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