's
applications submitted during those two funding years with heightened
scrutiny. We further direct the Administrator to conduct automatic
annual audits to ensure, during those funding years, that NEC complies
with our rules, and that E-Rate funds are disbursed for their intended
purpose.
3. We take these actions as part of our on-going commitment to protect
the public interest and integrity of the E-Rate program in particular.
We will continue to take appropriate enforcement actions against bad
actors in the E-Rate program in future cases as warranted by the
particular circumstances.
II. BackGRound
4. In section 254 of the Act, Congress entrusted the Commission with
promoting universal service to all Americans. A critical goal of
universal service is to ensure that affordable telecommunications
services are available and accessible to underserved categories in our
society, including specifically eligible schools and libraries,
low-income consumers, rural health care providers, and consumers
living in high-cost areas. Congress sought to ensure that quality
services are available at affordable rates throughout the country.
5. To promote the goal of serving schools, Congress directed the
Commission to establish the E-Rate program. As implemented by the
Commission, the E-Rate program provides discounts to schools and
libraries for certain services, including local and long distance
telephone service, Internet access, and internal connections. Through
this resource, millions of schoolchildren and library patrons now have
access to telecom services and the Internet in their classrooms and
libraries. An average of almost 90,000 schools and libraries each
year, including many in the nation's poorest and most isolated
communities, obtain benefits through the E-Rate program. When the
program began in 1998, only 51 percent of public school classrooms
were linked to the Internet. By 2002, that figure increased to 92
percent. The most recent data from the National Center for Education
Statistics show that 95 percent of schools had broadband connections.
6. The Commission appointed USAC, a private, not-for-profit corporation,
to serve as the federal universal service fund ("USF") administrator.
By Commission order, USAC administers the USF and its beneficiary
programs, including the E-Rate program. Since 1997, the Administrator
has disbursed approximately $30.3 billion to the various universal
service programs, including nearly $15 billion in commitments since
1998 to support the schools and libraries mechanism. The E-Rate
program operates under a funding cap of $2.25 billion in each funding
year. In most funding years since its inception, schools and libraries
seek support in excess of available funds, forcing the Administrator
to deny potentially eligible requests for E-Rate funds.
7. Because the program is ultimately funded in large part by American
consumers, and because E-Rate fraud deprives schoolchildren and public
libraries of valuable support, the public has a significant interest
in protecting the integrity of E-Rate program funds, and the
Commission's rules are intended to ensure that all E-Rate funds are
used for their intended purpose. For example, Commission rules require
competitive bidding by service providers, certifications from
authorized officers within the schools and libraries about the
eligibility of the telecommunications services purchased and provided
by vendors, and truthful and accurate billing for services by vendors.
As the program's steward, the Commission has a critical responsibility
to deter misconduct and protect the USF. As part of that effort the
Commission scrutinizes the program to identify and eliminate any
potential for misconduct. We regularly review and update our rules as
necessary to impose additional safeguards where we see the potential
for mischief. For instance, the Commission has adopted rules to
authorize the Administrator to conduct audits of USF beneficiaries and
contributors. In addition, the Commission's rules provide for an
annual independent audit of the Administrator to determine "whether
the Administrator is properly administering the universal service
support mechanisms to prevent fraud, waste, and abuse." The Commission
has also established procedures for recovering USF monies disbursed to
program beneficiaries that fail to comply with our rules. Further, the
Commission has required schools, libraries, and service providers to
maintain documents necessary to demonstrate their compliance with
program requirements and has strengthened the requirement that E-Rate
applicants and service providers certify the accuracy of information
they submit to the Administrator. Finally, on June 14, 2005, the
Commission released a notice of proposed rulemaking to explore
additional ways to improve the management and oversight of the USF,
including strengthening our debarment procedures.
8. As part of its efforts to safeguard the E-Rate program, the Commission
adopted in 2003 a rule that provides for automatic suspension and
initiation of debarment proceedings against persons convicted of, or
held civilly liable for, the commission or attempted commission of
fraud and other similar offenses "arising out of activities associated
with or related to the schools and libraries support mechanism."
Suspension and debarment prevent the subject from participating in the
E-Rate program and thereby protect the fund from persons adjudicated
by courts of competent jurisdiction to have committed fraud against
the program. The Commission implemented the debarment rule to better
protect the integrity of the program. Moreover, the Commission
explicitly rejected a government-wide standard providing that an
entity "may" be debarred based on a conviction or civil judgment.
Instead, the Commission adopted an automatic suspension and debarment
process, concluding that such a rule is necessary to accomplish the
goal of eliminating waste, fraud, and abuse.
9. The Commission's debarment rule is aimed at protecting the program
from fraud, waste, and abuse such as that described above. Pursuant to
that rule, the trigger for a Commission debarment proceeding is a
civil judgment or criminal conviction in a court of competent
jurisdiction "for attempt or commission of criminal fraud, theft,
embezzlement, forgery, bribery, falsification or destruction of
records, making false statements, receiving stolen property, making
false claims, obstruction of justice and other fraud or criminal
offense arising out of activities associated with or related to the
schools and libraries support mechanism." We issue a notice of
suspension and initiate debarment proceedings to ensure that the
convicted person cannot continue to benefit from the program pending
resolution of the debarment process. The suspended person or any
interested party has 30 days to contest the suspension or proposed
debarment, or seek to limit its scope. After receipt of such a
request, the Commission must provide the petitioner notice of the
decision to debar, prohibiting its participation in the E-Rate
program, absent extraordinary circumstances. Since the debarment rule
became effective, there have been eight convictions of individuals and
four corporations related to their participation in the E-Rate
program. After each conviction following enactment of the rule, the
Commission initiated debarment proceedings against the perpetrators.
