United States: Alstom's FCPA Guilty Plea And Fine Of $772 Million Offer Compelling Lessons

Behind the Headlines

The December 23, 2014, announcement by the U.S. Department of Justice (DOJ) that Alstom, S.A., a French power and transportation company, pled guilty to two Foreign Corrupt Practices Act (FCPA) charges and agreed to pay $772 million in fines generated headlines for the record-breaking size of the fine and scope of Alstom's scheme to pay bribes to officials in several countries, including the Middle East, Asia, and the Caribbean. Choices made by the prosecution team provide powerful instruction on what the DOJ expects public companies to do to prevent and detect FCPA violations and, emphatically, what not to do regarding their obligations when it comes to books and records and accounting controls. The prosecution illustrates that merely having FCPA policies and due diligence protocols — without effective enforcement — not only is insufficient protection, but may actually be used as evidence against the company.

Summary of the DOJ's Charges

The DOJ alleged widespread payoffs, reliance on consultants as conduits to pay bribes, and an extensive, behind-the-scenes cover-up at Alstom. The Deputy Attorney General characterized the decade-long scheme as "astounding in its breadth, its brazenness and its worldwide consequences": more than $75 million paid for $4 billion in projects that generated a profit of approximately $300 million. Yet the multinational conglomerate did not plead guilty to the anti-bribery provision of the FCPA statute. Rather, under the plea agreement, Alstom pled guilty to two counts of violating the FCPA's accounting controls provisions: falsifying the company's books and records, and failing to implement adequate internal controls.

Separately, Alstom's Swiss subsidiary pled guilty to conspiracy to violate the anti-bribery provisions of the FCPA, and two U.S. subsidiaries entered into deferred prosecution agreements (in which they acknowledged they had conspired to violate the anti-bribery provisions of the FCPA). In addition, three company executives pled guilty to FCPA charges, a member of the Indonesian parliament was convicted of accepting bribes from Alstom, and one Alstom executive awaits trial.

Use of Consultants to Pay Bribes

At the heart of the scheme's modus operandi, as Alstom acknowledged in the 41-page statement of facts, was the company and its subsidiaries' extensive use of "consultants" to help win public projects. Alston conceded, however, that the consultants' primary purpose was not to provide legitimate services for bidding on and executing projects, but to bribe government officials to obtain power and transportation contracts from state-owned agencies and related businesses.

For example, consultants were retained in Indonesia to pay bribes to a member of Parliament and to an executive at the state-owned electricity company agency that was awarding the contract. Similar arrangements with consultants retained to influence foreign officials in awarding public contracts, through bribe payments, were allegedly carried out in Saudi Arabia (as part of a joint venture), Egypt, Taiwan, and the Bahamas. The bribe payments came in the usual flavors, such as gifts and cash, as well as hiring family members and contributing to a charity associated with a foreign official — in this case, more than $2 million.

Use of Company Books and Records to Further the Bribery Scheme

Particularly noteworthy and cautionary were the false record entries and ineffective accounting controls that the plea agreement identified. To prevent detection, employees instructed others to create false invoices and supporting documentation to reflect legitimate services. Euphemistic record entries for bribe payments were viewed as criminal mischaracterizations and evidence of concealment. For example, bribe payments were entered into company books as "commissions" or "consultancy fees," and consultancy agreements with provisions prohibiting unlawful payments were acknowledged to be instruments of concealment.

As part of its guilty plea, Alstom admitted that it knowingly and falsely had recorded the bribes in company books and records by calling them "donations," "consultation" expenses, and other legitimate expenses in its books. Alstom also made false statements outside of its internal records by falsely certifying to regulators that it had not used consultants on particular projects or made unlawful payments in connection with the projects.

"Red Flags" and Disregarded Internal Policies

In addition to books and records issues, examples of suspicious conduct were disregarded, notwithstanding Alstom's own internal policies prohibiting unlawful payments to foreign officials, including through consultants. The "red flags" identified in the Alstom plea agreement present all-too-common risks for many companies that rely on third-party representatives to assist in their operations abroad. In this case, the consultants:

  • Had no prior experience or expertise in the relevant industry for the project
  • Resided in countries different from where the project was located
  • Requested payment in a currency or bank account outside of where they or the project was located
  • Requested front-loaded payments (in this case, such payments were in violation of company internal policies as well as the original terms of the contract)

In several examples, Alstom hired multiple consultants on the same project, presumably to perform the identical services. Companies subject to FCPA jurisdiction would be well advised to be on the lookout for red flags involving consultants.

In this case, the DOJ took aim not at the company's policies, but at its enforcement — or, in the DOJ's view, the lack thereof. Indeed, the DOJ characterized the violation of the company's own policies as evidence of criminal activity. Due diligence failures were viewed as the handiwork of enabling supervising managers: "executives who had the ability to ensure appropriate controls surrounding the due diligence process themselves knew, or knowingly failed to take action that would have allowed them to discover that the purpose of hiring the consultant was to conceal payments to foreign officials" in order to win public projects and other benefits.

Factors Affecting the Terms of the Plea Agreement, Including the Amount of the Fine

The penalty of $772 million payable to the DOJ is the largest in an FCPA case, and is second only to Siemens's total of $800 million, which included a $350 million payment to the SEC. In this case, the DOJ identified a host of aggravating factors that contributed to its insistence on this enormous fine: Alstom's failure to voluntarily disclose the conduct even though it was aware of related misconduct by a U.S. subsidiary; its initial failure to cooperate, which was viewed as impeding the DOJ's investigation of individuals, and subsequent cooperation only after several company executives and employees had been publicly charged; the sophistication, duration, and scope of the FCPA scheme (covering bribery, books and records and accounting controls provisions), spanning several countries and business lines; prior similar criminal misconduct of its subsidiaries; and, perhaps most significant here, an ineffective compliance program.

Lessons for the Future

Painfully clear are the harsh criminal, civil, financial, and reputational consequences that can wreak havoc on companies and, increasingly, individual executives when even explicit and well-intended compliance policies are circumvented and controls are lax or nonexistent. Carefully identifying and evaluating compliance risks — including looking at how and where business operations are conducted — are first steps in assessing the effectiveness of existing company policies. Taking reasonable measures to ensure that the policies are being enforced and are, in fact, effective requires reviewing and then testing existing due diligence protocols for consultants and agents, transactional parties, and business partners. Appropriate risk-based modifications should then be implemented and also tested repeatedly. Doing these things should go a long way to help protect companies, their executives and employees, and company assets.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions