Alstom's global penalties for bribery could exceed $2Bn

At the end of 2014 Alstom agreed to pay a $772mn penalty for criminal charges to the US authorities; Brazilian prosecutors are thought to be seeking $1.3bn in restitution and fines (see below); and the newly confident SFO will doubtless be running its slide rule over Alstom as it weighs up potential fines should it win the three cases that start going through the High Court over the next three months. I note that as of end March 2016 the company has made provisions for €103mn in total to cover current litigation risks (see Note 24, page 87, here).

Brazilian prosecutors in Sao Paolo claim to have evidence that Alstom paid bribes to win metro contracts in the city (Siemens, Alstom’s erstwhile cartel partner, "self-reported", but only after a Brazilian whistle-blower finally got his message to the right people); other prosecutors in Brazil are indicting the company for bribes paid to federal and state employees for power-plant contracts in the states of Sao Paolo, Rio de Janeiro and of Santa Catarina (and more evidence is coming through from other states); and finally federal prosecutors are chasing Alstom regarding corruption allegations at the state oil company Petrobras.

Brazil's new anti-bribery law is far more aggressive than its US counterpart, the FCPA.  The biggest difference is that for a company to be liable there is no need to prove that the senior management had either "intent" or "knowledge": the fact that a company has benefitted by the actions of an employee or a third-party (consultant) makes the company liable.  Hence for Alstom, the implications are potentially devastating given that a core partner in the transport contracts (Siemens) has turned state's evidence and has confirmed the details of corruption in return for a plea bargain. 

Sao Paolo I: Penalties can be of up to 20% of annual revenue (see paragraph two), which in this case would be calculated on the period over which the corruption had taken place on the first five lines investigated (1998-2008).  The Brazilian prosecutors says that the level of overpricing involved was US$834mn on US$2.7bn of contracts.  Initially the prosecutors were pushing for fines of  BRL1.7Bn (US$765mn) on the back of an estimated US$850mn of over-charging. Prosecutors have now added three more metro-line contracts to the investigation list, and thus it is probably that the scale of potential penalties will also rise.

Sao Paolo II:  The second major on-going action against Alstom is the scandal around commissions paid to state politicians for power-generation contracts.  For just one of these contracts (and at this stage there are four contracts being investigated in various states) the prosecutors are seeking penalties BRL 1.129bn (US$500mn) or four times the estimated overcharging.  In this case most of the prosecutor's evidence comes from the Swiss authorities, who have frozen various accounts in Swiss banks on the back of evidence collected in the investigation cited above (Amber Flag #2).  But as a 2008 article in the WSJ highlights, Alstom had been awarded 139 different power contracts in the state of Sao Paolo alone, worth some US$4.6bn. 

In the sale of the power business to GE the terms underlined that Alstom will remain liable for legacy FCPA issues.

At this stage the Brazilian press is also highlighting state level investigations regarding power contracts in the states of Rio de Janeiro and Santa Catarina.  Alstom is also being mention as involved in the various bribery investigations (internal and external) that are ongoing at Petrobras, the national oil company.  Under the terms of Brazil’s new anti-bribery law, cases are heard at a state level and fines are levied at the state level: hence what happens in one state essentially creates precedent for the other states to follow.