Category: ALSTOM

U.K. Serious Fraud Office Announces Corruption Charges Against Individual Well-Known In The Compliance Community

Talk about a head-scratching moment.

If you are even an occasional attendee or participant of anti-bribery and corruption conferences you likely know or recognize Jean-Daniel Lainé who, prior to his retirement in April 2013, was Senior Vice President Ethics & Compliance, and a director of Alstom International Limited.  Laine currently runs jdl.ethiconsult.

As highlighted in this 2010 article, “since 2006, Laine has overseen the rapid development of Alstom’s compliance and ethics programmes, as the threat of corruption investigations has risen up the agenda for companies around the world.”

The article quotes him as follows. “I know a lot of my peers in the compliance community. I participate in a lot of conferences on the anti-corruption subject. I have the opportunity to review all these topics and issues, and I consider that we are among the best in class.”

Among other things, Laine co-authored the Risk Assessment Chapter of the International Chamber of Commerce’s Ethics and Compliance Training Handbook (see here for a video interview) and Laine was a frequent writer on compliance topics, see here for instance “How Do You Manage Third Party Relationship Risks?”

Against this backdrop, it comes as a shocker to say the least that yesterday the U.K. Serious Fraud Office announced:

“Mr Lainé, 68, … a French national … attended court to answer two charges of corruption contrary to section 1 of the Prevention of Corruption Act 1906, as well as two offences of conspiracy to corrupt contrary to section 1 of the Criminal Law Act 1977. The alleged offences are said to have taken place between 1 January 2006 and 18 October 2007 and concern the supply of trains to the Budapest Metro.”

See prior posts here and here for recent Alstom-related enforcement actions in the U.S.

Friday Roundup

In-depth, scrutiny alert, further Alstom-developments, quotable, and for the reading stack.  It’s all here in the Friday roundup.

In-Depth

In November 2014, Dutch-based SBM Offshore resolved an enforcement action in the Netherlands.  With a settlement amount of $240 million, the SBM Offshore enforcement action was one of the largest bribery-related enforcement actions of 2014 – regardless of country.

This recent article titled “The Cover-Up at Dutch Multinational SBM” in Vrij Nederland (a Dutch magazine) goes in-depth as to SBM’s scrutiny.  The article has largely escaped the attention of Western media and the FCPA-related blogosphere, but is worth the time to read.  The article begins as follows.

“The corruption scandal at Dutch multinational SBM Offshore, which in November reached a $240 million out-of-court settlement with the Dutch Public Prosecutor (OM), is much larger than thought, as testimony of a former employee now shows. The company has actively pursued a strategy of “containment” and has consistently misled the market. So why did the OM settle?”

Among other things, the article highlights the role of U.S. lawyers and law firms involved in the SBM representation.

Scrutiny Alert

In this recent article, the L.A. Times details, based on obtained documents, the expenditures involved in filming the movie Sahara. Among the expenditures, according to the article – “local bribes” within the Kingdom of Morocco.  The article states:

“Courtesy payments,” “gratuities” and “local bribes” totaling $237,386 were passed out on locations in Morocco to expedite filming. A $40,688 payment to stop a river improvement project and $23,250 for “Political/Mayoral support” may have run afoul of U.S. law, experts say.

[…]

According to Account No. 3,600 of the “Sahara” budget, 16 “gratuity” or “courtesy” payments were made throughout Morocco. Six of the expenditures were “local bribes” in the amount of 65,000 dirham, or $7,559.

Experts in Hollywood accounting could not recall ever seeing a line item in a movie budget described as a bribe.

[…]

The final budget shows that “local bribes” were handed out in remote locations such as Ouirgane in the Atlas Mountains, Merzouga and Rissani. One payment was made to expedite the removal of palm trees from an old French fort called Ouled Zahra, said a person close to the production who requested anonymity.

Other items include $23,250 for “Political/Mayoral support” in Erfoud and $40,688 “to halt river improvement project” in Azemmour. The latter payment was made to delay construction of a government sewage system that would have interrupted filming.”