The Commission has debarred the eight individuals, and the Commission
today resolves the proceedings involving two of the four corporations.
The proceedings involving the other two corporations remain pending.
A. NEC's Criminal Conviction
10. NEC is an equipment and internal connections provider that is a
subsidiary of NEC Corp., a multi-billion dollar computer manufacturer.
The NEC case arises out of a DOJ civil and criminal investigation
into, among other things, the conduct of NEC in the E-Rate program
from 1999 to 2001. On May 27, 2004, NEC pled guilty to two crimes, an
antitrust violation, involving bid rigging in the competitive process
to win E-Rate contracts, and wire fraud, involving the submission of
inflated invoices to the Administrator. NEC was the first corporation
convicted of crimes related to the E-Rate program since the enactment
of the Commission's debarment rule.
11. The scheme originated in 1999 when NEC agreed to pay a co-conspirator
a fee for all E-Rate business opportunities the company brought to
NEC, and NEC agreed to use some of co-conspirator's equipment in its
E-Rate proposals. In early 2000, NEC submitted a bid to the San
Francisco Unified School District. A co-conspirator ran the bidding
and ensured that the contract for data equipment was awarded to NEC,
and made NEC the prime contractor. Thereafter, a co-conspirator
submitted inflated invoices to the Administrator, which NEC learned
about but took no steps to correct. Overall, the prices submitted for
the San Francisco Unified Public School District were approximately
$26 million greater than the amounts that the vendors bid, and falsely
described some of the equipment to conceal that it was not E-Rate
eligible.
12. Later in 2000, NEC also advised the San Francisco Unified School
District that it would "donate" to the school district computer
workstations valued at about $7.4 million and later $10.3 million. NEC
in fact planned to use E-Rate funds to offset the expense of the
donation. During about the same period, NEC also participated in a
similar criminal conspiracy to frustrate the competitive bidding
process required by E-Rate program rules in five other school
districts in four states.
13. These criminal schemes resulted in the Administrator paying E-Rate
funds to service providers that were not selected through the
competitive bidding process, for equipment that was not eligible for
E-Rate funding, and at prices that exceeded the original bid amounts
of the services and equipment. After an investigation, DOJ entered
into a civil settlement with NEC on May 27, 2004, and NEC pled guilty
to two felony offenses, one involving conspiracy to suppress and
eliminate competition in violation of the Sherman Antitrust Act and
the other involving wire fraud. For its conduct, NEC agreed to pay
$4.7 million in criminal fines and to provide nearly $16 million in
restitution and damages, including $10.3 million in cash and nearly
$5.7 million in in-kind products and services. As restitution, the
Commission and the USF received approximately $2 million in cash and
USF beneficiaries received all the in-kind products and services to
which they were entitled. NEC also agreed to implement a compliance
plan and remedial measures, and to cooperate with DOJ.
A. Procedural History
14. On the same day it pled guilty, NEC filed a petition for waiver of
section 54.521 of the Commission's rules, governing debarment
proceedings. In addition, NEC requested that the Commission toll the
suspension of NEC while its petition was pending. NEC submitted a
supplemental filing on June 30, 2004, to provide additional
information and argument for its waiver petition. Among other things,
NEC argues that it has not participated in the E-Rate program since at
least November 2002. The Commission's Enforcement Bureau sought
comment on the NEC waiver request.
15. SECA and the Chairman and Ranking Member of the United States House of
Representatives Committee on Energy and Commerce ("House Commerce
Committee Leadership") each filed comments opposing the petition and
supporting debarment. SECA states that the "practices that lead to the
initial Grand Jury investigation involved millions of dollars and were
not limited by geographic location or single funding year." As a
result, SECA argues that NEC should be debarred in accordance with the
debarment rule to send a clear message to those who do not adhere to
the rules of this program. SECA notes that NEC's "claim that some
`very bad judgment calls' were made by a `few of its employees' is
misleading. The practices that led to the initial Grand Jury
investigation involved millions of dollars and were not limited by
geographic location and they were not limited to a single funding
year." Further, SECA takes issue with NEC's claim that the activities
centered around a small number of employees and did not impact the
majority of the staff or its primary business. SECA points out that
"the checks written by school districts and by USAC in response to
[NEC] invoices were all made out to [NEC], the corporation. The [NEC]
corporation profited by the actions of those few employees."
16. The House Commerce Committee Leadership similarly emphasizes that
NEC's conduct was "egregious," and expresses concern that high-ranking
NEC employees declined an initial request to provide testimony during
Congressional oversight hearings. The House Commerce Committee
Leadership also indicates that it has found no evidence that any NEC
officials attempted to expose the company's criminal conduct before
law enforcement began its investigation and that debarment would not
harm the beneficiaries of E-Rate program, it would only harm NEC.
17. DOJ also commented on NEC's petition. While DOJ states that it "does
not make specific recommendations against debarment," it strongly
emphasizes that NEC cooperated throughout its investigation,
permitting detection of other conspirators. DOJ also notes that NEC
was the "first company to come forward and cooperate in a conspiracy
investigation" involving the E-Rate program and that, as such,
debarring NEC could negatively impact the investigations of other
conspiracies affecting the E-Rate program. DOJ's comments in support
of NEC are extensive and merit substantial consideration, given DOJ's
role in investigating and prosecuting corporate conspiracies and
fraud. These comments are discussed in detail below.
