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Alcatel-Lucent’s Woes Continue

First it was Lucent Technologies. It settled parallel DOJ and SEC enforcement actions principally based on providing excessive travel and entertainment benefits to Chinese “foreign officials” (see here and here).

Then it was Alcatel-Lucent. It settled Costa Rican charges that it paid “kickbacks to former Costa Rican President Miguel Angel Rodriguez and other government officials in return for a 2001 contract worth $149 million to supply cellular telephone equipment.” (See here).

Then it was Alcatel-Lucent that disclosed it had reached agreements with the DOJ and SEC to resolve bribery and corruption allegations in several countries, including Costa Rica, Taiwan, and Kenya. These agreements have not yet been announced. Here is what the company most recently said in its March 23rd Form 20-F:

“FCPA investigations: In December 2009 we reached agreements in principle with the SEC and the U.S. Department of Justice with regard to the settlement of their ongoing investigations involving our alleged violations of the Foreign Corrupt Practices Act (FCPA) in several countries, including Costa Rica, Taiwan, and Kenya. Under the agreement in principle with the SEC, we would enter into a consent decree under which we would neither admit nor deny violations of the antibribery, internal controls and books and records provisions of the FCPA and would be enjoined from future violations of U.S. securities laws, pay U.S. $ 45.4 million in disgorgement of profits and prejudgment interest and agree to a three-year French anticorruption compliance monitor. Under the agreement in principle with the DOJ, we would enter into a three-year deferred prosecution agreement (DPA), charging us with violations of the internal controls and books and records provisions of the FCPA, and we would pay a total criminal fine of U.S. $ 92 million, payable in four installments over the course of three years. In addition, three of our subsidiaries – Alcatel-Lucent France, Alcatel-Lucent Trade International AG and Alcatel Centroamerica – would each plead guilty to violations of the FCPA’s antibribery, books and records and internal accounting controls provisions. If we fully comply with the terms of the DPA, the DOJ would dismiss the charges upon conclusion of the three-year term. Final agreements must still be reached with the agencies and accepted in court.”

[For those of you “scoring at home” this would appear to be yet another DOJ “bribery, yet no bribery” enforcement action against the parent company. The DOJ’s eventual sentencing memorandum is likely to mention the European Union debarment provisions which would be applicable to Paris-based Alcatel-Lucent should it have been charged with FCPA anti-bribery violations.]

As if all of the above were not enough, it was recently reported (here) that “El Instituto Costarricense de Electricidad (ICE), Costa Rica’s telecommunications and electricity provider, filed a complaint in the Miami-Dade County Circuit Court, Miami, Florida, against Alcatel Lucent S.A. and other related parties.” According to the article, “the complaint asserts claims for violations of civil racketeering and other laws of Florida in connection with Alcatel Lucent’s bribery and corruption of Costa Rican officials to secure telecommunications contracts with ICE” and that “if successful, the lawsuit will allow ICE to recover three times the amount of its damages.”

FCPA Collateral Effects and Those “Pesky” Shareholders

I previously posted (see here) that while there is little in terms of substantive FCPA case law – this much is clear – there is no private right of action under the FCPA – enforcement of the law is in the hands of the DOJ and the SEC.

That does not mean that aggrieved third parties, including a company’s own shareholders, are without legal recourse should a company become subject to an FCPA enforcement action or merely disclose a potential FCPA issue.

Indeed, shareholder derivative litigation is often a collateral effect of FCPA disclosures or enforcement actions.

Case in point, the shareholder derivative complaint filed last week on behalf of Pride International, Inc. in Texas state court against certain members of its board of directors and certain of its executives officers seeking to remedy defendants’ breach of fiduciary duties. (see here).

The breach?

According to the complaint, “[f]rom 2001 to 2006, Pride repeatedly violated the [FCPA] through its business operations in numerous countries.” (see para. 1). “Certain current and former officers and directors of the company were aware of the violations and that the violations could, and eventually did, cause substantial harm to Pride and its shareholders, yet they knowingly failed to make a good faith effort to correct or prevent the misconduct.” (see para. 1).

The complaint alleges at para 23 that “[t]he individual defendants were aware of the violations well before the company announced the FCPA Investigation to the company’s shareholders and the public at large.” “Nevertheless,” according to the complaint, “the Individual Defendants took no action until an undisclosed employee of the company complained about the violations.”

The complaint then details Pride’s numerous public statements – beginning in March 2006 – regarding its potential FCPA issues and exposure. Certain of these disclosures and statements have been covered elsewhere (see here and here).

Beyond re-stating Pride’s numerous public statements, the complaint is sparse on detail, including little specific factual evidence to support the allegation that the Director Defendants “knew or were reckless in not knowing of the Company’s violations of the FCPA.” (see para. 50).

Regardless of the complaint’s ultimate fate, the Pride derivative suit is but the latest example of the collateral effects / sanctions a company will likely face when its business conduct is subject to FCPA scrutiny.

For those keeping track at home, such collateral effects / sanctions are yet another reason for companies to have effective, robust and well-communicated FCPA compliance policies and procedures which are periodically monitored and strengthened.

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