Cracking Down On Corporate Bribery

With tougher laws in place, prosecutors around the world are bringing high-profile cases

Alcatel (ALA ) was supposed to be squeaky-clean. In 2001, after Organization for Economic Cooperation & Development member countries agreed to adopt tougher anticorruption laws, Alcatel overhauled its corporate ethics code and sent copies to its more than 60,000 employees worldwide warning that the payment of bribes and kickbacks was prohibited. The Paris-based telecommunications company appointed an ethics committee of top executives who monitor compliance with the code. And last year it named Daniel Lebègue, president of the French chapter of anticorruption group Transparency International, to its board.

So why are Costa Rica prosecutors combing through the bank records indicating that Alcatel made as much as $15 million in illicit payments to top politicians and bureaucrats over the past few years? In late October, former President Miguel Angel Rodríguez was jailed on charges he took bribes from Alcatel in exchange for awarding telephone contracts to the company in 2001. (Rodríguez denies the charges.) Another ex-President, José María Figueres, has admitted taking $900,000 in "consulting fees" from Alcatel from 2000 to 2003. Edgar Valverde, the former head of Alcatel's Costa Rican operations, has been jailed since Oct. 15 in preventive custody and is charged with inducing corrupt acts and with criminal conspiracy. Separately, Costa Rican authorities are investigating whether Alcatel violated a ban on foreign contributions to political campaigns, including that of current President Abel Pacheco.

Alcatel acknowledges that Valverde, as well as a former Latin America-based Alcatel vice-president who supervised him, appear to have made political payoffs through a Costa Rican consulting firm hired by Alcatel. (The vice-president has not been charged.) Top managers in Paris first learned of the situation through reports in the Costa Rican press in September, says a spokeswoman. After investigating internally, she says, Alcatel determined that the men also had used company funds to benefit themselves and their families. The two have been fired, and Alcatel says it is cooperating with authorities and has asked that criminal charges be filed against both men. "Alcatel had rules and procedures in place, and these employees did not respect them," Lebègue says. "The company has reacted, is cooperating with the justice system, and being open with the media."

Others aren't convinced. "How could the top echelon of Alcatel not know that $14 million to $15 million was taken from corporate accounts in New York to be distributed as prizes to very high officials?" asks Mario Carazo, vice-president of Transparency International's Costa Rican chapter.

Alcatel isn't the only company facing corruption questions. In France, four executives of oil giant Total (TOT ) were placed under formal investigation this fall in a probe of a Swiss company that allegedly was a conduit for bribes. In Washington, the Securities & Exchange Commission is looking into a whistleblower's complaint that Germany's DaimlerChrysler (DCX ) maintained secret bank accounts to finance overseas bribery. Dozens of other cases have been opened in Europe, Latin America, and Africa.

Bribery, of course, is a practice that dates to antiquity. But there are encouraging signs that governments are finally cracking down. The OECD agreement, which took effect in 1999, has spurred tough laws in 35 countries, imposing criminal penalties on companies found guilty of bribery. Before that, the U.S. was virtually the only country with such legislation. Some, including France and Germany, even allowed companies to take tax deductions for bribes they paid. "The climate has definitely changed," says Susan Hawley, a research consultant to The Corner House, a British group that tracks anticorruption efforts. "The change in laws is beginning to bite."


Antibribery laws are only one of the new weapons available to investigators. Stricter reporting rules on international funds transfers, put in place in recent years to deter organized crime and terrorism, make it easier to trace the flow of illicit funds. The case involving Total in France, for example, was opened in 2002 by magistrate Philippe Courroye after the French anti-money-laundering unit Tracfin noticed money being transferred from a Total subsidiary to a Swiss company, Teliac. Courroye's office says it is investigating whether Teliac in turn funneled cash to officials in Iraq, Russia, and Tanzania, where Total was pursuing business. Total confirms that it has had "commercial dealings" with Teliac but says Teliac, not Total, is the target of the probe. Courroye, however, has placed four Total executives, including its former head of worldwide trading and a senior manager of its Middle Eastern exploration and production unit, under formal investigation.

Bold European prosecutors are even stalking prey far from their home turf. French magistrate Renaud Van Ruymbeke is looking into whether a consortium including Halliburton Co. (HAL ) paid bribes through a British lawyer to win approval for a liquefied natural gas plant in Nigeria. A Halliburton spokeswoman says the company's ongoing inquiry has not found any evidence that bribes were paid but that it is cooperating with investigators. France enters the picture because one member of the consortium is Technip (TKP ), a Paris engineering company. Technip says it is cooperating with authorities but declines further comment.

As with the Halliburton case, many pending inquiries focus on companies' use of well-connected middlemen to obtain business abroad. "The companies want to get to the right people, so they hire an agent. Then the agent asks for payment, and [the companies] close their eyes and ears to what goes on," says Jermyn Brooks, a global director of Transparency International. Lebègue says Alcatel was unaware of its consultants' payments to Costa Rican politicians because the money came out of the fees the consultants received from Alcatel, which totaled 10% of the roughly $258 million in contracts Alcatel received.

The new antibribery laws, however, hold companies accountable for such indirect payments even if there is no proof that top managers authorized them. Norway's Statoil (STO ), for example, in October paid a $3 million fine to settle criminal charges that a consulting firm acted improperly on its behalf to secure contracts in Iran. Statoil says it agreed to the fine without admitting or denying the charges although it acknowledges internal ethics rules were breached.

The SEC investigation of DaimlerChrysler was spurred by the accusations of a former company auditor who says he learned in 2001 that Daimler was diverting a portion of Mercedes sales proceeds into 40 secret overseas bank accounts used to bribe public officials. The auditor, David J. Bazzetta, contends he was fired last January in retaliation for complaining to superiors about the practice. He sought protection under the whistleblower provisions of the Sarbanes-Oxley Act, but the Labor Dept. dismissed his complaint on Nov. 15, saying it found no evidence that Bazzetta had discussed the secret bank accounts with superiors. Bazzetta now is suing DaimlerChrysler in federal court in Michigan, while the SEC conducts a separate investigation. The company says it is cooperating with the SEC inquiry and has no further comment.

Enforcement is a tough slog. The U.S. State Dept. estimates that during the 12 months ended Apr. 30, 47 contracts worth $15 billion may have been tainted by bribes paid to foreign officials by non-U.S. companies. Yet during the same period, only a handful of bribery cases were successfully prosecuted. The U.S. experience with the Foreign Corrupt Practices Act doesn't inspire much confidence. Since the law was enacted 27 years ago, the Justice Dept. has brought only 39 criminal prosecutions.

Still, experts say there's cause for optimism. Prosecutors now have better legal and investigative tools. With similar laws in place in 35 countries, companies may be less tempted to bribe if they know foreign rivals can no longer do so with impunity. For now, a rise in high-profile investigations is likely as aggressive prosecutors target companies that have been slow to react. "There has been a lag between the laws and the actual practices at some companies," says Anne-Josée Fulgeras, a former French magistrate specializing in financial crime who is now a Paris principal in Ernst & Young International. No one thinks dirty money will dry up altogether. But reducing the flow even a bit would be a major achievement.

By Carol Matlack in Paris, with Geri Smith in Mexico City and Gail Edmondson in Frankfurt

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