A Unique FCPA Enforcement Action Then And Still Unique Now
[This post is part of a periodic series regarding “old” FCPA enforcement actions]
As highlighted in this prior post, the DOJ used to civilly enforce the Foreign Corrupt Practices Act. One of enforcement actions highlighted, indeed the last time the DOJ used this express statutory provision, was a 2001 enforcement action against KPMG Siddharta Siddharta & Harsono and Sonny Harsono.
It was a unique FCPA enforcement action at the time (believed to be the first time the DOJ/SEC had ever brought an FCPA action against a professional services firm – i.e. a law firm or accounting firm) and still remains unique in that the DOJ/SEC are believed to have never again brought an FCPA enforcement action against a professional services firm.
Across The Pond, Rolls-Royce Also Resolves A $625 Million U.K. Enforcement Action
This recent post went in-depth into the $170 million Foreign Corrupt Practices Act enforcement action against Rolls-Royce. As mentioned in the post, the FCPA enforcement action against Rolls-Royce was part of a broader $800 million global resolution that also included a U.K. Serious Fraud Office component as well as Brazil law enforcement action.
The approximate $625 million U.K. enforcement action comprised the bulk of $800 million global resolution (that would seem to make sense, Rolls-Royce is after all a U.K. company) and is summarized below including the several failure to prevent bribery counts under the Bribery Act.
In-Depth – General Cable Resolves $75.8 Million FCPA Enforcement Action, Former Senior VP Also Resolves SEC Action
Don’t yet close the books on 2016 Foreign Corrupt Practices Act enforcement.
Yesterday, the DOJ and SEC announced (here and here) an FCPA (and related) enforcement action against Kentucky-based General Cable Corporation (a manufacturer and distributor of cable and wire). The conduct at issue occurred in Angola, Bangladesh, Indonesia, Thailand, China, and Egypt.
The $75.8 million enforcement action involved a DOJ non-prosecution agreement in which the company agreed to pay an approximate $20.5 million penalty and an SEC administrative cease and desist order in which the company agreed to pay approximately $55.3 million in disgorgement and prejudgment interest.
In addition, the SEC also announced that Karl Zimmer, General Cable’s former Senior Vice President responsible for sales in Angola, agreed to pay a $20,000 civil penalty without admitting or denying the SEC’s findings that he knowingly circumvented internal accounting controls and caused FCPA violations when he approved certain improper payments.
Louis Berger International And Two Former Employees Resolve Enforcement Action
Last Friday, the DOJ announced the second corporate Foreign Corrupt Practices Act enforcement action of 2015.
It was against Louis Berger International Inc. (LBI, a New Jersey-based infrastructure and development company) and focused on the conduct of two former employees (one located in the Philippines, the other located in India) that allegedly occurred approximately 5 – 17 years ago in connection with projects in Indonesia, Vietnam, India and Kuwait.
The former employees are described as:
- Richard Hirsch was a high-level executive at the Company, located in the Philippines, who at times oversaw the Company’s overseas operations in, inter alia, Indonesia and Vietnam.
- James McClung was a high-level executive at the Company, located in India, who at times oversaw the Company’s overseas operations in Vietnam and India.
According to the DOJ, LBI directly and indirectly made payments totaling approximately $3.9 million to foreign government officials in India, Indonesia, Kuwait, Vietnam and elsewhere. To resolve the enforcement action, LBI agreed to pay $17.1 million pursuant to a deferred prosecution agreement and to engage a compliance monitor for a three year period.
Criminal Complaint
The criminal complaint charges LBI with conspiracy to violate the FCPA’s anti-bribery provisions.
According to the criminal compliant, the purpose of the conspiracy “was to make and conceal corrupt payments to foreign officials in India, Indonesia, Kuwait, Vietnam and elsewhere in order to obtain and retain contracts with government entities in those countries and, thus, to enrich the Company and the co-conspirators with the full economic benefits anticipated from such contracts.” In addition, the criminal complaint alleges that “terms like ‘commitment fee,’ ‘counterpart per diem,’ ‘marketing fee,’ and ‘field operation expenses’ [were used] as code words to conceal the true nature of the bribe payments” and that “cash disbursement forms and invoices [were utilized] which did not truthfully describe the services provided or the purpose of the payment.” Moreover, the complaint alleges that members of the conspiracy created “ostensibly legitimate but ultimately illicit accounts, or “slush funds,” for the payment of bribes through third parties.”
Deferred Prosecution Agreement
The criminal charges were resolved via a deferred prosecution agreement.
The Statement of Facts in the DPA state, under the heading “Overview of the Bribery Scheme” as follows.
“From in or about 1998 until in or about 2010, the Company, through its employees and agents, engaged in a scheme to pay bribes to various foreign officials in Indonesia, Vietnam, India and Kuwait to secure contracts with government agencies and instrumentalities in those countries on behalf of the Company and its subsidiaries and affiliates. The Company, through its employees and agents, together with others, discussed making the bribe payments to the foreign officials and the ways in which they intended to conceal the corrupt payments. For example, the Company, through its employees and agents, together with others, used terms like ‘commitment fee,’ ‘counterpart per diem,’ ‘marketing fee’ and ‘field operation expenses’ as code words to conceal the true nature of the bribe payments and utilized cash disbursement forms and invoices which did not truthfully describe the services provided or the purpose of the payment.
In order to effectuate the payments, the Company, through its employees and agents, utilized various methods. In many instances, employees and agents of the Company submitted inflated and fictitious invoices to generate cash that was then used later for the payment of bribes through intermediaries. The Company, through its employees and agents, would then wire certain funds from bank accounts of the Company in New Jersey to bank accounts in various other countries for the purpose of making payments to foreign officials. In Vietnam, the Company, through its employees and agents, used the Foundation – which was in part a local labor pool – as a conduit for the payment of bribes to foreign government officials in Vietnam to conceal the bribe payments.
In total, the Company, through its employees and agents, together with others, made payments directly and indirectly to foreign officials, including in Indonesia, Vietnam, India and Kuwait, totaling approximately $3,934,431.”
Under the heading “Corrupt Conduct in Indonesia,” the DPA states that “beginning in approximately 2005, the Company sought contracts with the Indonesian government as a subcontractor by interposing a one-man consulting company as the prime contractor in order to avoid directly paying bribes to foreign officials even though the Company was well aware that the prime contractor was paying bribes.” According to the DPA, in 2008 “when the law firm handling the Company’s internal review directed scrutiny [at a citizen and national of Indonesia employed by the Company in Jakarta] Richard Hirsch and others attempted to discourage [the employee] from speaking with the Company’s review team.” According to the DPA, Hirsch also communicated with co-conspirators on his personal e-mail account to avoid detection by the company.
Under the heading “Corrupt Conduct in Vietnam,” the DPA states that “the Company began its operations in Vietnam during the early 1990s and secured numerous public contracts across the county. In order to obtain and maintain these contracts, the Company through its employees and agents paid bribes to Vietnamese officials through the Foundation [a non-governmental organization which the Company engaged as a local sponsor, and which served as a key source for local labor and operational support in Vietnam.] Sometimes the bribe money was disguised as ‘donations’ to the Foundation paid from the Company’s bank accounts in New Jersey to a bank account jointly held by the Company and the Foundation in Vietnam. On other occasions the bribe money was masked by invoices from the Foundation that were paid from the Company’s New Jersey account to a joint account.” The DPA further states that beginning in “approximately 2005, when James McClung assumed responsibility for the Company’s Vietnam operations, the Company through its employees and agents generated bribe money by paying vendors for services that had never actually been rendered; those vendors would then serve as conduits for the payment of bribe money to foreign officials.”
Under the heading “Corrupt Conduct in India,” the DPA states: “Along with several consortium partners, the Company won two water development projects in Goa and Guwhati. The Company paid bribes to win both of those contracts. The bribe money was disguised as payments to vendors for services that had never actually been rendered. The Company through its employees and agents and its consortium partner kept track of the bribe payments by circulating a spreadsheet amongst themselves showing the proportionate share of each bribe that they had paid to the foreign officials overseeing their work on the Goa and Guwhati projects.”
Under the heading “Corrupt Conduct in Kuwait,” the DPA states: “In approximately 2005, the Company won a $66 million road construction project with the Kuwait Ministry of Public Works. In order to secure that contract, the Company through its employees and agents and its joint venture partner made a series of corrupt payments [totaling approximately $71,000) to an official with the Ministry of Public Works. Some of the payments were made upfront under the guise of ‘proposal’ costs. Other payments were made through a purported contract for ‘business development’ with another firm.”
In the 3-year DPA, LBI admitted, accepted and acknowledged responsibility for the conduct as described above.
Under the heading “relevant considerations,” the DPA states:
“[The DOJ enters] into this Agreement based on the individual facts and circumstances presented by this case and by LBI … Among the factors considered were the following: (a) after the government had made LBI … aware of a False Claim Act investigation, [the Company] conducted an internal investigation, discovered potential FCPA violations, and voluntarily self-reported to the [DOJ] the misconduct …; (b) [the Company’s] cooperation, including conducting an extensive internal investigation, voluntarily making U.S. and foreign employees available for interviews, collecting analyzing, and organizing voluminous evidence and information for [the DOJ] and providing updates to the [DOJ] as the conduct and results of the internal investigation; (c) [the Company] has engaged in extensive remediation, including terminating the employment of officers and employees responsible for the corrupt payments, enhancing its due diligence protocol for third-party agents and consultants, and instituting heightened review of proposals and other transactional documents for all Company contracts; (d) [the Company’s] improvements to date to its compliance program and internal controls, as well as its commitment to continue to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements [set forth in the DPA]; (e) the nature and scope of the offense conduct; and (f) [the Company’s] agreement to continue to cooperate [with the DOJ] in any ongoing investigation.”
The Sentencing Guidelines calculation in the DPA sets forth an advisory fine range of $17.1 million – $34.2 million. The DPA states that the ultimate $17.1 million fine “is appropriate given the facts and circumstances of this case, including the cooperation in this matter and the nature and scope of the offense conduct.” As indicated in the DPA, $7.1 million of the fine amount is payable immediately with the remaining amount payable within 12 months.
Pursuant to the DPA, LBI is required to retain an independent compliance monitor for a three year period.
Typical of most corporate FCPA enforcement actions, the DPA contains a “muzzle clause” in which LBI agreed that it shall not directly or indirectly make any public statement contradicting the information set forth in the DPA.
As noted in the DOJ’s release, Hirsch (61, of Makaati, Philippines) and McClung (59, of Dubai, United Arab Emirates) each pleaded guilty to one count of conspiracy to violate the FCPA and one substantive count of violating the FCPA. The sentencing hearings for Hirsch and McClung are scheduled for Nov. 5, 2015.
Louis Berger issued this release which states:
“Louis Berger International, has agreed to a three-year deferred prosecution agreement and $17.1 million fine with the U.S. Department of Justice for self-reported improper business activities principally conducted overseas by former managers between 1998 and 2010. All of the managers associated with these improper business activities were separated from the company following the early findings of Louis Berger’s internal investigations.
“The DOJ has acknowledged the extensive global reforms undertaken at Louis Berger since 2010,” said Nicholas J. Masucci, Louis Berger chairman. “2010 was a pivotal year in our company’s history. It marked a clear departure from the past as we assumed new management, new processes and comprehensive system reforms that are the core of our global operations today. Today’s settlement is the critical final milestone in our reform, as it was important for us to take responsibility for the historic actions of former managers and close the chapter on the company’s pre-2010 era.”
Prior to Louis Berger’s 2010 settlement with the U.S. Department of Justice for improper billing on U.S. government overhead accounts, the company undertook a thorough review of past practices of former managers, including improper overseas business activities. The company self-discovered and self-reported potential Foreign Corrupt Practices Act infractions to the U.S. government starting in 2010 and has been working with the government to resolve these issues since that time. In total, the company self-identified and self-reported findings of misconduct in Vietnam, Indonesia, India and Kuwait between 1998 and 2010 totaling $3.9 million in bribes.
Since 2010, Louis Berger has undergone a massive $25+ million reform effort that resulted in new internal controls, new policies and procedures, and comprehensive systems investments, including a new global accounting system.
The company has actively supported the government in its investigation of the culpable individuals and their activities. In addition to separating these former managers from the company, the firm also has added new managers to key positions, including chief financial officer and controller, and regional management teams throughout Asia and the Middle East. Additionally, the company implemented a new corporate operational model to ensure greater centralized oversight and control of overseas business activities. Moreover, the company has reformed its ownership structure by implementing an Employee Stock Ownership Program.
The company established an independent compliance and ethics department under the oversight of an independent audit committee, introduced a global helpline through which employees can report potentially non-compliant activities, and implemented a global code of business conduct. Investments also have funded annual worldwide compliance, ethics and anti-corruption training for all employees.
Under the terms of the deferred prosecution agreement, the company will work with a government-appointed monitor to test and report on its internal processes and controls as well as its compliance and ethics policies and training for three years.
“Transparency and accountability are the hallmarks of a sustainable business, and we are a much more efficient, responsible and transparent company today than we were five years ago,” said Masucci. “We will continue to monitor and improve our existing compliance system while delivering quality work to our clients with a level of integrity they expect.”
Brian Whisler (Baker & McKenzie) and Michael Himmel (Lowenstein Sandler) represented LBI.
All About The Alstom Enforcement Action
As mentioned in this previous post, last week the DOJ announced a $772 million FCPA enforcement action against Alstom and related entities.
While the Alstom enforcement action is the largest DOJ FCPA enforcement action of all-time, it is the second largest overall FCPA enforcement action of all-time behind the 2008 Siemens enforcement action ($450 million DOJ component and a $350 million SEC component). To see the current FCPA top-ten settlement list, click here.
The Alstom resolution documents total approximately 400 pages and this post summarizes these documents.
At its core, the Alstom enforcement action involved alleged conduct in Indonesia, Saudi Arabia, Egypt, the Bahamas, and Taiwan. All of this conduct is alleged in the Alstom S.A. information as the basis for the company’s FCPA books and records and internal controls violations between 1998 and 2004. The charges were resolved through a plea agreement. (A future post will explore, among other issues, the irony of Alstom pleading guilty in 2014 to substantive legal provisions that last applied to the company in 2004 when it ceased to be an “issuer.”). From there the conduct was apportioned to the following Alstom-related entities in related enforcement actions.
- Alstom Network Schweiz AG (conspiracy to violate the FCPA’s anti-bribery provisions based on the Indonesia, Saudi Arabia, Egypt and Bahamas conduct and resolved through a plea agreement);
- Alstom Power Inc. (conspiracy to violate the FCPA’s anti-bribery provisions based on the Indonesia, Saudi Arabia and Egypt conduct and resolved through a DPA);
- Alstom Grid Inc. (conspiracy to violate the FCPA’s anti-bribery provisions based on the Egypt conduct and resolved through a DPA)
According to the information, during the relevant time period, Alstom employed approximately 110,000 employees in over 70 countries. The information contains specific allegations as to 9 individuals associated with Alstom and 9 consultants associated with Alstom. As highlighted below, at its core, the Alstom enforcement action involved inadequate controls concerning the engagement, monitoring and supervision of the consultants.
The information alleges that “Alstom had direct and indirect subsidiaries in various countries around the world through which it bid on projects to secure contracts to perform power-related, grid-related, and transportation-related services, including for state-owned entities.” According to the information, “Alstom’s subsidiaries worked exclusively on behalf of Alstom and for its benefit” and that Alstom “maintained a department called International Network that supported its subsidiaries’ efforts to secure contracts around the world.” In addition, the information alleges that “within Alstom’s power sector, the company also maintained a department called Global Power Sales (“GPS”), which performed functions similar to International Network, in that GPS assisted Alstom entities or businesses in their efforts to secure contracts.”
The information contains a section titled “Overview of the Unlawful Scheme” that has two substantive sections “False Books and Records” and “Internal Accounting Controls.”
Under the heading “False Books and Records,” the information states.
“Alstom, acting through executives, employees, and others, disguised on its books and records millions of dollars in payments and other things of value given to foreign officials in exchange for those officials’ assistance in securing projects, keeping projects, and otherwise gaining other improper advantages in various countries around the world for Alstom and its subsidiaries.
In a number of instances, Alstom hired consultants to conceal and disguise improper payments to foreign officials. Alstom paid the consultants purportedly for performing legitimate services in connection with bidding on and executing various projects. In reality, the Alstom personnel knew that the consultants were not performing legitimate services and that all or a portion of the payments were to be used to bribe foreign officials. Alstom executives and employees falsely recorded these payments in its books and records as “commissions” or “consultancy fees.”
Alstom also created, and caused to be created, false records to further conceal these improper payments. Alstom created consultancy agreements that provided for legitimate services to be rendered by the consultant, and included a provision prohibiting unlawful payments, even though the Alstom executives and employees involved knew that at times the consultants were using all or a portion of their consultancy fees to bribe foreign officials. Moreover certain Alstom employees instructed the consultants to submit false invoices and other back-up documentation reflecting purported legitimate services rendered that those employees knew were not actually performed, so that Alstom could justify the payments to the consultants.
In other instances, Alstom paid bribes directly to foreign officials by providing gifts and petty cash, by hiring their family members, and in one instance by paying over two million dollars to a charity associated with a foreign official, all in exchange for those officials’ assistance in obtaining or retaining business in connection with projects for Alstom and its subsidiaries. As with the consultant payments, Alstom knowingly and falsely recorded these payments in its books and records as consultant expenses, as “donations,” or other purportedly legitimate expenses.
Alstom employees, some of whom were located in Connecticut, knowingly falsified Alstom’s books and records in order to conceal the bribe payments that they knew were illegal and were contrary to Alstom’s written policy. Alstom also submitted false certifications to USAID and other regulatory entities, falsely asserting that Alstom was not using consultants on particular projects when, in fact, consultants were being used, and asserting that no unlawful payments were being made in connection with projects when, in fact, they were. Various other acts, including e-mail communications, passed through Connecticut.”
Under the heading “Internal Accounting Controls,” the information states:
“Although Alstom had policies in place prohibiting unlawful payments to foreign officials, including through consultants, Alstom knowingly failed to implement and maintain adequate controls to ensure compliance with those policies.
Alstom knowingly failed to implement and maintain adequate controls to ensure meaningful due diligence for the retention of third-party consultants. 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. To the contrary, those submitting consultants for possible retention at times did not make explicit the true reason for the consultants’ retention, as well as other relevant facts. And certain executives who had the ability to ensure appropriate controls surrounding the due diligence process themselves know, 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 connection with securing projects and other favorable treatment in various countries around the world for Alstom and its subsidiaries.
Alstom also knowingly failed to implement and maintain adequate controls for the approval of consultancy agreements. During the relevant time period, Alstom’s consultancy agreements provided that payments to the consultants would only be made on a pro rata basis tied to project milestones or as Alstom was paid by the customer. In certain instances, Alstom employees changed the amount and terms of payment for the consultants, in violation of the company’s own internal policies, so that Alstom could pay the consultants more money and make the payment sooner in order to generate cash available to bribe the foreign officials. The Alstom executives and employees responsible for approving consultancy agreements did not adequately scrutinize these changes, and in certain instances were copied on e-mails in which the true purpose for the change was discussed. During the relevant time period, Alstom also maintained an unwritten policy to discourage, where possible, consultancy agreements that would subject Alstom to the jurisdiction of the United States. To effectuate this policy, Alstom typically used consultants who were not based in the United States, and intentionally paid consultants in bank accounts outside of the United States and in currencies other than U.S. dollars. The Alstom executives and employees responsible for approving consultancy agreements attempted to enforce this unwritten policy even when it meant that the consultant had to open an offshore bank account solely for the purpose of receiving payments from Alstom.
Alstom also knowingly failed to implement and maintain adequate controls for payments to consultants. In multiple instances, Alstom paid the consultants without adequate, or timely, documentation of the services they purported to perform. At times, consultants sought help from Alstom to create false documentation necessary for payment approval. In other instances, the consultants created false “proofs of service” long after the purported services were rendered. In certain cases … a consultant sought assistance from an Alstom employee responsible for approving payment because, as the consultant explained to the Alstom employee, he did not want to include on his invoices the fact that his services included making unlawful payments. During the relevant time period, Alstom did not engage in auditing or testing of consultant invoices or payments. In many instances, requests for payments to consultants were approved without adequate review by Alstom knowing that the payments were being used, at least in part, to bribe foreign officials to obtain or retain business in connection with projects in various countries around the world for Alstom and its subsidiaries.”
Next, the information contains the following summary allegation.
“Alstom paid approximately $75 million in consultancy fees knowing that this money would be used, in whole or in part, to bribe or provide something of value to foreign officials to secure approximately $4 billion in projects in multiple countries, with a gain to Alstom of approximately $296 million.”
The information next contains specific allegations regarding Indonesia, Saudi Arabia, Egypt, the Bahamas, and Taiwan.
Indonesia
As to Indonesia, the information concerns various power projects in Indonesia through Indonesia’s state-owned and state-controlled electricity company, Perusahann Listrik Negara (“PLN”). One such project was the Tarahan Project, a project to provide power-related services to the citizens of Indonesia at approximately $118 million and another such project was the Muara Tawar Block 5 Project, a project to expand the existing Muara Tawar power plant and provide additional power-related services to the citizens of Indonesia at approximately $260 million. According to the information, Alstom subsidiaries bid on but were not awarded contracts related to other expansions of the Muara Tawar power plant. In summary fashion, the information alleges as follows.
“In connection with these projects, Alstom disguised on its books and records millions of dollars and other things of value provided to Indonesian officials in exchange for those officials’ assistance in securing the power projects for Alstom and its subsidiaries. Alstom also knowingly failed to implement and maintain adequate controls to ensure that no unlawful payments were being made through consultants to foreign officials in connection with these projects.”
The Indonesia allegations in the Alstom information are substantively similar to the allegations in the prior FCPA enforcement action against various individuals associated with Alstom Power. (See here for the prior post and summary).
Saudi Arabia
As to Saudi Arabia, the information concerns bids for power projects with Saudi Electric Company (“SEC”), Saudi Arabia’s state-owned and state-controlled electricity company, and its predecessor entities. According to the information, in connection with one project:
“Alstom disguised on its books and records tens of millions of dollars in payments and other things of value provided to Saudi officials to obtain or retain business in connection with the projects. Alstom knowingly failed to implement and maintain adequate controls to ensure that no unlawful payments were being made to these officials. The arrangements for these consulting agreements originated with [a separate international power company with which Alstom operated as a joint venture in 1999 and acquired in 2000]. Subsequently, Alstom honored, continued, and in certain instances renewed these consulting agreements without adequate diligence on what services were ostensibly being provided by these consultants, whether the consultants were capable of providing such services, whether the agreed upon consultancy fees were commensurate with such legitimate services, and despite the lack of documentation regarding what legitimate services were provided.”
In one instance, the information alleges that a consultant “was the brother of a high-level official at the SEC who had the ability to influence the award” of a project, “which certain Alstom employees knew.” According to the information, this consultant was paid “approximately $5 million, with no documentation of any legitimate services having been performed [by the Consultant] commensurate with a $5 million fee and with no documentation of any technical or other expertise to justify such a fee.” In another instance, the information alleges that another consultant “was a close relative of another high-level official at SEC who had the ability to influence the aware” of a project” which certain Alstom employees knew.” According to the information, this consultant was paid at least $4 million under similar circumstances to those referenced above.
The information states as follows.
“In addition to paying consultants as a means of bribing key decision makers at the SEC, Alstom and its subsidiaries paid $2.2 million to a U.S.-based Islamic education foundation associated with [an SEC official believed to have 70% of the decision-making responsibility for SEC matters]. The payments were made in three installments, and internal records at Alstom reflect that these payments were included as expenses related [to the projects] rather than as a separate and independent charitable contribution.”
Egypt
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.” According to the information, in connection with various projects, “Alstom disguised on its books and records millions of dollars and other things of value provided to Egyptian officials to obtain or retain business in connection with power projects for Alstom and its subsidiaries. Alstom also knowingly failed to implement and maintain adequate controls to ensure that no unlawful payments were being made to these officials. According to the information, 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.” (See here for the prior post regarding the Elgawhary enforcement action).
The information also contains allegations concerning bidding on various grid projects with EEHC and the Egyptian Electricity Transmission Company (“EETC”), the state-owned and state-controlled electricity transmission company in Egypt. According to the information, certain of these projects were “funded, at least in part, by the United States Agency for International Development (“USAID”). According to the information:
“In connection with [these projects], Alstom disguised on its books and records payments and other things of value it provided to Egyptian officials in exchange for those officials’ assistance in securing and executing the transmission and distribution projects for Alstom and its subsidiaries. Alstom also knowingly failed to implement and maintain adequate controls to ensure that no unlawful payments were being made to these officials.”
According to the information, 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.”
According to the information, “in addition to falsifying records in connection with the retention of consultants and their commission payments,” Alstom employees also “paid for entertainment and travel for [a high-level official] and other key decision-makers at EETC and EEHC, and provided those officials with envelopes of cash and other gifts during such travel.”
Bahamas
As to the Bahamas, the information concerns power projects with the Bahamas Electricity Corporation (“BEC”), the state-owned and state-controlled power company. According to the information, “Alstom disguised in its books and records payments to Bahamian officials to obtain or retain business in connection with power projects for Alstom and its subsidiaries. Alstom also knowingly failed to implement and maintain adequate controls to ensure that no unlawful payments were being made to these officials.
According to the information, Alstom retained a consultant “who, as certain Alstom employees knew, was a close personal friend” of a board member of BEC and that the primary purpose of the consultant was not to provide legitimate consulting services but instead to pay bribes to the official who had the ability to influence the award of the power contracts. According to the information, 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.”
Taiwan
As to Taiwan, the information alleges that between 2001 and 2008, Alstom and its subsidiaries “began bidding on transport-related projects with various entities responsible for the construction and operation of the metro-rail system in Taipei, Taiwan, including Taipei’s Department of Rapid Transit System, known as “DORTS.” According to the information, an Alstom entity formally retained a consultant on a DORTS 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.”
According to the information, “Alstom’s system of internal controls was inadequate as they related to the Taiwan projects. Despite numerous red flags, Alstom personnel knowingly failed to conduct further diligence to ensure that payments to its consultants in Taiwan could not be used to make improper payments to Taiwanese officials after the projects were secured.”
Based on the above allegations, Alstom was charged with one count of violating the FCPA’s books and records provisions from 1998 to 2004 and one count of violating the FCPA’s internal controls provisions from 1998 to 2004.
In the plea agreement, Alstom admitted that it was an “issuer” during the relevant time period and admitted, agreed, and stipulated that the factual allegations set forth in the information were true and correct.
In the plea agreement, the parties agreed that the gross pecuniary gain resulting from the offense was $296 million. The plea agreement sets forth an advisory sentencing guidelines range of $532.8 million to $1.065 billion.
Under the heading “failure to self-report,” the plea agreement states:
“The Defendant failed to voluntarily disclose the conduct even though it was aware of related misconduct at Alstom Power, Inc., a U.S. subsidiary, which entered into a resolution for corrupt conduct in connection with a power project in Italy several years prior to the Department reaching out to Alstom regarding its investigation.”
Under the heading “cooperation,” the plea agreement states:
“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 Defendant’s initial failure to cooperate impeded the Department’s investigation of individuals involved in the bribery scheme. At a later stage in the investigation, the Defendant began providing thorough cooperation, including assisting in the Department’s investigation and prosecution of individuals and other companies that had partnered with the Defendant on certain projects. The Defendant’s thorough cooperation did not occur until after the Department had publicly charged multiple Alstom executives and employees.”
Under the heading, “compliance and remediation,” the plea agreement states:
“The Defendant lacked an effective compliance and ethics program at the time of the offense. Since that time, the Defendant has undertaken substantial efforts to enhance its compliance program and to remediate the prior inadequacies, including complying with undertakings contained in resolutions with the World Bank (including an ongoing monitorship) and the government of Switzerland, substantially increasing its compliance staff, improving its alert procedures, increasing training and auditing/testing, and cease the use of external success fee-based consultants.”
In the plea agreement, Alstom agreed to a so-called “muzzle clause” in which it agreed not, directly or indirectly through others, to make any public statement contradicting the acceptance of responsibility set forth in the plea agreement.
Pursuant to the plea agreement, Alstom agreed to a corporate compliance program with elements typically part of other FCPA settlements.
Pursuant to the plea agreement, Alstom agreed to report to the DOJ, at no less than 12 month intervals, for a three-year term, regarding remediation and implementation of the compliance program and internal controls, policies, and procedures. The plea agreement references that Alstom is already subject to monitoring requirements pursuant to a February 2012 World Bank Resolution but states that “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.”
Alstom Network Schweiz AG Information
The information against Alstom Network Schweiz AG (formerly known as Alstom Prom AG), a subsidiary of Alstom headquartered in Switzerland and responsible for overseeing compliance as it related to Alstom’s consultancy agreements for many of Alstom’s power sector subsidiaries, is based upon the same Indonesia, Saudi Arabia, Egypt, and Bahamas conduct alleged in the Alstom information.
The Alstom entity is charged with conspiracy to violate the FCPA’s anti-bribery provisions under the dd-3 prong of the statute. According to the information, the “purpose of the conspiracy was to make corrupt payments to foreign officials in Indonesia, Saudi Arabia, Egypt, and the Bahamas in order to obtain and retain business related to power projects in those countries for and on behalf of Alstom and its subsidiaries.”
Alstom Network Schweiz AG Plea Agreement
In the plea agreement, the Alstom entity admitted, agreed, and stipulated that the factual allegations set forth in the information were true and correct.
Pursuant to the plea agreement, “the parties agree[d] that any monetary penalty in this case will be paid pursuant to the plea agreement between the DOJ and Alstom, S.A., the parent company of the Defendant, relating to the same conduct …”.
In the plea agreement, the Alstom entity agreed to a so-called “muzzle clause” in which it agreed not, directly or indirectly through others, to make any public statement contradicting the acceptance of responsibility set forth in the plea agreement.
The plea agreement contains the same corporate compliance program, reporting obligations, and monitor conditions as described in the Alstom plea agreement above.
The information against Alstom Power Inc., a subsidiary of Alstom headquartered in Connecticut in the business of providing power generation-related services around the world, is based upon the same Indonesia, Saudi Arabia, and Egypt conduct alleged in the Alstom information.
Alstom Power is charged with conspiracy to violate the FCPA’s anti-bribery provisions under the dd-2 prong of the statute. According to the information, the “purpose of the conspiracy was to make corrupt payments to foreign officials in Indonesia, Saudi Arabia, and Egypt in order to obtain and retain business related to power projects in those countries for and on behalf of Alstom Power and its subsidiaries.”
In the DPA, Alstom Power admitted, accepted, and acknowledged that it was responsible for the conduct charged in the information.
The DPA has a term of three years and under the heading “relevant considerations” states as follows.
“The [DOJ] enters into this Agreement based on the individual facts and circumstances presented by this case and the Company. Among the factors considered were the following: (a) the company failed to voluntarily disclosed the conduct even though it had previously entered into a resolution for corrupt conduct in connection with a power project in Italy several years prior to the [DOJ] reaching out to Alstom regarding their investigation; (b) 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. The Company’s and its parent’s initial failure to cooperate impeded the Department’s investigation of individuals involved in the bribery scheme. At a later stage in the investigation, the Company and its parent began providing thorough cooperation, including assisting in the Department’s investigation and prosecution of individuals and other companies that had partnered with the Company and its parent on certain projects. The Company’s and its parent’s thorough cooperation did not occur until after the Department had publicly charged multiple current and former Alstom executives and employees; (c) the Company and its parent have undertaken substantial efforts to enhance its compliance program as part of the significant compliance and remediation improvements to Alstom S.A’s program, and has committed to continue to enhance their compliance program and internal controls, ensuring that its program satisfies the minimum elements set forth [in the DPA]; (d) General Electric Company, which intends to acquire the Company, has represented that it will implement its compliance program and internal controls at the Company within a reasonable time after the acquisition closes; and (e) the Company has agreed to continue to cooperate with the [DOJ] in any ongoing investigation …”.
In the DPA, the DOJ and the Company agreed that no monetary penalty will be paid by the Company because Alstom S.A., the parent company of the Company, has agreed to pay a fine of $772,290,000 related to the same underlying conduct.
In the DPA, Alstom Power agreed to a so-called “muzzle clause” in which it agreed not, directly or indirectly through others, to make any public statement contradicting the acceptance of responsibility set forth in the plea agreement.
The DPA contains the same corporate compliance program, reporting obligations, and monitor conditions as described in the Alstom plea agreement above.
The information against Alstom Grid, Inc. (formerly known as Alstom T&D, Inc.), a subsidiary of Alstom headquartered in New Jersey in the business of providing power grid-related services around the world, is based upon the same Egypt conduct alleged in the Alstom information.
Alstom Grid is charged with conspiracy to violate the FCPA’s anti-bribery provisions under the dd-2 prong of the statute. According to the information, the “purpose of the conspiracy was to make corrupt payments to foreign officials in Egypt in order to obtain and retain business related to power grid projects for and on behalf of Alstom Grid and Alstom and its subsidiaries.”
In the DPA, Alstom Grid admitted, accepted, and acknowledged that it was responsible for the conduct charged in the information.
The DPA has a term of three years and contains the same relevant considerations described in the Alstom Power DPA above.
In the DPA, the DOJ and the Company agreed that no monetary penalty will be paid by the Company because Alstom S.A., the parent company of the Company, has agreed to pay a fine of $772,290,000 related to the same underlying conduct.
In the DPA, Alstom Power agreed to a so-called “muzzle clause” in which it agreed not, directly or indirectly through others, to make any public statement contradicting the acceptance of responsibility set forth in the plea agreement.