Further Alstom Developments

Yesterday, the U.K. Serious Fraud Office announced:

“Charges have been brought by the SFO against Alstom Network UK Ltd and an Alstom employee in phase three of its ongoing investigation.

Alstom Network UK Ltd, formerly called Alstom International Ltd, a UK subsidiary of Alstom, has been charged with a further two offences of corruption contrary to section 1 of the Prevention of Corruption Act 1906, as well as two offences of conspiracy to corrupt contrary to section 1 of the Criminal Law Act 1977.

Michael John Anderson, 54, of Kenilworth in Warwickshire, who was working as a business development director for Alstom Transport SA in France, has been charged with the same offences.

The alleged offences are said to have taken place between 1 January 2006 and 18 October 2007 and concern the supply of trains to the Budapest Metro.

The first hearing in this case will take place at Westminster Magistrates’ Court on 12 May 2015.”

Quotable

In this recent speech, DOJ Assistant Attorney General Leslie Caldwell stated:

“Through deferred prosecution agreements and non-prosecution agreements – or DPAs and NPAs – in cases against companies, we are frequently able to accomplish as much as, and sometimes even more than, we could from even a criminal conviction.  We can require remedial measures and improved compliance policies and practices.  We also can require companies to cooperate in ongoing investigations, including investigations of responsible individuals.  To ensure compliance with the terms of the agreements and to help facilitate companies getting back on the right track, we can impose monitors and require periodic reporting to courts that oversee the agreements for their terms.

Some of these outcomes may resemble remedies that can be imposed by regulators. But these agreements have several features that cannot be achieved by regulatory or civil resolutions.

Criminal Division resolutions require that an entity admit to its misconduct.  Commerzbank, for example, admitted responsibility and agreed to a detailed statement of facts that was filed with the court.  Whereas some regulators permit “no admit, no deny” resolutions – for legitimate reasons of their own – we require that individuals and entities acknowledge their criminal culpability if they are entering into a NPA, DPA or pleading guilty.

Where we enter into DPAs, a criminal information is filed with the court and prosecution of the information is deferred for the time of the agreement.  Where a company fails to live up to the terms of its agreement, an information is already filed, and we can tear up the agreement and prosecute based on the admitted statement of facts.  That’s a powerful incentive to live up to the terms of the agreements.

When we suspect or find non-compliance with the terms of DPAs and NPAs, we have other tools at our disposal, too.  We can extend the term of the agreements and the term of any monitors, while we investigate allegations of a breach, including allegations of new criminal conduct.  Where a breach has occurred, we can impose an additional monetary penalty or additional compliance or remedial measures.  And let me be clear: the Criminal Division will not hesitate to tear up a DPA or NPA and file criminal charges, where such action is appropriate and proportional to the breach.

Obviously, not every breach of a DPA warrants the same penalty.  We are committed to pursuing an appropriate remedy in each case, and we will calibrate the penalty we pursue to fit the nature of the violation and the corporation’s history and culture.  And we will do so transparently, with an explanation of what factors led to the resolution in each case.

[…]

[C]riminal prosecution is the best manner in which to punish culpable individuals.  And the seriousness of potential or actual punishment for felony criminal convictions, including incarceration for individuals, and the stigma and reputational harm associated with criminal charges or convictions, serve as powerful deterrents.”

For the Reading Stack

This Wall Street Journal Risk & Compliance post suggests that the ongoing corruption investigations in Brazil are becoming full-employment events for FCPA Inc.  According to the article:

“Multinationals with operations in Brazil are making frightened calls to their lawyers, as the country’s spreading corruption scandal reaches more companies.

[…]

Attorneys say companies with operations in Brazil are scrambling to assess whether they could get swept up in the probe. “They are very worried,” said Ruti Smithline, an anti-bribery specialist at Morrison & Foerster LLP. “The investigation is so widespread. If you have business in Brazil, the likelihood that this is going to touch you in some way is very high.”

