The Alstom FCPA Enforcement Action – Part I

This article was republished with permission from Tom Fox’s FCPA Compliance and Ethics Blog.

As the first blog post of 2015, I thought it appropriate to highlight two outstanding confluences. The first is that this year is the centenary of the birth of Orson Welles. While not occurring in 2015, near the end of 2014 we had the settlement of the long-standing Alstom Foreign Corrupt Practices Act (FCPA) enforcement action announced. Both are worthy of note on this day of our mid-decade mark. First, Welles: many consider him one of the most talented directors ever to come through the American film industry. Almost any cinema-goer will recognize the names of Citizen Kane and The Magnificent Ambersons as two of greatest films of all-time. But I found The Lady from Shanghai, Macbeth and most particularly Touch of Evil all to be excellent films for their respective genres. And do not forget his acting; not only in the aforementioned Citizen Kane and Touch of Evil, but also as Harry Lime in The Third Man. Welles could also be a philosopher. Kristin M. Jones, writing in the Wall Street Journal (WSJ) in an article entitled “Welles at 100,” quoted him as saying, “Art is the lie that makes us realize the truth.” She ended her piece with this observation: “Searching for the truth beyond Welles’s beautiful lies is still a journey worth taking.”

All of which brings us to Alstom and the resolution of its FCPA enforcement action. Over the next couple of posts, I will be looking at the enforcement action, for it is certainly “a journey worth taking” to try and glean wisdom for the compliance practitioner. Today, I will review the amounts of money involved and some of the larger concepts that I see at play in this matter. Next, I will review the specifics of the Deferred Prosecution Agreements (DPAs) and see what lessons we may draw from them. Beyond that, we will have to see where the journey takes us.

First and foremost: how did Alstom find itself in the position that it now occupies as #2 on the all-time hit parade of FCPA enforcement actions? Particularly — as noted by the FCPA Professor in his post entitled “All About the Alstom Enforcement Action” — that “Alstom employed approximately 110,000 employees in over 70 countries. The information contains specific allegations as to nine individuals associated with Alstom and nine consultants associated with Alstom.”

Usually, when someone comes in at #2, the ranking comes with some ignominy, though for Alstom it isn’t because they didn’t win, but because they now have the second highest total of FCPA monetary fines in the history of the world at a stunning $772,290,000. I say total because the current front runner, Siemens, is at $800 million and included both a Department of Justice (DOJ) component of $450 million and Securities and Exchange Commission (SEC) component of $350 million. However, with the Alstom fine, the entire amount was paid to the DOJ as a fine and no monies were paid to the SEC because at the time of the resolution, Alstom was not an “issuer” under the FCPA and the SEC had no jurisdiction. This makes Alstom the largest criminal FCPA fine of all-time. One interesting note is that two other French companies, Total SA and Technip SA, join Alstom on the all-time top 10 list. Somewhere I am sure Mr. French is shaking his very well-coiffured head in shame in the great TV Land in the sky.

I would say the amounts paid out and benefits received by Alstom were stunning, but it might do a disservice to the word stunning. So I have laid out information below.

Alstom Bribery Box Score

The FCPA Professor also noted, “at its core, the Alstom enforcement action involved inadequate controls concerning the engagement, monitoring and supervision of the consultants.” However, it is most difficult to believe that Alstom suffered from a corporate culture which was at best, “make your numbers” and at worst, something much more nefarious. The amounts paid were simply so large and the bribery schemes so pervasive that there had to be much more than simply nine persons lying, cheating and stealing all while merrily skipping home to Grandmother’s house in the woods. Indeed, as noted by WSJ reporters Joel Schechtman and Brent Kendall in their article entitled “Alstom to Pay $772 Million to Settle Bribery Charges,” “The record criminal bribery penalty comes after more than six years of investigations into Alstom from law enforcement in 10 countries. The company and its subsidiaries’ schemes lasted for more than a decade, into at least 2011.”

Also of note is that the Alstom enforcement action was the first in 2014 in which the fine was not at either the low range or even lower than calculations the Sentencing Guidelines would have suggested. The range for the fine was calculated to be between $592 million and $1.184 billion. This range was a direct result of the failure of Alstom to take the investigation seriously, to cooperate with the DOJ or to even put anything like a positive step forward in the way of remedial actions during a large part of the investigative process. The DOJ Press Release quoted Assistant Attorney General Leslie R. Caldwell, who said “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.”

Finally, from a big picture perspective was the international scope of the investigation. In the DOJ press release, FBI Executive Assistant Director Robert Anderson, Jr. said, “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.” Further, the DOJ acknowledged significant cooperation from “the law enforcement colleagues in Indonesia at the Komisi Pemberantasan Korupsi (Corruption Eradication Commission), 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.” Truly worldwide in scope.

Next, I will look at some of the specifics in the various Alstom DPAs to determine where the best practices compliance program may be headed.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business advice, legal advice or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The author gives his permission to link, post, distribute or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.