The DPA contains the same corporate compliance program, reporting obligations, and monitor conditions as described in the Alstom plea agreement above.
In this DOJ release, Deputy Attorney General James Cole stated:
“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. And it is both my expectation – and my intention – that the comprehensive resolution we are announcing today will send an unmistakable message to other companies around the world: that this Department of Justice will be relentless in rooting out and punishing corruption to the fullest extent of the law, no matter how sweeping its scale or how daunting its prosecution.”
Assistant Attorney General Leslie Caldwell stated:
“This case is emblematic of how the Department of Justice will investigate and prosecute FCPA cases – and other corporate crimes. We encourage companies to maintain robust compliance programs, to voluntarily disclose and eradicate misconduct when it is detected, and to cooperate in the government’s investigation. But we will not wait for companies to act responsibly. With cooperation or without it, the department will identify criminal activity at corporations and investigate the conduct ourselves, using all of our resources, employing every law enforcement tool, and considering all possible actions, including charges against both corporations and individuals.”
First Assistant U.S. Attorney Michael Gustafson of the District of Connecticut stated:
“Today’s historic resolution is an important reminder that our moral and legal mandate to stamp out corruption does not stop at any border, whether city, state or national. A significant part of this illicit work was unfortunately carried out from Alstom Power’s offices in Windsor, Connecticut. I am hopeful that this resolution, and in particular the deferred prosecution agreement with Alstom Power, will provide the company an opportunity to reshape its culture and restore its place as a respected corporate citizen.”
FBI Executive Assistant Director Robert Anderson Jr. stated:
“This investigation spanned years and crossed continents, as agents from the FBI Washington and New Haven field offices conducted interviews and collected evidence in every corner of the globe. The record dollar amount of the fine is a clear deterrent to companies who would engage in foreign bribery, but an even better deterrent is that we are sending executives who commit these crimes to prison.”
As noted in the DOJ release:
“To date, the department has announced charges against five individuals, including four corporate executives of Alstom and its subsidiaries, for alleged corrupt conduct involving Alstom. Frederic Pierucci, Alstom’s former vice president of global boiler sales, pleaded guilty on July 29, 2013, to conspiring to violate the FCPA and a charge of violating the FCPA for his role in the Indonesia bribery scheme. David Rothschild, Alstom Power’s former vice president of regional sales, pleaded guilty on Nov. 2, 2012, to conspiracy to violate the FCPA. William Pomponi, Alstom Power’s former vice president of regional sales, pleaded guilty on July 17, 2014, to conspiracy to violate the FCPA. Lawrence Hoskins, Alstom’s former senior vice president for the Asia region, was charged in a second superseding indictment on July 30, 2013, and is pending trial in the District of Connecticut in June 2015. The charges against Hoskins are merely allegations, and he is presumed innocent unless and until proven guilty. The high-ranking member of Indonesian Parliament was also convicted in Indonesia of accepting bribes from Alstom, and is currently serving a three-year term of imprisonment.
In connection with a corrupt scheme in Egypt, Asem Elgawhary, the general manager of an entity working on behalf of the Egyptian Electricity Holding Company, a state-owned electricity company, pleaded guilty on Dec. 4, 2014, in federal court in the District of Maryland to mail fraud, conspiring to launder money, and tax fraud for accepting kickbacks from Alstom and other companies. In his plea agreement, Elgawhary agreed to serve 42 months in prison and forfeit approximately $5.2 million in proceeds.”
In addition to the above DOJ press release, the DOJ also held a press conference, a rare event in connection with an FCPA enforcement action. In this speech, Cole stated:
“We are here to announce a historic law enforcement action that marks the end of a decade-long transnational bribery scheme – a scheme that was both concocted and concealed by Alstom, a multinational French company, and its subsidiaries in Switzerland, Connecticut, and New Jersey.
Today, those companies admit that, from at least 2000 to 2011, they bribed government officials and falsified accounting records in connection with lucrative power and transportation projects for state-owned entities across the globe. They used bribes to secure contracts in Indonesia, Egypt, Saudi Arabia, and the Bahamas. Altogether, Alstom paid tens of millions of dollars in bribes to win $4 billion in projects – and to secure approximately $300 million in profit for themselves.
Such rampant and flagrant wrongdoing demands an appropriately strong law enforcement response. Today, I can announce that the Justice Department has filed a two-count criminal information in the U.S. District Court for the District of Connecticut, charging Alstom with violating the Foreign Corrupt Practices Act, or FCPA, by falsifying its books and records and failing to implement adequate internal controls. Alstom has agreed to plead guilty to these charges, to admit its criminal conduct, and to pay a criminal penalty of more than $772 million. If approved by the court next year, this will be the largest foreign bribery penalty in the history of the United States Department of Justice.
In addition, I can announce that Alstom’s Swiss subsidiary is pleading guilty to conspiring to violate the FCPA. And the company’s two American subsidiaries have entered into deferred prosecution agreements and admitted that they conspired to violate the FCPA.
Alstom’s corruption scheme was sustained over more than a decade and across several continents. It was breathtaking in its breadth, its brazenness, and its worldwide consequences. And it is both my expectation – and my intention – that the comprehensive resolution we are announcing today will send an unmistakable message to other companies around the world: that this Department of Justice will be relentless in rooting out and punishing corruption to the fullest extent of the law, no matter how sweeping its scale or how daunting its prosecution. Let me be very clear: corruption has no place in the global marketplace. And today’s resolution signals that the United States will continue to play a leading role in its eradication.