Companies are racing to discover questionable activities before authorities in Brazil do. “They are asking: ‘Is our house clean? If authorities look at these relationships what are they going to find?’” Ms. Smithline said.”

The WSJ post asserts:

“[Brazil’s  new anti-corruption law, the Clean Companies Act] holds companies to even higher standards and stricter liability than the U.S. Foreign Corrupt Practices Act. For example, unlike the FCPA, under the Brazilian law a company can be prosecuted for corruption even if didn’t realize it was paying a bribe and had a great compliance program in place.”

This is a most off-target statement as Brazil law does not even provide for corporate criminal liability like the FCPA.  Moreover, business organizations are often the subject of FCPA enforcement actions even though the company had in place pre-existing compliance policies and procedures.

*****

Miller & Chevalier’s FCPA Spring Review 2015 is here.

*****

A good weekend to all.

Have FCPA Settlement Amounts Increased … Just Because?

This post returns to an issue previously highlighted in this prior post –  “FCPA Settlements Have Come a Long Way In a Short Amount of Time.”

Again, the question is posed: have FCPA settlement amounts increased … just because?

Under the advisory Sentencing Guidelines, the following general formula is used to calculate an advisory fine range in an FCPA enforcement action.

• The starting point under the Guidelines is the base offense level relevant to the conduct at issue.
• This base offense level can be increased based on the value of the benefit received from the improper conduct.  This results in a total offense level and a base fine amount under the Guidelines.
• From there, a business organization’s culpability score is calculated based on a number of factors including: the number of employees in the organization; whether high-level personnel were involved in or condoned the improper conduct; prior criminal history; whether the organization had a pre-existing compliance and ethics program; voluntary disclosure; cooperation; and acceptance of responsibility.
• A business organization’s culpability score then yields a multiplier ratio (such as 1.4 to 2.8), that is then applied to the base fine amount, which then yields an advisory fine range.
• The DOJ then selects a number based on that fine range (and often times below the fine range) that the business organization then agrees to pay to resolve its alleged FCPA scrutiny.

Set forth below is a comparison between the DOJ enforcement action against Siemens in 2008 (which set a record for the largest total FCPA settlement of all time $800 million ($450 million DOJ component and a $350 million SEC component)) and the DOJ enforcement action against Alstom in 2014 (the largest DOJ only FCPA settlement of all-time).

As highlighted by the above DOJ calculations, the Siemens enforcement action yielded a much higher sentencing guidelines range compared to the recent Alstom action.

Yet, the recent Alstom action yielded a much higher criminal fine amount.

DOJ criminal fine amounts ought not be influenced by whether there is a related enforcement action by the SEC (which happened in Siemens, but not in Alstom), but even if DOJ criminal fine amounts are so influenced, the fact remains that Alstom was still punished more significantly (compared to the guidelines range) than Siemens even though the conduct at issue was less egregious.

Another variable that could impact DOJ fine amounts is the existence of a foreign law enforcement action and resulting fines and penalties.  Yet, such an occurrence was present in both the Siemens and Alstom actions.

The above comparison between Siemens (2008) and Alstom (2014) once again raises the question of whether FCPA settlement amounts have increased … just because?

Perhaps you have noticed this general trend in other areas as well where billion settlements are seemingly becoming the new norm.

In a 2013 speech SEC Commissioner Daniel Gallagher noted:

“[T]he amounts of the penalties that the SEC imposes against corporations today are eye-popping and likely would have shocked the legislators who voted for the Remedies Act and the Commission that sought penalty authority from Congress.”

As to the 2013 JPMorgan enforcement action ($13 billion), as noted in this Wall Street Journal article, the company’s top lawyer asked at an event “at what point does this [record-setting fines] stop.”  As Professor Peter Henning noted in this New York Times DealBook column regarding the JPMorgan matter:

“A standard part of enforcement actions against companies these days is the multimillion-dollar – or even multibillion-dollar – penalty. What can be perplexing is figuring out how those penalties were determined, and whether they have much if any direct relationship to either the gains realized from the violations or the harm inflicted.”