III. DISCUSSION
18. In general, the Commission's debarment rule states that upon criminal
conviction of certain offenses arising out of activities associated
with or related to the E-Rate program, the Commission shall suspend
and debar the convicted person from the E-Rate program absent
extraordinary circumstances. The rules state that the time period for
debarment is three years, although the rules contemplate that the
Commission might modify the period in particular circumstances; the
Commission might lengthen the period if necessary to protect the
public interest," and it might reverse or limit the scope or period of
debarment "upon a finding of extraordinary circumstances." In
implementing the debarment rule, the Commission stated that, in light
of the statutory obligation to preserve and advance universal service,
the Commission would set a very high threshold for parties claiming
that their debarment was not warranted in circumstances in which a
court of competent jurisdiction has concluded that the person has
committed some form of fraud related to the E-Rate program. The Second
Report and Order offers only one example of such "extraordinary
circumstances" -- reversal of the conviction or judgment upon which
the debarment was based.
19. Those who seek to avoid debarment by requesting waiver of the rule
must meet a similarly high burden. Section 1.3 of the Commission's
rules governs petitions for waiver generally, and provides that a
waiver may be granted upon "good cause shown." Because Commission
rules are presumed valid, the petitioner bears a heavy burden. The
Commission may exercise its discretion to waive a rule "only if
special circumstances warrant a deviation from the general rule and
such a deviation will serve the public interest." We find that the
requisite special circumstances are not present here. For the reasons
explained below, however, we limit NEC's debarment period to six
months. We find, based on the unique circumstances of this case,
imposing a six-month debarment period, with additional precautionary
measures, is in the public interest.
A. Debarment Decision
20. We debar NEC because it has been convicted of fraud-related offenses
involving its participation in the E-Rate program, and there are no
extraordinary circumstances sufficient to justify avoidance or waiver
of debarment. NEC pled guilty to and was convicted of two counts of
criminal misconduct arising out of its conduct in the E-Rate program
from 1999 to 2001. Specifically, NEC was convicted of an antitrust
violation, involving bid rigging in the competitive process to win
E-Rate contracts, and wire fraud, involving the submission of inflated
invoices to the Administrator. These offenses are clearly listed as
"causes for suspension and debarment" in section 54.521(c) of our
rules. Pursuant to section 54.521(b) of our rules, the Commission
"shall . . . debar" a company convicted of a crime involving fraud in
the E-Rate program, absent extraordinary circumstances. Thus we debar
NEC.
21. In support of its waiver request, NEC asks the Commission to consider
certain "mitigating factors." Specifically, NEC states that upon
learning in the fall of 2002 of the grand jury investigation into its
illegal conduct, the company froze all its E-Rate activities,
including activities not implicated by the DOJ investigation,
effectively debarring itself from the E-Rate program. NEC also argues
that it fully cooperated with DOJ, severed its relationship with a
co-conspirator, made full restitution, is committed to a compliance
program via its plea agreement going-forward, and that the conduct at
issue involved only a small number of employees who have left the
company or been reassigned. Finally, NEC argues that waiving the
debarment rule would serve the public interest by maximizing the
number of vendors participating in the program.
22. We find that NEC has not satisfied the high standards set by our rules
regarding avoidance of debarment and waiver. We reject the
petitioner's arguments that the steps NEC took once it was in the
investigative spotlight are sufficient to warrant complete avoidance
of debarment or cause us to waive our rule. As noted above, an example
of extraordinary circumstances is reversal of conviction, not remedial
measures or cooperating with law enforcement after a grand jury has
been convened. As SECA properly stated, "the fact remains that [NEC]
pled guilty to fraud and antitrust violations." Strict application of
the debarment rule to remove bad actors from the program for a period
of time is necessary to protect the integrity of the E-Rate program.
Accordingly, we conclude that NEC must be debarred to protect the
integrity of the E-Rate program against the possibility of additional
waste, fraud, and abuse.
23. We recognize, however, the existence of several important
countervailing considerations that warrant a reduction in the standard
debarment period. First, DOJ submitted not one but two letters
documenting the NEC's cooperation in the advancing DOJ's law
enforcement efforts.
24. DOJ provided the first letter to satisfy its obligation in its plea
agreement with NEC to make administrative agencies considering action
against NEC, such as the Commission, aware of the company's
cooperation. This letter states that NEC has "provided full and
complete cooperation with our investigation" for over two years by
"the supply of information and documents, the encouragement of current
or former employees to cooperate, and assistance in making interviews
productive and accurate." Based on this cooperation, DOJ states that
it has been able "to identify and focus our investigative efforts on
other culpable corporations and individuals," and that it has been
"successful in pursuing leads across the country, including in school
districts we only learned about because of [NEC's] cooperation." As a
result, DOJ considers "the nature, speed, and extent of [NEC's]
cooperation to have been very helpful in developing our investigation
to date."
25. DOJ's second letter was provided not as part of its obligation under
the plea agreement, but instead "responds to the FCC's invitation for
comment on NEC's petition," and went beyond merely reciting aspects of
NEC's cooperation. This letter explains the importance of NEC's
cooperation as the first company to break ranks within its conspiracy.
DOJ states that antitrust crimes are "always conspiratorial" and
"inherently difficult to prove" absent the cooperation of one or more
of the conspirators, and an "early cooperator" in particular often
provides evidence that allows DOJ "to pursue cases against numerous
corporations and individuals who otherwise may have escaped detection
and prosecution." As a result, "the [Antitrust] Division's enforcement
program provides great incentives to induce companies to be the first
to turn on their co-conspirators and cooperate with investigations."
