The Justice Department is building a bribery case against Alstom SA, the French maker of trains and power equipment, that is likely to result in one of the largest U.S. anticorruption enforcement actions, according to two people with knowledge of the probe.
Alstom, which is based in Levallois-Perret, has hindered the U.S. investigation of possible bribery in Indonesia and now faces an expanded probe including power projects in China and India, prosecutors said in a related case. The company is cooperating with the Justice Department and it’s too early to estimate how large a settlement might be, Alstom said in a statement today. The stock dropped as much as 6.5 percent in Paris trading.
Alstom had set aside 39 million euros ($54 million) as of March 2013 to cover bribery probes and legal matters, according to a company report. That’s likely to fall far short of what the company will need to settle the U.S. case, according to Michael Volkov, a former federal prosecutor who estimates Alstom could face penalties that rival Siemens AG’s $800 million settlement with the U.S. in 2008.
“The question for this case will be is it going to exceed Siemens in the scope of the penalty and scope of the violation,” Volkov, who now runs the Volkov Law Group LLC and isn’t involved in the case, said in an interview. “The problem for this company is that there’s an absence of acknowledgment that they have a problem and without remediation and cooperation a big company is destined to get smashed.”
Alstom declined as much as 1.31 euros to 18.92 euros, the biggest drop since Jan. 21, and was down 6.3 percent as of 1:25 p.m., valuing the company at about 6 billion euros. Before today, the stock had declined 24 percent this year, while the French CAC 40 index had risen 2.1 percent.
“We look forward to amicably resolving with the DOJ any problems that we uncover,” Alstom said today. “But it is far too early to say what projects might be encompassed in a potential settlement or how large such a settlement might be. Trying to put a number on it now or to compare it with other matters is an exercise in pure speculation.”
Peter Carr, a Justice Department spokesman, declined to comment.
Cases enforcing the Foreign Corrupt Practices Act have drawn attention in recent years for the magnitude of corporate penalties they command. Among the largest U.S. penalties for foreign bribery are KBR Inc.’s $579 million settlement in 2009 and Alcoa Inc.’s $384 million penalty earlier this year.
U.S. prosecutors have dozens of open bribery investigations, including probes of financial firms’ hiring practices in Asia and whether Wal-Mart Stores Inc. systematically paid off officials in Mexico and elsewhere to open stores more quickly.
Alstom has been investigated by multiple countries since 2004 when auditors for the Swiss Federal Banking Commission unearthed documents showing possible corrupt payments. Since then, the company has paid more than $53 million over claims its employees bribed officials in at least five countries. In addition to the U.S., Alstom is being investigated by the U.K. and Brazil.
As part of a 2012 resolution with the World Bank, which sanctioned Alstom for improper payments in Zambia, two of its units were barred from public tenders financed by the bank for three years.
The U.S. probe of Alstom has centered on a $118 million contract to provide boiler services at a power plant on the Indonesian island of Sumatra. Alstom executives, together with Marubeni Corp., a Japanese commodity-trading company, used middlemen to funnel hundreds of thousands of dollars to a member of Indonesia’s parliament and officials at Perusahaan Listrik Negara PT, a state-controlled electricity company known as PLN, according to court papers filed by the Justice Department.
While investigating that deal, the Justice Department found evidence of possible bribery in 10 other energy projects in Indonesia, India and China, according to documents filed in a case against William Pomponi, the former vice president of regional sales at Alstom’s Connecticut unit, who is scheduled to go to trial in June.
Prosecutors cited a November 2002 e-mail chain in which Alstom employees discussed a plan to “cover all of those listed” on a roster of key managers at China Petroleum & Chemical Corp., or Sinopec, to ensure Alstom was invited to bid on a contract. Pomponi claimed more than $17,000 in expenses to entertain a Chinese delegation, according to court papers filed by the government. Pomponi has denied the allegations.
Prosecutors have said that Alstom hasn’t been forthcoming.
At a Nov. 20 hearing in Pomponi’s case, Assistant U.S. Attorney David Novick said the government was still waiting for documents on “myriad” other projects.
“The company really hasn’t been cooperating,” Novick said. “They have in fits and starts complied with the grand jury subpoena, and only very recently have they actually begun to make inroads toward being more cooperative.”
In the meantime, prosecutors have worked to secure cooperators to aid their case. Of four former Alstom executives who have been charged, two have already pleaded guilty and agreed to help prosecutors. Marubeni also pleaded guilty to bribery violations on March 19 and said it would cooperate with the investigation.
Prosecutors said that Marubeni’s refusal to cooperate earlier in the investigation factored into the settlement, which included an $88 million penalty.
Robert Luskin, Alstom’s lawyer at Patton Boggs LLP in Washington, said cooperation has improved.
“There were clearly problems between the company and DOJ initially before we were retained,” Luskin said. “What we hear back from the government is that they’re satisfied with the direction and the level of our efforts and frankly that has gotten better and better over time.”
As evidence of Alstom’s legal problems mounted, FCPA lawyers compared the company to its German competitor Siemens, which paid more than $1.6 billion in civil and criminal penalties globally to resolve bribery investigations.
Alstom, which was rescued from near bankruptcy by the French government in 2004, had a real problem and changed their policies in the last year or two, Jacques Terray, vice-president of Transparency International France and a former partner at French law firm Gide Loyrette Nouel, said in an interview.
“For a long time they didn’t pay enough attention to those types of things,” he said.
Three of the 10 largest bribery penalties paid in the U.S. involve French companies: Total SA’s $398 million payment last year, Technip SA’s $338 million settlement in 2010 and a $137 million penalty against Alcatel-Lucent SA the same year. BNP Paribas SA, France’s largest bank, said last month it set aside $1.1 billion in potential costs related to a probe that it dealt with sanctioned countries or entities.
“The French saying ‘oh, we won’t bother with that, we won’t apply it’ -- those days are gone,” Terray said. “Simple realism showed them that it doesn’t work like that anymore. Or they have to say ‘I won’t work in the U.S. anymore.’”