Indeed, at the same event discussed above, a government official acknowledged that the government’s application of fines in legal settlements “is more art than science.”

Spot-on.

In many cases. even though advisory Sentencing Guidelines ranges are presented, there is little rhyme or reason to how FCPA settlement amounts are calculated. When a NPA is used to resolve an FCPA enforcement action, the ultimate fine amount and how it as calculated is not transparent.  Even with corporate DPAs and plea agreements, there remains little transparency regarding FCPA criminal fine amounts, particularly as to the value of the benefit allegedly received through the improper payment.  The DOJ simply cites a number.

As noted in this prior post, in 2012 the Supreme Court held in Southern Union that any fact that substantially increases a criminal defendant’s fine amount must be provable to a jury beyond a reasonable doubt.  As noted in the prior post however, the Supreme Court’s decision was great in theory, but it is rare for anything connected to a corporate FCPA enforcement action to be provable to a jury beyond a reasonable doubt.

It is only a matter of time before an FCPA settlement amount starts with a “b” as in billion.

If a billion dollar FCPA enforcement action is what the conduct at issue warrants … fine.  But if it is just because, this is a problem and a significant public policy concern as even alleged wrongdoers have due process rights.

Friday Roundup

From the dockets, cleared, when the dust settles, outreach, and quotable.  It’s all here in the Friday roundup.

From the Dockets

Sigelman

This recent post highlighted the motion to dismiss filed by Joseph Sigelman.  Among other things, Sigelman challenged the DOJ’s interpretation and application of the “foreign official” element in regards to Ecopetrol, the alleged “the state-owned and state-controlled petroleum company in Colombia.”

On December 30th, U.S. District Judge Joseph Irenas denied the motion (as well as addressed other motions) in a 1 page order.

Hoskins

This recent post highlighted the motion to dismiss filed by Lawrence Hoskins. Among other things, the motion argued that the indictment “charges stale and time-barred conduct that occurred more than a decade ago; it asserts violations of U.S. law by a British citizen who never stepped foot on U.S. soil during the relevant time period; and, it distorts the definition of the time-worn legal concept of agency beyond recognition.”

In this December 29th ruling, U.S. District Court Judge Janet Arterton (D. Conn.) denied the motion to dismiss concluding that factual issues remain as to the disputed issues.

Cleared

Remember Kazuo Okada and Universal Entertainment Corp.  They were at the center of a boardroom battle royal with Wynn Resorts in which a Wynn sanctioned report stated:

“Mr. Okada, his associates and companies appear to have engaged in a longstanding practice of making payments and gifts to his two (2) chief gaming regulators at the Philippines Amusement and Gaming Corporation (“PAGCOR”), who directly oversee and regulate Mr. Okada’s Provisional Licensing Agreement to operate in that country.  Since 2008, Mr. Okada and his associates have made multiple payments to and on behalf of these chief regulators, former PAGCOR Chairman Efraim Genuino and Chairman Cristino Naguiat (his current chief regulator), their families and PAGCOR associates, in an amount exceeding $110,000.”  The report categorizes this conduct as “prima facie violations” of the FCPA.

Universal recently issued this release which states:

“The Prosecutor General of the Philippines has proposed to the Secretary of Justice to terminate the investigation into the groundless suspicion that our group may have offered bribes to officials of Philippine Amusement and Gaming Corporation …”.

When The Dust Settles

It is always interesting to see what happens when the dust settles from an FCPA enforcement action (see here for the prior post).

A portion of the recent Alstom enforcement action alleged improper payments in connection with power projects with the Bahamas Electricity Corporation (“BEC”), the state-owned and state-controlled power company.

According to the Nassau Guardian “Attorney General Allyson Maynard-Gibson said The Bahamas has requested information from the US regarding the allegations, including the identity of the alleged bribe taker.”

