FCPA Compliance and Ethics Blog

December 22, 2014

Alstom Joins Santa’s Naughty List – In a Very Big Way

Naughty ListThe North Pole for Foreign Corrupt Practices Act (FCPA) enforcement action announcements seems to have temporarily moved south for the month of December. Last week there was the final announcement of the long-standing Avon FCPA enforcement action. On December 22, 2014, the Department of Justice (DOJ) announced settlement of the Alstom enforcement action. Certainly the DOJ is giving out presents to companies that have been very, very naughty. I am currently exploring the Avon enforcement action over several days of blog posts but I had to interrupt those posts to write something about the Alstom resolution for it was extremely significant gift for the Chief Compliance Officer (CCO), compliance practitioner and companies going forward.

The Fine

First and foremost was the fine amount. At $772MM it is the highest criminal fine for FCPA violations in the history of the world. Siemens’ prior of a reported $800MM was a combination of DOJ and Securities and Exchange Commission (SEC) fines and penalties. Alstom was not subject to the jurisdiction of the SEC so there was no component of this amount for either civil books and records or internal controls violations. But for those few remaining dunderheads out there who think their private company status insulates them from FCPA liability; wake up and smell the mistletoe, as the DOJ will be looking for you to smack a big one on. The fine brings the 2014 fine totals up to around $1.5bn, which comes a close second to the record-setting year of 2010, where the total amount of fines was $1.8bn.

Disclosure, Cooperation and Conduct

While I am in the middle of lambasting Avon for its conduct that led to its FCPA violations, one really has to step aside and give some credit to Alstom for some of the worst actions a company can engage in when dealing with bribery and corruption. If there was anyone on the naughty list, it certainly was Alstom. First is the company’s failure to self-disclose its obvious criminal conduct. The second was the clear foot-dragging in dealing the DOJ, during the pendency of the investigation. Finally, to complete this triumvirate of idiocy was the company’s refusal to timely engage in remediation. Dick Cassin, writing in the FCPA Blog, pointed out that Alstom’s conduct included the following:

  • Alstom’s refusal to fully cooperate with the department’s investigation for several years
  • The breadth of the companies’ misconduct, which spanned many years, occurred in countries around the globe and in several business lines, and involved sophisticated schemes to bribe high-level government officials
  • Alstom’s lack of an effective compliance and ethics program at the time of the conduct, and
  • Alstom’s prior criminal misconduct, including conduct that led to resolutions with various other governments and the World Bank.

Individual Prosecutions

Alstom’s conduct was so bad during the investigation that the DOJ obtained indictments against four company executives during the pendency of the investigation. Three of these executives have pled guilty and are awaiting sentencing. Cassin wrote, “Alstom began cooperating only after the DOJ publicly charged several Alstom executives, the government said.” The UK Serious Fraud Office (SFO) has also brought charges against individuals.

Post Acquisition FCPA Liability

I promised a Christmas present for companies out there and neither Santa nor I want to disappoint those not on the naughty list, for the Alstom enforcement action makes clear that the company which is acquiring them, GE, is not responsible for the fine going forward. This enforcement action reinforces the message the DOJ presented in Opinion Release 14-02; that a company which engages in pre-acquisition due diligence, discloses and then remediates the issues after they acquire the entity, can rest easier about purchasing a FCPA violation. For if GE can purchase a company with the clear attitude about doing business in compliance with anti-corruption laws, such as Alstom, with confidence that it will not be subject to a FCPA enforcement action, it means that any other company can do so as well.

Cassin reported, “Alstom SA pleaded guilty to a two-count criminal information in federal court in Connecticut. The DOJ charged the company with violating the Foreign Corrupt Practices Act by falsifying its books and records and failing to implement adequate internal controls. Alstom admitted its criminal conduct…In addition, Alstom Network Schweiz AG, a Swiss subsidiary, pleaded guilty to a criminal information charging it with conspiracy to violate the antibribery provisions of the FCPA.” Finally, “Two U.S. subsidiaries — Alstom Power Inc. and Alstom Grid Inc. — both entered into deferred prosecution agreement with the DOJ. They admitted that they conspired to violate the antibribery provisions of the FCPA.” The settlement documents have not been released as yet but hopefully they will be by the time of the final sentencing hearing before US District Judge Janet B. Arterton in June 2015.

The significance of this enforcement action will reverberate for a long time to come.

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, 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.

© Thomas R. Fox, 2014

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