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From Securities Regulation Daily, December 22, 2014

Alstom settles criminal FCPA charges for record $772 million

By Lene Powell, J.D.

The French power and transportation company Alstom, S.A., pleaded guilty and agreed to pay a fine of over $772 million for violating the Foreign Corrupt Practices Act (FCPA) by bribing government officials in multiple countries to secure projects for state-owned entities. The settlement follows criminal FCPA charges against four corporate executives of Alstom and its subsidiaries over the last few years (U.S. v. Alstom, S.A., December 22, 2014).

“This investigation spanned years and crossed continents, as agents from the FBI Washington and New Haven field offices conducted interviews and collected evidence in every corner of the globe,” said FBI Executive Assistant Director Anderson.  “The record dollar amount of the fine is a clear deterrent to companies who would engage in foreign bribery, but an even better deterrent is that we are sending executives who commit these crimes to prison.”

In a statement, the company said it has made significant progress in compliance over the last several years, and that a World Bank monitor has confirmed this. Alstom CEO Patrick Kron said, “There were a number of problems in the past and we deeply regret that. However, this resolution with the DOJ allows Alstom to put this issue behind us and to continue our efforts to ensure that business is conducted in a responsible way, consistent with the highest ethical standards.”

The company said the settlement will not have a material impact on the projected sale of Alstom’s energy businesses to General Electric.

Bribery of foreign officials. Alstom, S.A., was headquartered in France and was in the business of designing, constructing, and providing services related to power generation facilities, power grids, and rail transportation systems around the world. Shares of Alstom’s stock were listed on the New York Stock Exchange until 2004, and the company was an issuer under the FCPA during the relevant time. Alstom had direct and indirect subsidiaries in various countries through which it bid on projects to secure contracts to perform power, grid, and transportation services, including for state-owned entities. 

Alstom hired consultants who supposedly performed legitimate services in connection with bidding on and executing various projects, but in reality made payments to bribe foreign officials. The consultants provided gifts and petty cash and hired officials’ family members in exchange for the officials’ assistance in obtaining or retaining business in connection with projects for Alstom and its subsidiaries. Alstom perpetuated the corrupt acts over the course of a decade and on several continents, including bribery of officials in Indonesia, Egypt, Saudi Arabia, the Bahamas and Taiwan, among other countries. All told, Alstom paid over $75 million to secure approximately $4 billion in projects in multiple countries, with a gain to Alstom of about $296 million.

A typical example was in Indonesia, in which several consultants paid bribes to officials including a high-ranking member of the Indonesian Parliament and high-ranking members of the state-owned electricity company in exchange for assistance in securing several contracts to provide power-related services valued at about $375 million. Several Alstom executives were aware of the bribes, and little or no due diligence was done on the consultants’ activities despite a number of red flags. For example, two consultants were hired to perform the same ostensible services, and the terms of payment for one consultant were front-loaded, in violation of Alstom’s internal policies and the original terms of the consultant contract.

Records and accounting violations. In addition to the anti-bribery provisions, the FCPA requires issuers to keep books, accounts, and records that fairly and accurately reflect transactions and distribution of the company’s assets, and to maintain certain internal accounting controls.

Alstom disguised the payments by falsely recording them as “commissions,” “donations,” or “fees,” and created consultancy agreements that provided for legitimate services to be rendered by the consultants. The agreements prohibited unlawful payments, even though Alstom executives and employees knew that consultants were using some or all of their consultancy fees to bribe foreign officials. Certain Alstom employees instructed the consultants to submit false invoices and other documentation reflecting purported legitimate services that were not actually performed.  Alstom also submitted false certifications to USAID saying that it was not using consultants on certain projects, when in fact it was.

Sanctions. Alstom pleaded guilty to a two-count criminal information, admitted its criminal conduct, and agreed to pay a criminal penalty of over $772 million. In addition, two subsidiaries entered into deferred prosecution agreements, and another pleaded guilty to conspiracy to violate the anti-bribery provisions of the FCPA.

According to the plea agreement, a number of factors were considered in reaching the massive penalty amount:

  • Alstom did not voluntarily disclose the misconduct, even though it was aware of related misconduct at a U.S. subsidiary that previously resolved corruption charges with the department in connection with a power project in Italy;

  • Alstom refused to fully cooperate with the department’s investigation for several years;

  • The misconduct was widespread and spanned many years, occurred in countries around the globe and in several business lines, and involved sophisticated schemes to bribe high-level government officials;

  • Alstom lacked an effective compliance and ethics program at the time of the conduct; and

  • Alstom had prior criminal misconduct, including conduct that led to resolutions with various other governments and the World Bank.

Over the last three years, the DOJ has announced charges against five individuals, including four corporate executives of Alstom and its subsidiaries, for alleged corrupt conduct involving Alstom. After several executives were charged, Alstom began providing thorough cooperation, including assisting the department’s prosecution of other companies and individuals.

Assistant Attorney General Caldwell said, “With cooperation or without it, the department will identify criminal activity at corporations and investigate the conduct ourselves, using all of our resources, employing every law enforcement tool, and considering all possible actions, including charges against both corporations and individuals.”

The case is U.S. v. Alstom, S.A.

MainStory: TopStory Enforcement

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