This follow-up report states:

“Former Bahamas Electricity Corporation (BEC) board member Philip Beneby said on Tuesday he would find it hard to believe that any member of the board accepted bribes from a French power company to swing BEC contracts its way. […] “The allegation is stating that a member of the board received some kickback, but it’s kind of strange to me that a member of the board would receive a kickback if the board unanimously agreed that the contract be awarded to Hanjung out of Korea, then only to find out later that the Cabinet overturned the board’s decision. So that decision to not award Hanjung from Korea the contract came from the Cabinet, not from the board.” According to Beneby and former minister with responsibility for BEC, Bradley Roberts, in 2000 the board of BEC unanimously voted to award a generator contract to Hanjung Co. out of South Korea, but that decision was overturned by the then Ingraham Cabinet, which decided to award the contract to Alstom (then ABB). […] Former deputy prime minister Frank Watson was the minister at the time responsible for BEC. He said the decision to award the contract to Alstom was a Cabinet decision that involved no bribery. Watson insisted he was unaware of any claims that a bribe had been paid with respect to the award of that particular contract. Beneby, who is the proprietor of Courtesy Supermarket, said he remembers the event quite well as it was the first time a board decision was overturned.”

As explored in this prior post, many FCPA enforcement actions assume an actual casual link between alleged payments and obtaining or retaining business.  However, the reality is that such a casual link is not always present.

Outeach

This event notice from the New England Chapter of the National Defense Industrial Association caught my eye.

“FBI Seminar on FCPA and International Corruption: Outreach to Industry Education Session

Join us for an engaging morning seminar to learn how to be compliant with the Foreign Corrupt Practices Act (FCPA). The FBI’s International Corruption Unit (ICU) is conducting private sector outreach and education to support a new initiative.  The FBI recognizes the importance of forging new partnerships and strengthening existing relationships to help level the playing field for US businesses competing internationally.  By fostering better understanding of FCPA requirements, the FBI and private sector can join forces more efficiently to fight international corruption and ensure fair global markets and a strong US economy.

The FBI is excited to showcase five pillars of FCPA compliance in their program: Private Sector Outreach, Training and Education, Dedicated Personnel, Domestic and International Partnerships and Proactive Enterprise Theory Investigations.  Utilizing the five pillars approach, the FBI is gaining new momentum and expertise.

Additionally, the FBI will discuss new analysis outlining bribery hotspots and trends.  Using charts and graphs the FBI will examine the latest bribe payment techniques, who is paying bribes and who is accepting bribes.  Specific regions of the world will be discussed along with the various risks associated with doing business in these areas.

Lastly, the FBI will present a guest speaker who violated the FCPA, cooperated with the FBI and eventually was incarcerated for his crimes.  This segment will provide a unique and impactful insight into the rationalization of an employee who paid bribes, despite knowledge and training on FCPA.The FBI is looking forward to the opportunity to discuss best practices and enhance FCPA compliance with industry partners”

Quotable

This recent Forbes article ask “isn’t it strange that the U.S. gets to fine Alstom, a French company, for bribery not in the U.S.?” The article concludes:

“It’s most certainly not good economics that one court jurisdiction gets to fine companies from all over the world on fairly tenuous grounds. Who would really like it if Russia’s legal system extended all the way around the world? Or North Korea’s? And I’m pretty sure that the non-reciprocity isn’t good public policy either. Eventually it’s going to start getting up peoples’ noses and they’ll be looking for ways to punish American companies in their own jurisdictions under their own laws. And there won’t be all that much that the U.S. can honestly do to complain about it, given their previous actions.”

That is pretty much what Senator Christopher Coons said during the November 2010 Senate FCPA hearing. “”Today we the only nation that is extending extraterritorial reach and going after the citizens of other countries, we may someday find ourselves on the receiving end of such transnational actions.”

In a recent speech, Stuart Alford QC (Joint Head of Fraud at the Serious Fraud Office) addressed the following question:  “why have there been no Bribery Act prosecutions; is this Act really being taken seriously?”  In response to his own question, Alford stated, in pertinent part:

“The Bribery Act is not retrospective. Therefore, for conduct to be criminal under the Act it has to have been undertaken after 1 July 2011. Often conduct of this type takes some time to surface; and, once it does, it takes time to investigate. SFO cases must, by definition, be serious or complex and they very often include international parties and conduct. While the SFO is always striving to investigate criminal conduct in as timely a way as possible, these types of cases will take some time to move through the process of investigation and on to prosecution.