With respect to investigations involving the E-Rate program in
particular, DOJ states that "a decision to debar the first company to
come forward and cooperate in a conspiracy investigation could very
well harm the investigation of other conspiracies affecting the E-Rate
program that are being conducted around the country. . . ." Regarding
NEC specifically, DOJ states that "NEC management greatly assisted
investigators in uncovering conspiratorial misconduct that might never
have been successfully detected and prosecuted absent NEC's
cooperation," and "[i]t is precisely this type of timely, proactive,
and valuable cooperation by a company that we believe the Commission
should weigh heavily" in its debarment decision.
26. In addition to DOJ's strong support for NEC, there are other
considerations justifying a reduction in the standard debarment
period. NEC has taken substantial steps to compensate the victims of
its crimes, and to prevent similar foul play in the future. NEC has
also accepted responsibility for its past wrongdoing through payment
of over $20 million in fines, restitution, and damages. Further, NEC
has implemented a comprehensive compliance program that involves
high-level management monitoring, employee training, and auditing of
government procurement contracts. Finally, we also recognize that NEC
has not participated in the E-Rate program for approximately three
years already.
27. Under these circumstances, where DOJ has raised significant concerns
about the impact of debarment on on-going criminal investigations,
where the company has fully remedied its wrongdoing and made
programmatic changes to prevent future misconduct with respect to the
E-Rate program, and where the company has not participated in the
E-Rate program for a substantial period of time, we limit NEC's
debarment period to a period of six months. We find that the six-month
debarment period, based on the unique facts and circumstances in this
case, is in the public interest.
A. Additional Precautionary Measures
28. As an additional precaution to protect the E-Rate program, we put in
place two monitoring measures to ensure NEC's compliance upon its
re-entry into the E-Rate program. First, we order USAC to review with
heightened scrutiny NEC's applications submitted during the first two
funding years after re-entry. Second, we order the Administrator to
conduct automatic annual audits regarding NEC's compliance with the
Act and the Commission's rules governing the E-Rate program, for each
of the first two funding periods upon NEC's re-entry. We find these
additional precautionary measures are necessary to ensure that E-Rate
funds are used only for their intended purpose and that the program is
not subject to additional waste, fraud, or abuse.
A. Other Issues
29. We reject NEC's argument that no debarment should be imposed because
it would render meaningless certain compliance program provisions of
its settlement with DOJ. NEC expressly acknowledged in its settlement
with DOJ that the Special Conditions of Probation did not preclude the
Commission from exercising its debarment authority. Further, the
Special Conditions of Probation apply even beyond the E-Rate program.
Thus, we conclude that debarment will not interfere with the purpose
and intent of the Special Conditions of Probation.
30. NEC also argues that the "civil component of the $20.6 million
reimbursement agreed to by [NEC], which amounts to goods and services
in the E-Rate program valued at $5.6 million, would be mooted by
debarring [NEC] from future participation in the E-Rate program." We
disagree. NEC's provision of such goods and services does not involve,
directly or indirectly, receiving funds from, or interactions with,
the E-Rate program, and is required as restitution under the plea
agreement. Therefore, we conclude that debarment has no effect on
NEC's provision of such goods and services, and we expect NEC to
continue to provide these goods and services during the compliance
period required under the Special Conditions of Probation.
31. We also reject NEC's argument that any debarment here would constitute
retroactive application of a penalty for conduct that preceded the
adoption of the rule, noting that the debarment rule became effective
in 2003, while NEC was convicted for its conduct during the period
1999 through 2001. Section 54.521 clearly states that the triggering
events for suspension and debarment are a conviction or civil judgment
and knowledge by the Commission. Commission of the wrongful acts
underlying a criminal conviction or civil judgment is not the trigger
for debarment. Therefore, as applied to NEC, its May 27, 2004
conviction (which took place after the effective date of the rules) is
the relevant cause for its debarment rather than the conduct
underlying that conviction.
32. NEC requests that the Commission toll the suspension procedures
contained in section 54.421(e)(1)-(e)(4) of our rules pending
resolution of its waiver petition. The purpose of those procedures is
to protect the integrity of the E-Rate program by excluding bad actors
from participation during the time required for the Commission to
provide such entities with notice of the reasons for debarment and an
opportunity for them, and any party contracting with them, to contest
the debarment or the scope of debarment. We find that these
proceedings regarding NEC's petition for waiver have achieved those
purposes and satisfied the suspension procedure requirements. NEC and
any party contracting with NEC received notice and opportunity to
contest any potential debarment, or the scope thereof, when the waiver
petition was released for public comment on July 7, 2004. NEC has
availed itself of that opportunity, filing four substantive pleadings
on the issue, all of which are considered herein. Because NEC
requested a stay of the suspension in order that it be heard and
because NEC and other interested parties have in fact received notice
and have been heard, we find that the suspension procedures have been
satisfied and we reject NEC's request that those procedures be tolled,
to the extent that such request is not moot, by adoption of this
decision.
33. We find that this debarment action is effective as to NEC-Business
Network Solutions, Inc., including any and all of its successors and
assigns. NEC suggests debarment should be limited to NEC-Business
Network Solutions, Inc., and not its successors and assigns. We
conclude, however, that the debarment must apply to the company's
successors and assigns to protect the integrity of the E-Rate program
and to ensure that debarment has its intended effect.
