Lessons learned from the largest DOJ FCPA enforcement action of all-time
On December 22, 2014, Alstom S.A. ("Alstom"), a French power and transportation company, pleaded guilty and agreed to pay a $772 million fine to resolve FCPA charges related to a widespread scheme involving tens of millions of dollars in bribes in countries around the world, including Indonesia, Saudi Arabia, Egypt, and the Bahamas. According to a DOJ press release, Alstom paid more than $75 million to secure $4 billion in projects around the world, with a profit to the company of approximately $300 million.
DOJ Message: Ramped-up FCPA enforcement
The Alstom case was the DOJ's largest FCPA enforcement action of all-time, and the DOJ clearly wanted to send a message that the agency is aggressively investigating and prosecuting FCPA violations around the world. In fact, Deputy General James Cole said:
"[I]t 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 General Leslie Caldwell, echoing her remarks discussed in my recent blog post here, added:
“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.”
FCPA Professor in a blog post here makes some excellent observations of key issues and take-aways from the Alstom case, which I'll summarize below...
DOJ wants to collect money
The charges against Alstom are a "real head-scratcher." Alstom pleaded guilty to violations of the FCPA's books and records provision, not the FCPA's anti-bribery provision. But, the books and records provisions are only applicable to "issuers," i.e., a business that files reports to the SEC or trades equity or debt on a U.S. exchange, and Alstom ceased being an issuer in 2004. In other words, Alstom pleaded guilty to substantive legal provisions in 2014 that last applied to the company in 2004. Koehler observes: "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."
Third party intermediaries can create FCPA problems
As noted in my past blog posts (click here or here), most companies find themselves in FCPA hot water based on the conduct of third party intermediaries. Alstom is no different. The conduct of third party intermediaries in Alstom was fairly egregious, including:
- 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.
Alstom's lack of due diligence regarding third party intermediaries is pretty shocking, too. One consultant hired had no knowledge about, or experience in, the power industry. Rather, the DOJ Information alleges, the consultant “sold furniture and leather products, and exported chemical products and spare parts.” Another consultant on a rapid transit product did not have any expertise in the sector, but instead was a "wholesaler of cigarettes, wines and pianos."
DOJ continues to stretch who is a "foreign official"
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.”
As Koehler observes: "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."
DOJ's interpretation of "lack of cooperation" may conflict with companies' definitions
The DOJ repeatedly stated in the resolution documents that Alstom did not cooperate. But, the only example cited was this:
"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."
As Koehler observes, the DOJ should have been more specific about what constitutes lack of cooperation if it wants its "cooperation" message to be fully absorbed by the corporate community. And “if 'responding only to the DOJ’s subpoena' is considered lack of cooperation by the DOJ, this is troubling."