The Bribery Act represented a very significant shift in setting the standards for the more ethical corporate culture I referred to a moment ago. When one looks at legislation of this kind, both here and abroad, one can see that a flow of prosecutions can take time to develop. We only have to look at the 1977 Foreign Corrupt Practices Act in the USA, to see that it took many years for that work to build up a head of steam, and not really until the turn of the century did we start to see the level of prosecutions that we do now.”

Spot-on and consistent with my own observations on July 1, 2011 when the Bribery Act went live.

Top Book Review

International Policy Digest recently compiled its top book reviews of 2014.  On the list is the following.

Review of Mike Koehler’s ‘The Foreign Corrupt Practices Act in the New Era’

By John Giraudo

If you care about the rule of law, ‘The Foreign Corrupt Practices Act in the New Era’ by Mike Koehler, is one of the most important books you can read—to learn how it is being eroded. Professor Koehler’s book may not make it to the top of any summer reading list, but it is a must read for people who care about law reform.

For more information on the book, see here.

*****

A good weekend to all.

Issues To Consider From The Alstom Action

recent post dived deep into the Alstom FCPA enforcement action.

This post continues the analysis by highlighting various issues to consider associated with the enforcement action.

A Real Head-Scratcher

Alstom entities engaged in conduct in violation of the FCPA.  This is clear from the DOJ’s allegations and consistent with DOJ enforcement theories.  Yet, if the DOJ’s FCPA enforcement program is to be viewed as legitimate and credible, the charged conduct must fit (for lack of a better term) the crime.

The charges against Alstom S.A. are a real head-scratcher.

The conventional wisdom for why the Alstom action involved only a DOJ (and not SEC) component is that Alstom ceased being an issuer in 2004 (in other words 10 years prior to the enforcement action).

Yet, the actual criminal charges Alstom pleaded guilty to – violations of the FCPA’s books and records and internal controls provisions –  were based on Alstom’s status as an issuer (as only issuers are subject to these substantive provisions).

In other words, Alstom pleaded guilty to substantive legal provisions in 2014 that last applied to the company in 2004.

This free-for-all, anything goes, as long as the enforcement agencies collect the money nature of FCPA enforcement undermines the legitimacy and credibility of FCPA enforcement.

Enforcement Action Origins

What were the origins of the Alstom enforcement action?

It appears to be a 2011 Swiss enforcement action that began in October 2007.  (See here, here and here).

Indeed, in briefing in an individual enforcement action (Lawrence Hoskins) connected to the Alstom Indonesia conduct, the DOJ stated:

“When the Government began investigating this case, it sought evidence from various countries including Switzerland […].  The Government obtained orders pursuant to 18 USC 3292, tolling the statute of limitations in this case for the shorter of three years or the time it took to receive the evidence sought.  The first request, to Switzerland, was transmitted on September 22, 2010, and the tolling order reflects tolling beginning on that date.  Switzerland provided responses to the request on December 23, 2013.”

In the Swiss action, “Alstom Network Schweiz AG … was fined CHF2.5 million for negligence in implementing proper controls to prevent bribery by company officials in Latvia, Tunisia and Malaysia, and it was ordered to pay an additional CHF36 million for profits connected to the negligence.”

The foreign law enforcement origins of the Alstom action are typical of other enforcement actions in the Top Ten List of FCPA settlements (Siemens and the Bonny Island, Nigeria enforcement actions – KBR/Halliburton, Snamprogetti/ENI, Technip, and JGC Corp).

No Monitor

On one level, it seems odd that the Alstom enforcement action did not involve a corporate monitor as a condition of settlement. After all, the $772 million enforcement action was the largest DOJ FCPA enforcement action of all-time and per the DOJ “Alstom’s corruption scheme was sustained over more than a decade and across several continents. It was astounding in its breadth, its brazenness and its worldwide consequences.”

