United States: Alstom Guilty Plea Sends Strong Message That DOJ Has Harsh View Of Inadequate Internal Controls And Failure To Fully Cooperate

On December 22, 2014, French power and transportation company Alstom S.A. ("Alstom") pleaded guilty to violating the Foreign Corrupt Practices Act ("FCPA") and agreed to pay $772.29 million, the largest criminal fine ever imposed by DOJ in an FCPA case and the second largest FCPA settlement overall.1 Alstom's failure to voluntarily disclose the violations and its initial unwillingness to cooperate with DOJ's investigation were significant factors contributing to the record-breaking fine. Also notable is the degree to which Alstom's internal controls failed to detect or prevent the use of consultants to make corrupt payments and concomitant falsification of the company's records.

While three Alstom subsidiaries resolved criminal charges under the FCPA's anti-bribery provisions, Alstom itself pleaded guilty only to books-and-records and internal controls violations; however, those violations were particularly troubling because of their breadth and because they occurred despite paper compliance policies specifically aimed at identifying and preventing the type of conduct at issue. In addition to the $772.29 million fine, Alstom agreed to comply with the monitoring requirements imposed by an agreement it reached with the World Bank Group in February 2012. In the event of its failure to meet those monitoring requirements to the satisfaction of the World Bank's Integrity Compliance Office, Alstom agreed that it will retain an independent monitor for a period of three years.

Through its subsidiaries around the world, Alstom bids on projects to perform power and transportation-related services, including work for state-owned entities. Alstom Power Inc. ("Alstom Power") and Alstom Grid Inc. ("Alstom Grid"), both U.S. subsidiaries, and Alstom Network Schweiz AG ("Alstom Schweiz"), a Swiss subsidiary, also faced FCPA charges for their roles in the corrupt scheme. Both Alstom Power and Alstom Grid entered into deferred prosecution agreements, resolving allegations under the anti-bribery provisions, and Alstom Schweiz pleaded guilty to conspiring to violate the FCPA's anti-bribery provisions. In addition, four Alstom executives have been criminally charged for their alleged involvement in Alstom's FCPA violations. To date, three of the executives have pleaded guilty to conspiring to violate the FCPA, and the fourth, Lawrence Hoskins, is awaiting trial following the court's denial on December 29, 2014, of his motion to dismiss the government's indictment.

According to a filed statement of facts, Alstom and its subsidiaries bribed foreign government officials and falsified the company's records to help Alstom secure projects in Indonesia, Egypt, Saudi Arabia, the Bahamas, and Taiwan. At the center of the scheme were "consultants" that Alstom purportedly hired to perform legitimate services in connection with bidding and executing various projects, when in actuality the consultants were retained to transfer bribe payments to foreign officials. In an effort to conceal the consultants' real purpose, Alstom created phony consultancy agreements which purported to cover legitimate services and which often included provisions prohibiting unlawful payments to foreign officials. Alstom and its subsidiaries disguised the bribe payments on its books and records by describing them as "commissions," "consultancy fees," "donations," or other legitimate expenses. Ultimately, Alstom paid roughly $75 million in "consultancy fees" which were in part funneled to government officials in order to secure approximately $4 billion in projects, resulting in profits to Alstom of almost $300 million.

Deputy Attorney General James Cole described the corruption scheme as "astounding in its breadth, its brazenness, and its worldwide consequences." The failure of Alstom's internal controls, as described in the plea agreement, is of particular note. Although Alstom had anti-corruption and anti-bribery policies—many of them specifically targeted at preventing the payment of bribes and the falsification of books and records—Alstom employees, including executives, violated the policies or ignored red flags the policies were designed to detect. According to the filed statement of facts:

A number of consultants that Alstom hired raised a number of "red flags" under Alstom's own internal policies. Certain consultants proposed for retention had no expertise or experience in the industry sector in which Alstom was attempting to secure or execute the project. Other consultants were located in a country different than the project country. At other times, the consultants asked to be paid in a currency or in a bank account located in a country different than where the consultant and the project were located. In multiple instances, more than one consultant was retained on the same project, ostensibly to perform the very same services. Despite these "red flags," the consultants were nevertheless retained without meaningful scrutiny.

Alstom also failed to comply with internal policies governing the retention and payment of consultants. For instance, Alstom's consultancy agreements stated that consultants would be paid on a pro rata basis tied to project milestones or as Alstom was paid by the customer. However, on numerous occasions, Alstom's employees changed the amount and terms of payment for the consultants in violation of the company's internal policies. This was done so that Alstom could generate additional money quickly in order to make corrupt payments. Consultants were paid without timely or adequate documentation of legitimate services having been performed. At times, Alstom employees helped consultants create false documentation to facilitate payment approval.

In addition to highlighting the scope and breadth of the misconduct at issue, the plea agreement highlighted the degree to which DOJ expects prompt disclosure and early and thorough cooperation. The government cited the following factors as relevant to its decision to impose a $772.29 million penalty:

Alstom's failure to voluntarily disclose the misconduct even though it was aware of related misconduct at a U.S. subsidiary; Alstom's refusal to fully cooperate with the department's investigation for several years; the breadth of the companies' misconduct, which 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's lack of an effective compliance and ethics program at the time of the conduct; and Alstom's prior criminal misconduct, including conduct that led to resolutions with various other governments and the World Bank.

Prosecutors' expectations for companies doing business abroad have become clearer with each new FCPA enforcement action. The massive fine imposed on Alstom, the extraction of a guilty plea rather than a deferred prosecution agreement, and the indictment of the company's executives send a sharp rebuke to corporations and employees that still believe paper anti-corruption compliance policies will be credited in any way absent meaningful enforcement of those controls. Indeed, having a compliance program on paper only may be more harmful than having none at all. And as we mark a decade of robust FCPA enforcement, DOJ has again broadcast its view that anything less than swift and thorough cooperation with a DOJ investigation will be punished should wrongdoing ultimately be discovered.

Footnotes

1.In 2008 Siemens paid $800 million to resolve both criminal and civil charges brought by DOJ and the SEC.

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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.