IV. CONCLUSION
34. Based on the foregoing and to protect the public interest, including
the investments made by American consumers to benefit this nation's
deserving school children, NEC-Business Network Solutions, Inc.,
including its successors and assigns, is hereby debarred from the
E-Rate program for six months, effective upon the earlier of receipt
of this Notice or its publication in the Federal Register.. During the
period in which NEC will serve its debarment, NEC, including its
successors and assigns, is prohibited from all activities "associated
with or related to the schools and libraries support mechanism,"
including "the receipt of funds or discounted services through the
schools and libraries support mechanism, or consulting with,
assisting, or advising applicants or service providers regarding the
schools and libraries support mechanism." We will continue to take
appropriate actions in future cases as warranted by the particular
circumstances to protect the integrity of the program.
V. ORDERING CLAUSES
35. Accordingly, IT IS ORDERED, pursuant to section 54.521 of the
Commission's rules, 47 C.F.R. S 54.521, that NEC-Business Network
Solutions, Inc., including its successors and assigns, IS DEBARRED
from the schools and libraries universal service support mechanism for
six months, effective upon the earlier of receipt of this Notice of
Debarment or publication in the Federal Register.
36. IT IS FURTHER ORDERED that the Universal Service Administrative
Company shall review with heightened scrutiny NEC's applications
submitted during the first two funding years upon its re-entry into
the E-Rate program.
37. IT IS FURTHER ORDERED that the Universal Service Administrative
Company shall conduct automatic annual audits on NEC's E-Rate
activities during the first two funding years upon its re-entry into
the E-Rate program.
38. IT IS FURTHER ORDERED, pursuant to sections 1 and 4(i) of the
Communications Act of 1934, as amended, 47 U.S.C. SS 151 and 154(i),
and section 1.3 of the Commission's rules, 47 C.F.R. S 1.3, that the
Petition for Waiver of Section 54.521 of the Commission's Rules, filed
by NEC-Business Network Solutions, Inc., on May 27, 2004, IS DENIED,
as described herein.
39. IT IS FURTHER ORDERED that the Enforcement Bureau staff shall send, by
certified mail/return receipt requested, a copy of this Notice of
Debarment and Order Denying Waiver Petition on the release date to
Richard Rubin, Thelen Reid & Priest LLP, Counsel to NEC-Business
Network Solutions, Inc., 701 Pennsylvania Avenue, N.W., Suite 800,
Washington, DC 23004-2608.
40. IT IS FURTHER ORDERED that the Enforcement Bureau staff shall send,
via email, a copy of this Notice on the release date to Richard Rubin,
[1]rrubin@thelenreid.com, and James A. Stenger,
[2]jstenger@thelenreid.com, Counsel to NEC-Business Network Solutions,
Inc.
41. IT IS FURTHER ORDERED, pursuant to section 54.521 of the Commission's
rules, 47 C.F.R. S 54.521, that this Notice SHALL BE PUBLISHED in the
Federal Register.
FEDERAL COMMUNICATIONS COMMISSION
Marlene H. Dortch
Secretary
CONCURRING STATEMENT OF
COMMISSIONER MICHAEL J. COPPS
Re: In the Matter of NEC-Business Network Solutions, Inc., File No.
EB-03-IH-0738
No program may be doing more to close the digital divide for rural
Americans and the economically disadvantaged than the E-Rate program.
Indeed, there are many hard-working people in the Schools and Libraries
Division, at the FCC and Justice Department, and elsewhere, who are to be
commended for successfully bringing the Internet to our schools and
libraries and for ensuring that waste, fraud and abuse are ferreted out.
NEC-Business Network Solutions, Inc.'s (NEC) convictions and its six month
debarment from the program is evidence of the joint effort underway to
eliminate any wrongdoing from the E-Rate program. I therefore concur in
today's Order.
However, as a general matter, I believe that a six month debarment period
is often times little more than a slap on the wrist for companies engaged
in efforts to defraud the E-Rate program of millions of dollars and, in
the end, our children of the tools they need in the Digital Age. There
were mitigating circumstances in this case, and the companion case of
Inter-Tel Technologies, Inc., that support a shorter debarment period.
However, a stronger penalty may have been warranted given the importance
of the E-Rate program and the severity of NEC's actions.
SEPARATE STATEMENT OF
COMMISSIONER JONATHAN S. ADELSTEIN
CONCURRING
Re: NEC-Business Network Solutions, Inc., Notice of Debarment and Order
Denying Waiver Petition, File No. EB-03-IH-0738, FCC 06-91 (June 21,
2006).
Since its inception, the universal service support mechanism for schools
and libraries (commonly referred to as the E-rate program) has opened up a
new world of learning and opportunity for millions of school children and
library patrons. To ensure the continued success of the E-Rate program, we
must remain committed to monitoring, auditing, reviewing and reinforcing
the program. A critical part of our Commission oversight is the use of
debarment, which prohibits bad actors from participating in the program.
Accordingly, I support our decision in this Order to debar NEC from all
involvement in the E-Rate program, our first such action against a
corporate defendant.
I concur in, rather than approve, this Order because I would have
supported a longer debarment period. The Commission's rules provide for a
debarment period of three years, which may be extended to protect the
public interest or reduced upon a finding of extraordinary circumstances.
I note that the Department of Justice has encouraged the Commission to
exercise our debarment policy in a way that encourages early and complete
cooperation from defendants, and I recognize that the Commission may take
into account payment of fines and restitution, the length of time that a
provider has not participated, and most importantly a high degree of
cooperation with law enforcement. Even weighing these factors, the
six-month debarment period adopted in this Order falls short, given the
scope and seriousness of the fraud-related activities in this case. Strong
enforcement encourages compliance, and penalties should be substantial
enough to constitute more than just a cost of doing business. In this
case, a longer debarment period would have sent a stronger and clearer
message that fraud will not be tolerated.