However, the resolution documents note “that Alstom is already subject to monitoring requirements pursuant to a February 2012 World Bank Resolution.” (See here).  As stated in the DOJ resolution documents: “in the event that the Integrity Compliance Office [of the World Bank] does not certify that the Company has satisfied the monitoring requirements contained in the World Bank Resolution, the Company shall be required to retain an Independent Compliance Monitor.”

Moreover, the vast majority of the alleged improper conduct in the DOJ enforcement action resided in business units that will soon be part of General Electric in 2015.  Thus, to impose a monitor on Alstom would, in effect, have been to impose a monitor on General Electric.

Third Party Red Flags

Most FCPA enforcement actions result from the conduct of third parties and ineffective corporate controls over third parties.

In this regard, the following paragraph from the Alstom enforcement is a dandy regarding third party red flags.

“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.”

FCPA enforcement actions of course are no laughing matter, but the following specific allegations sort of make one chuckle.

“Alstom did not perform any due diligence on the consultant even though the consultant had no knowledge about, or experience in, the power industry.  Rather, the information alleges, the consultant “sold furniture and leather products, and exported chemical products and spare parts.”

“An Alstom entity formally retained a consultant on a [rapid transit] project even thought the consultant did not have the requisite expertise in the transport sector.  According to the information, the consultant’s expertise was as a “wholesaler of cigarettes, wines and pianos.”

More Information Needed As to Lack of Cooperation

Repeatedly in the resolution documents, the DOJ states that Alstom did not “cooperate.”

“The Defendant initially failed to cooperate with the Department’s investigation, responding only to the Department’s subpoenas to the Defendant’s subsidiaries.  Approximately one year into the investigation, the Defendant provided limited cooperation, but still did not fully cooperate with the Department’s investigation.”

“The Company and its parent initially failed to cooperate with the Department’s investigation, responding only to the Department’s subpoena.  Approximately one year into the investigation, the Company and its parent provided limited cooperation, but still did not fully cooperate with the Department’s investigation.”

Likewise, at the DOJ press conference, Assistant Attorney General Caldwell stated:

“The guilty pleas and resolutions announced today also highlight what can happen when corporations refuse to disclose wrongdoing and refuse to cooperate with the department’s efforts to identify and prosecute culpable individuals.”

[…]

“Alstom did not voluntarily disclose the misconduct to law enforcement authorities, and Alstom refused to cooperate in a meaningful way during the first several years of the investigation.”

If the DOJ wants its cooperation message to be fully absorbed by the corporate community, the DOJ should have been more specific about Alstom’s lack of “cooperation.”

Moreover, if “responding only to the DOJ’s subpoena” is considered lack of cooperation by the DOJ, this is troubling.  (See here for the prior post “Does DOJ Expect FCPA Counsel to Role Over and Play Dead?”).

A “Foreign Official” Stretch?

It was a relatively minor allegation in the context of the overall Alstom enforcement action, but one which caught my eye because of its extraordinarily broad implication.

As highlighted in this previous post, Asem Elgawhart was employed by Bechtel Corporation (a U.S. company) and was assigned by Bechtel to be the General Manager of Power Generation Engineering and Services Company (PGESCo), a joint venture between Bechtel and Egyptian Electricity Holding Company (the alleged “state-owned and state-controlled electricity company in Egypt”). According to the DOJ, Elgawhart “used his position and authority as the General Manager of a power generation company to solicit and obtain millions of dollars of kickbacks for his personal benefit from U.S. and foreign power companies that were attempting to secure lucrative contracts to perform power-related services.” “In total,” the DOJ alleged, “Elgawhart received more than $5 million in kickbacks to help secure more than $2 billion in contracts for the kickback-paying companies, all of which he concealed from his employer, from bidding companies that did not pay kickbacks and from the U.S. Internal Revenue Service.” Based on these allegations, and as indicated in this DOJ release, Elgawhart was charged in a 8-count indictment with mail and wire fraud, money laundering and various tax offenses.

