FCC Cracks Down on USF Violations
As his tenure as FCC head winds down, Chairman Tom Wheeler’s enforcement priority appears to be universal service. Over the past five weeks, the Commission has issued four decisions finding apparent violations of the USF rules, and has proposed heavy penalties in the Commission’s first-ever enforcement actions involving the rural health care program and the high-cost program.
- In early November, the Commission charged a Nevada-based service provider with violating the rural health care program’s competitive bidding rules and using forged and false documents to seek funding from the program. In a notice of apparent liability for forfeiture (NAL)* issued against Network Services Solutions, LLC, the Commission described the actions of the company and its chief executive officer—which included giving a gift to a health care provider to entice it to award a contract, inflating the rates it charged, and using proprietary and confidential information from other providers to gain an unfair advantage in the competitive bidding process—as “systematic and egregious misconduct,” and proposed to fine the company and its CEO more than $21 million, as well as to require the repayment of $3.5 million in rural health care funding.
- This week, the Commission charged Sandwich Isles Communications, a service provider operating in Hawaii, with violating the high-cost program rules. The Commission found that the company had apparently violated the Commission’s recordkeeping requirements for recipients of high-cost support, and had also miscategorized business expenses and regulated costs and misclassified its cable and wire facilities costs, in violation of Parts 32 and 36 of the Commission’s rules. These violations apparently involved submitting inaccurate cost study data and falsely certifying the accuracy of that data. The NAL proposed more than $49 million in fines against the company and its CEO, as well as repayment of more than $27 million in high-cost funding.
- The Commission also issued NALs against two companies for apparent violations of the Commission’s USF contributions rules and related reporting requirements. On December 2, the Commission proposed a $392,930 fine against NECC Telecom for apparently charging excessive and unlawful universal service fees to its customers. On November 18, the Enforcement Bureau proposed a $100,000 fine against WDT World Discount Telecommunications Co., Inc. for apparently failing to comply with the contributor filing requirements.
- Both NALs address especially egregious behavior. The FCC launched its investigation of Sandwich Isles after its CEO was convicted of criminal tax fraud for using corporate funds to pay personal expenses and illegally deducting them as legitimate business expenses, and the investigation found that USF funding has been similarly misused. The Network Services Solutions NAL described the actions of the company and its chief executive officer, which the Commission found included apparent violations of the federal criminal wire fraud statute, as “systematic and egregious misconduct.”
- In both NALs, the Commission “pierced the corporate veil” to assign liability to the company’s CEO as an individual as well as to the corporation. The Commission took this unusual measure after concluding in both cases that the corporation and the individual were essentially one and the same, and that personal as well as corporate liability was necessary to ensure the integrity of the USF program.
- In both NALs, the Commission also ordered the company to show cause why the Commission should not revoke its licenses.
- Both NALs reflect the Commission’s approach that “continuing” or “ongoing” violations of Commission rules negate the one-year statute of limitations that would ordinarily apply to these types of rule violations. (The Commission took the same approach in its NAL against AT&T in July of this year for alleged violations of the E-rate lowest corresponding price rule.) This approach allows the Commission to propose higher per-violation penalties than would otherwise be permitted under the Communications Act. Commissioner Pai dissented from this aspect of the rural health care NAL (as well as the AT&T NAL in July), but did not dissent from the high-cost NAL.
* A notice of apparent liability for forfeiture is essentially a proposed fine, not a final Commission action. The Commission issues an NAL after an investigation reveals that a party has violated a legal requirement that the Commission enforces. The NAL advises the party how it has violated the law and the amount of the proposed penalty. The parties are given an opportunity to respond before a final decision is issued.
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