This case arises out of the same underlying federal criminal investigation
as another case involving Inter-Tel Technologies, Inc. ("Inter-Tel").
Inter-Tel Technologies, Inc., Notice of Debarment, FCC 06-92 (the
"Inter-Tel Debarment Order").
See 47 U.S.C. S 254.
See 47 U.S.C. S 254(b).
47 U.S.C. S 254(b).
47 C.F.R. SS 54.502-03.
Basmat Parsad and Jennifer Jones, Internet Access in U.S. Public Schools
and Classrooms: 1994-2003 (NCES 2005-015), U.S. Department of Education,
Washington DC: National Center for Education Statistics (February 2005),
available at http://nces.ed.gov/pubs2005/2005015.pdf.
See Changes to the Board of Directors of the National Exchange Carrier
Association, Third Report and Order in CC Docket No. 97-21, Fourth Order
on Reconsideration in CC Docket No. 97-21 and Eighth Order on
Reconsideration in CC Docket No. 96-45, 13 FCC Rcd 25058, 25063-66, PP
10-14 (1998) ("USAC Appointment Order"); 47 C.F.R. S 54.701(a).
This amount was disbursed as of April 30, 2005.
See Universal Service - Schools and Libraries Support Mechanism Commitment
Status Weekly Report, dated April 29, 2005.
See 47 C.F.R. S 54.507.
The E-Rate and other universal service programs are funded by mandatory
contributions to the USF by all telecommunications carriers providing
interstate and international services. 47 U.S.C. S 254. Under section
254(d), the Commission can exempt carriers from universal service
contribution requirements if the contributions would be de minimis. 47
U.S.C. S 254(d). The de minimis threshold is currently $10,000. See
Federal-State Joint Board on Universal Service, Fourth Order on
Reconsideration in CC Docket No. 96-45, Report and Order in CC Docket Nos.
96-45, 96-262, 94-1, 91-213, 95-72, 13 FCC Rcd 5318, 5482, P 297 (1997)
("Fourth Reconsideration Order"); 47 C.F.R. S 54.708. Telecommunications
carriers may pass the costs of these contributions along to consumers
including through line-item fees on the consumers' monthly telephone
bills. See 47 C.F.R. S 54.712.
Comprehensive Review of Universal Service Fund Management, Administration,
and Oversight, Federal-State Joint Board on Universal Service, Schools and
Libraries Universal Service Support Mechanism, Rural Health Care Support
Mechanism, Lifeline and Link-Up, Changes to the Board of Directors for the
National Exchange Carrier Association, Inc., Notice of Proposed Rulemaking
and Further Notice of Proposed Rulemaking and Further Notice of Proposed
Rulemaking, 20 FCC Rcd 11308 (2005) ("Universal Service Fund Oversight
NPRM"); Schools and Libraries Universal Service Support Mechanism, Fifth
Report and Order, 19 FCC Rcd 15808 (2004) ("Fifth Report and Order");
Federal-State Joint Board on Universal Service; Changes to the Board of
Directors for the National Exchange Carrier Association, Inc., Schools and
Libraries Universal Service Support Mechanism, Order on Reconsideration
and Fourth Report and Order, 19 FCC Rcd 15252 (2004) ("Fourth Report and
Order"); Schools and Libraries Universal Service Support Mechanism, Third
Report and Order and Second Further Notice of Proposed Rulemaking, 18 FCC
Rcd 26912 (2003) ("Third Report and Order"); Schools and Libraries
Universal Service Support Mechanism, Second Report and Order, 18 FCC Rcd
9202 (2003) ("Second Report and Order").
47 C.F.R. S 54.707.
47 C.F.R. S 54.717.
See Third Report and Order, 18 FCC Rcd at 26944-52, PP 78-85; Fourth
Report and Order, 19 FCC Rcd at 15255-59, PP 10-22.
See Fifth Report and Order, 19 FCC Rcd at 15830-32, PP 64-71. In
appropriate cases, we may also initiate forfeiture proceedings against
those responsible for misconduct pursuant to section 503(b) of the Act.
Universal Service Fund Oversight NPRM.
See 47 C.F.R. S 54.521; Second Report and Order, 18 FCC Rcd at 9227, P 74.
The rule defines a "person" as any individual, group of individuals,
corporation, partnership, association, unit of government or legal entity,
however organized. 47 C.F.R. 54.521(a)(6).
Second Report and Order, 18 FCC Rcd 9225, P 66.
Second Report and Order, 18 FCC Rcd 9227, P 74.
47 C.F.R. S 54.521(c).
47 C.F.R. S 54.521(e)(1); Second Report and Order, 18 FCC Rcd 9226, P 69.
47 C.F.R. SS 54.521(e)(3), 54.521(e)(4).
47 C.F.R. S 54.521(e)(5).
47 C.F.R. S 54.521(g).
Letter from Maureen F. Del Duca, Chief, Investigations and Hearings
Division, Enforcement Bureau, to Oscar Alvarez, Connect2 Internet Network,
Inc., DA 03-2706, Notice of Debarment, December 23, 2003 ("Alvarez
Debarment"); Letter from Maureen F. Del Duca, Chief, Investigations and
Hearings Division, Enforcement Bureau, to John Angelides, Connect2
Internet Network, Inc., DA 03-4088, Notice of Debarment, December 23, 2003
("Angelides Debarment"); Letter from Maureen F. Del Duca, Chief,
Investigations and Hearings Division, Enforcement Bureau, to Duane
Maynard, Howe Electric, Inc., DA 03-4089, Notice of Debarment, December
23, 2003 ("Maynard Debarment"); Letter from William H. Davenport, Chief,
Investigations and Hearings Division, Enforcement Bureau, to John Dotson,
DA 04-3828, Notice of Debarment, December 6, 2004 ("Dotson Debarment");
Letter from William H. Davenport, Chief, Investigations and Hearings
Division, Enforcement Bureau, to John Henry Weaver, DA 05-1727, Notice of
Debarment, June 23, 2005 ("Weaver Debarment"); Letter from William H.
Davenport, Chief, Investigations and Hearings Division, Enforcement
Bureau, to Haider Bokhari, DA 05-1730, Notice Debarment, June 23, 2005
("H. Bokhari Debarment"); Letter from William H. Davenport, Chief,
Investigations and Hearings Division, Enforcement Bureau, to Qasim
Bokhari, DA 05-1728, Notice of Debarment, June 23, 2005 ("Q. Bokhari
Debarment"); Letter from William H. Davenport, Chief, Investigations and
Hearings Division, Enforcement Bureau, to Ronald R. Morrett, DA 05-2349,
Notice of Debarment, August 30, 2005 ("Morrett Debarment").
One of the debarment proceedings involves NEC, and the other involves
Inter-Tel. See supra note 1.
Letter from William H. Davenport, Chief, Investigations and Hearings
Division, Enforcement Bureau, to Tom Tsao, Vice President, Premio Inc., DA
06-489, Notice of Suspension and Initiation of Debarment Proceedings,
February 28, 2006 ("Premio Suspension Notice); Letter from Kris A
Monteith, Chief, Enforcement Bureau, to Robert J. Buhay, Chief Financial
Officer, NextiraOne, LLC, DA 06-951, Notice of Suspension and Initiation
of Debarment Proceedings, April 28, 2006 ("NextiraOne Suspension Notice).
U.S. v. NEC-Business Network Solutions, Inc., Docket No. 3:04cr00184CRB,
Plea Agreement (N.D. Cal. filed May 27, 2004 and entered Jun. 3, 2004)
("NEC Plea Agreement"); See United States v. NEC-Business Network
Solutions, Inc., No. CR 04-0184, Information (N.D. Cal. filed May 24,
2004); U.S. ex rel. San Francisco Unified School District v. Nippon
Electric Co. Business Network Solutions, et. al., Docket No. C 02-2398CRB,
Civil Settlement Agreement, 1 (dated May 27, 2004) ("NEC Civil Settlement
Agreement"); NEC Plea Agreement at 3.
NEC Plea Agreement at 4-7, 18 U.S.C. S 1343, 15 U.S.C. S 1. See also U.S.
v. NEC-Business Network Solutions, Inc., Docket No. 3:04cr00184CRB,
Judgment (N.D. Cal. filed Jun. 1, 2004 and entered Jun. 3, 2004) ("NEC
Judgment").
NEC Plea Agreement at 4.
Id. at 5.
NEC Plea Agreement at 6.
NEC Plea Agreement at 7, Exhibit C.
NEC Plea Agreement at 4-7.
On May 27, 2004, the Court approved the plea agreement and imposed
sentence on NEC, which was entered on June 3, 2004. See U.S. v.
NEC-Business Network Solutions, Inc., Docket No. 3:04cr00184CRB, Criminal
Docket (N.D.Cal. 2004); NEC Plea Agreement at 2; NEC Judgment at 1.
15 U.S.C. S 1, 18 U.S.C. S 1343.
NEC Plea Agreement at 11.
See NEC Plea Agreement at 11-13 and Exhibit A, Special Conditions of
Probation; NEC Civil Settlement Agreement.
See NEC-Business Network Solutions, Inc., Petition for Waiver of Section
54.521 of the Commission's Rules, EB File No. 03-IH-0738 (filed May 27,
2004) ("NEC Waiver Petition").
See NEC Waiver Petition at 1.
NEC-Business Network Solutions, Inc. Petition for Waiver of Section 54.521
of the Commission's Rules, Supplement to Petition for Waiver, filed June
30, 2004 ("NEC June 30^th Supplemental Filing").
NEC Waiver Petition at 3, 5, 16-17; NEC June 30^th Supplemental Filing at
3.
Public Notice, "Enforcement Bureau, Investigations and Hearings Division,
Seeks Comment on NEC Petition for Waiver of Section 54.521 of the
Commission's Rules," DA 04-2034 (Enf. Bur., rel. July 7, 2004) ("July 7^th
Public Notice").
See SECA Comments to NEC-Business Network Solutions, Inc. Petition for
Waiver of Section 54.521 of the Commission's Rules, filed July 19, 2004
("SECA Comments"); Letter from Hon. Joe Barton, Chairman, and Hon. John D.
Dingell, Ranking Member, Committee on Energy and Commerce, U.S. House of
Representatives, to Hon. Michael K. Powell, Chairman, Federal
Communications Commission, filed July 29, 2004 ("House Commerce Committee
Leadership Comments"). NEC filed responses. See Reply Comments of NEC,
filed on July 29, 2004 ("NEC Reply Comments"); Letter from James A.
Stenger, Thelen Reid & Priest LLP, Counsel for NEC, to Marlene H. Dortch,
Secretary, Federal Communications Commission (filed August 5, 2004) ("NEC
August 5^th Letter").
SECA Comments at 2.
SECA Comments at 1, 2.
SECA Comments at 2.
House Commerce Committee Leadership Comments at 3. The hearing was held on
July 22, 2004. See
[3]http://energycommerce.house.gov/108/Hearings/07222004hearing1343/hearing.htm#Related.
