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
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
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 (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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