The investigation and prosecution of Alstom and its subsidiaries have been exceedingly complex – and they have required the utmost skill and tenacity on the part of a wide consortium of law enforcement officials throughout the country and across the globe. I want to thank the Criminal Division’s Fraud Section and Office of International Affairs; the U.S. Attorney’s Offices in Connecticut, Maryland, and New Jersey; the FBI’s Washington Field Office and its Resident Agency in Meriden, Connecticut; the Corruption Eradication Commission in Indonesia; the Office of the Attorney General in Switzerland; the Serious Fraud Office in the United Kingdom; as well as authorities in Germany, Italy, Singapore, Saudi Arabia, Cyprus, and Taiwan, for their tireless efforts to advance this matter. The remarkable cross-border collaboration that these agencies made possible has led directly to today’s historic resolution. And this outcome demonstrates our unwavering commitment to ending corporate bribery and international corruption. Our hope is that this announcement will serve as an inspiration – and a model – for future efforts.”
In this speech at the press conference, Caldwell stated:
“Today represents a significant milestone in the global fight against corruption. It demonstrates the Department of Justice’s strong commitment to fighting foreign bribery and ensuring that both companies and individuals are held accountable when they violate the FCPA. 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.
Let me first explain how the scheme worked. To conceal that it was the source of payments to government officials, Alstom funneled the bribes through third-party consultants who did little more than serve as conduits for corruption. Alstom then dummied up its books and records to cover up the scheme.
Alstom’s corruption spanned the globe, and was its way of winning business. For example, in Indonesia, Alstom and certain of its subsidiaries used consultants to bribe government officials – including high-ranking members of the Indonesian Parliament and the state-owned and state-controlled electricity company – to win several contracts to provide power-related services. According to internal documents, when certain officials expressed displeasure that a particular consultant had provided only “pocket money,” Alstom retained a second consultant to ensure that the officials were satisfied.
In Saudi Arabia, Alstom retained at least six consultants, including two close family members of high-ranking government officials, to bribe officials at a state-owned and state-controlled electricity company to win two projects valued at approximately $3 billion. As evidence that Alstom employees recognized that their conduct was criminal, internal company documents refer to the consultants only by code name.
Alstom similarly used consultants to bribe officials in Egypt and the Bahamas, and again Alstom employees clearly knew that the conduct violated the law. In connection with a project in Egypt, a member of Alstom’s finance department sent an email questioning an invoice for consultant services and, in response, was advised that her inquiry could have “several people put in jail” and was further instructed to delete all prior emails regarding the consultant.
If approved by the court, Alstom’s criminal penalty of $772 million represents the largest penalty ever assessed by department in a FCPA case. Through Alstom’s parent-level guilty plea and record-breaking criminal penalty, Alstom is paying a historic price for its criminal conduct — and for its efforts to insulate culpable corporate employees and other corporate entities. 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. Indeed, it was only after the department publicly charged several Alstom executives – three years after the investigation began – that the company finally cooperated.
One important message of this case is this: While we hope that companies that find themselves in these situations will cooperate with the Department of Justice, we do not wait for or depend on that cooperation. When Alstom refused to cooperate with the investigation, we persisted with our own investigation. We built cases against the various corporate entities and against culpable individuals. To date, the department publicly has charged four Alstom corporate executives in connection with the corrupt scheme in Indonesia, which also chose not to cooperate, and another company’s executive in connection with the scheme in Egypt. Four of these individuals already have pleaded guilty. In addition, Marubeni Corporation, a Japanese trading company that partnered with Alstom in Indonesia, pleaded guilty to conspiracy to violate the anti-bribery provisions of the FCPA and substantive violations of the FCPA, and paid an $88 million criminal penalty.
Another important message from this case is that the U.S. increasingly is not alone in the fight against transnational corruption. Earlier this year, Indonesia’s Corruption Eradication Commission, the KPK, assisted the department in its investigation. And, in turn, the department shared with the KPK information that federal investigators had obtained, which the KPK used in its prosecution of a former member of the Indonesian Parliament for accepting bribes from Alstom-funded consultants. This past spring, that Indonesian official was found guilty and sentenced to three years in an Indonesian prison. Our partnership with Indonesian law enforcement authorities in this case means that both the bribe payors and bribe takers have been prosecuted. And our investigation is not over yet.
This case is emblematic of how the Department of Justice will investigate and prosecute FCPA cases – and other corporate crimes. We encourage companies to maintain robust compliance programs, to voluntarily disclose and eradicate misconduct when it is detected, and to cooperate in the government’s investigation. But we will not wait for companies to act responsibly. With cooperation or without it, the department will identify criminal activity at corporations and investigate the conduct ourselves, using all of our resources, employing every law enforcement tool, and considering all possible actions, including charges against both corporations and individuals.”
See here for an additional DOJ statement at the press conference.
In this Alstom release, Alstom CEO Patrick Kron stated:
“There were a number of problems in the past and we deeply regret that. However, this resolution with the DOJ allows Alstom to put this issue behind us and to continue our efforts to ensure that business is conducted in a responsible way, consistent with the highest ethical standards.”
The release further states:
“Alstom has made significant progress in the area of compliance over the last several years. The conduct referred to in the agreement mainly arose from the use of external success fee based Sales Consultants hired by Alstom to support its commercial teams. In order to ensure that Alstom strives for the best compliance procedures, Alstom has discontinued the hiring of such Sales Consultants. Further, pursuant to a negotiated resolution agreement with the World Bank, Alstom committed in Feb 2012 to continue to improve its internal compliance programme, including by retaining a monitor to oversee its efforts in this regard. To date, the work of the Monitor has confirmed that Alstom has put in place a Corporate Compliance Programme that reflects the principles embedded in the WBG’s Integrity Compliance Guidelines.”
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“The DOJ has also stipulated that no part of the fine can be passed on to General Electric as part of the projected sale of Alstom’s energy businesses.”
Robert Luskin and Jay Darden of Squire Patton Boggs represented the Alstom entities.