Congress held other hearings on E-Rate matters as well. See
[4]http://energycommerce.house.gov/108/Hearings/06172004hearing1291/hearing.htm
("June 17, 2004 E-Rate Hearing");
[5]http://energycommerce.house.gov/108/Hearings/09222004hearing1358/hearing.htm
("September 22, 2004 E-Rate Hearing").
House Commerce Committee Leadership Comments at 3.
See Letter from Scott M. Watson, Chief, Antitrust Division, U.S.
Department of Justice, to Marlene H. Dortch, Secretary, Federal
Communications Commission (June 22, 2004) ("DOJ June 22^nd Letter");
Letter from James M. Griffin, Deputy Assistant Attorney General, to
Marlene H. Dortch, Secretary, Federal Communications Commission (August 5,
2004) ("DOJ August 5^th Letter").
DOJ August 5^th Letter at 2.
47 C.F.R. S 54.521(b). See Infra, P 32 for discussion on NEC's request to
toll the suspension procedures.
47 C.F.R. 54.521(g).
47 C.F.R. S 54.521(f).
Second Report and Order, 18 FCC Rcd at 9225, P 64.
47 C.F.R. S 54.521(f).
47 C.F.R. S 1.3.
See WAIT Radio v. FCC, 418 F.2d 1153, 1157 (D.C. Cir. 1969), cert. denied,
409 U.S. 1027 (1972) ("WAIT Radio"). See also Orange Park Florida T.V.,
Inc. v. FCC, 811 F.2d 664, 669 (D.C. Cir. 1987).
Northeast Cellular Telephone Co. v. FCC, 897 F.2d 1164, 1166 (D.C. Cir.
1990).
NEC Plea Agreement.
47 C.F.R. S 54.521(c).
47 C.F.R. S 54.521(b).
NEC Waiver Petition at 3, 5, 16-17; NEC June 30^th Supplemental Filing at
3.
See NEC Waiver Petition.
See NEC Waiver Petition at 18; NEC June 30^th Supplemental Filing at 6.
47 C.F.R. 54.521(f).
SECA Comments at 2.
See Second Report and Order, 18 FCC Rcd at 9225, P 66.
DOJ June 22^nd Letter at 1; NEC Plea Agreement at 14, P 19.
DOJ June 22^nd Letter at 1.
Id.
Id.
DOJ August 5^th Letter at 1.
DOJ August 5^th Letter at 2.
DOJ August 5^th Letter at 2.
DOJ August 5^th Letter at 2.
DOJ August 5^th Letter at 1-2.
NEC Unified Solutions, Inc. Compliance Report to the FCC Enforcement
Bureau and FCC Office of the Inspector General, dated April 29, 2005; NEC
Unified Solutions, Inc. Compliance Report to the FCC Enforcement Bureau
and Office of the Inspector General, dated July 27, 2004; NEC Reply
Comments at 3; NEC Waiver Petition at 13-16. DOJ June 22^nd Letter at 2.
See Fifth Report and Order, 19 FCC Rcd at 15822-23, P 44. We note that the
Commission currently is considering what particular requirements, if any,
that it should apply in conducting heightened review of E-Rate program
participants. See Universal Service Fund Oversight NPRM, 20 FCC Rcd at
11345, P 91.
NEC Civil Settlement Agreement at 8.
We also reject NEC's contention that the Compliance Program it agreed to
as part of the Special Conditions of Probation is sufficient to protect
the program against additional waste, fraud and abuse. As noted above,
debarment is the only way to ensure the absence of additional waste, fraud
and abuse.
See NEC Reply Comments at 3, n.11.
We similarly reject NEC's argument that debarment is inequitable because
its Settlement Agreement was "entered into by the United States of
America, acting through the United States Department of Justice and on
behalf of the Federal Communications Commission (FCC), including its agent
the Universal Service Administrative Company (USAC) (collectively, the
United States)." NEC Civil Settlement Agreement at 1. As noted above,
Paragraph 6 of the Settlement Agreement specifically states that debarment
actions are not precluded by the terms of the Settlement Agreement. Id. at
6, 8.
See NEC June 30^th Supplemental Filing at 9-11, citing Bowen v. Georgetown
University Hospital, 109 S.Ct. 468 (1988).
See 47 C.F.R. S 54.521(c), (e).
47 C.F.R. S 54.521(e)(1) - (e)(4).
47 C.F.R. S 54.521(e).
See 47 C.F.R. S 54.521(e)(4); July 7^th Public Notice.
We note, and NEC acknowledges in its pleadings, that the terms of its plea
agreement with DOJ subject any NEC successor organization to the Special
Conditions of Probation. See NEC Waiver Petition at 8; NEC Plea Agreement,
Exhibit A, Special Conditions of Probation, P 19.
NEC June 30^th Supplemental Filing at 7-9.
See 47 C.F.R. S 54.521(e)(5).
See 47 C.F.R. SS 54.521(a)(1), 54.521(a)(5), 54.521(d).
Federal Communications Commission FCC 06-91
9
Federal Communications Commission FCC 06-91
Federal Communications Commission FCC 06-91
Federal Communications Commission FCC 06-92
References
Visible links
1. mailto:rrubin@thelenreid.com
2. mailto:jstenger@thelenreid.com
3. http://energycommerce.house.gov/108/Hearings/07222004hearing1343/hearing.htm#Related
4. http://energycommerce.house.gov/108/Hearings/06172004hearing1291/hearing.htm
5. http://energycommerce.house.gov/108/Hearings/09222004hearing1358/hearing.htm