In the Alstom enforcement action, PGESCo and Elgawhart are described as follows:

As to Egypt, the information concerns bidding on various projects with the Egyptian Electricity Holding Company (“EEHC”), the state-owned and state-controlled electricity company in Egypt.  According to the information, “EEHC was not itself responsible for conducting the bidding [on projects], and instead relied on Power Generation Engineering & Services Co. (“PGESCo”), which was controlled by an acted on behalf of EEHC.”

PGESCo was controlled by and acted on behalf of EEHC. PGESCo worked “for or on behalf of’ EEHC, within the meaning of the FCPA, Title 15, United States Code, Section 78dd-l (f)( 1) [the FCPA’s “foreign official” definition].

According to the DOJ, Alstom used a consultant whose primary purpose “was not to provide legitimate consulting services to Alstom and its subsidiaries but was instead to make payments to Egyptian officials, including Asem Elgawhary who oversaw the bidding process.”

In short, in the Alstom action the DOJ alleged that Elgawhary, a Bechtel Corporation employee, was an Egyptian “foreign official.” This is an extraordinarily broad “foreign official” interpretation with implications for any person (privately employed) working on foreign projects with participation by a foreign government department, agency or instrumentality.

Rhetoric Undermined

As highlighted in this post, Assistant Attorney General Leslie Caldwell recently defended the DOJ’s frequent use of NPAs and DPAs by stating that the DOJ is able to achieve through such negotiated settlements reforms, compliance controls, and all sorts of behavioral change compared to what it could achieve without use of NPAs and DPAs.

As highlighted in the prior post, the notion that the DOJ is powerless to effect corporate change through old-fashion law enforcement (that is enforcing the FCPA without use of NPAs and DPAs) is plainly false.

Indeed, the Alstom and Alstom Network Schweiz AG plea agreements contain substantively the same corporate compliance program and reporting obligations as the Alstom Power and Alstom Grid DPAs.

False Certification

A likely overlooked allegation in the Alstom enforcement action concerns bidding on various grid projects with alleged state-owned and state-controlled entities in Egypt. According to the charging documents, certain of these projects were “funded, at least in part, by the United States Agency for International Development (“USAID”)” and “an Alstom entity “repeatedly submitted false certifications to USAID in connection with these projects, and did not disclose that consultants were being used, that commissions were being paid, or that unlawful payments were being made.”

These allegations are similar to DOJ allegations in the BAE enforcement action (an enforcement action that alleged conduct that could have served as the basis for FCPA violations, but resulted in no actual FCPA charges).  As noted in this previous post, in the BAE action, the DOJ “filed a criminal charge against BAE Systems charging that the multinational defense contractor conspired to impede the lawful functions of the Departments of Defense and State, made false statements to the Departments of Defense and Justice about establishing an effective anti-corruption compliance program to ensure conformance with the Foreign Corrupt Practices Act and paid hundreds of millions of dollars in undisclosed commission payments in violation of U.S. export control laws.”

How to Count FCPA Enforcement Actions

It is a basic issue:  how to count FCPA enforcement actions.

I use the “core” approach to counting FCPA enforcement actions (see here), an approach endorsed by the DOJ, but many in FCPA Inc. use various different creative counting methods that significantly distort FCPA enforcement statistics (see here).

Pursuant to the “core” approach, the Alstom action was one core enforcement action even though it involved the following components all based, in whole or in part, on the same core conduct.

• Alstom S.A.
• Alstom Network Schweiz AG
• Alstom Power Inc.
• Alstom Grid Inc.
• Individual enforcement actions against Frederic Pierucci, David Rothschild, William Pomponi, and Lawrence Hoskins.

Counting the above as 8 FCPA enforcement actions instead of 1 core action highly distorts FCPA enforcement statistics and impacts the denominator of just about any FCPA enforcement statistic imaginable.

With several 2014 FCPA Year in Reviews to be published in January, one needs to be cognizant of these creative counting methods.