Alstom Networks

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 prosecutors 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.

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.

ALSTOM: a critical case for the SFO to win

 Three different bribery cases against Alstom will be coming to court in London over the coming twelve months and the outcome is of considerable importance to both the Serious Fraud Office and to the UK's international profile on prosecuting corporate bribery. There hasn't been much on the way of in depth coverage as to these cases in the financial press, with most commentators merely repeating the SFO's own press statements. Using open source intelligence techniques, not only can investigators gain a more detailed understanding of the evidence against Alstom in each of these three cases, but they can also quickly find ongoing legal actions against Alstom in other countries. Here is how!

The SFO's cases against Alstom Network UK and Alstom Power Ltd

1. First up will be the case against Alstom Network UK regarding allegations of bribery for the supply of trains to the Budapest metro system. This trial is set to start in May at Southwark Crown Court. Local press in Hungary alleges that a large part of the payments made went to the family company of the ex-President of Hungary, Péter Medgyessy.
2. In September the case against  Alstom Power Ltd will come to the same court; this case deals with issues around the refurbishment of a power plant in Lithuania. The local Lithuanian press has be studiously silent on the issue so far.
3. The third case is scheduled to be heard in January of 2018 and is the larger of the cases, dealing again with Alstom Transport UK and contracts in Poland, Tunisia and in India. In Tunisia it is alleged that Alstom paid $14mn to Slim Chiboub, son-in-law of the country's then President Zine El Abidine Ben Ali.

We will deal with each of these cases seperately in the coming days, giving background as to the details in each case and explaining, where possible, the role of each of the individuals concerned.

Alstom's legal issues will not only focus on the UK this year; an on-going price-fixing and fraud case is due to enter the Brazilian courts later this year, where the evidence against the company has been furnished by a whistle-blower - Siemens Brazil, which turned State's witness and reported the issue to the Sao Paolo authorities back in 2013.

In 2011 the Swiss authorities fined Alstom $42mn (between fines and compensation payments) for a global bribery probe that focused on Indonesia and Tunisia; and in November 2015 the US Department of Justice fined the group a massive $772mn to settle criminal charges regarding a "widespread corruption scheme involving at least $75 million in secret bribes paid to government officials in countries around the world, including Indonesia, Saudi Arabia, Egypt, the Bahamas and Taiwan".

Whilst the amounts alleged in the SFO charges are lesser, a clear pattern emerges of institutionalised misdemeanours, and one of the issues I will be focusing on is to show the links of various of the individuals charged in the UK to other past cases, and how the corporate structure of Alstom evolved to enable this business method to continue and was condoned within the company at the highest levels.

End…/

ALSTOM: back where it all began - Switzerland

The information and hyperlinks in the following post were all discovered using OSINT search techniques and by using prepared foreign language ontologies.  Whilst some of the content might be controversial, it is all taken from legal and compliant sources found on the surface-web and deep-web.

One of the gentlemen named in the SFO case against Alstom Network UK is Jean-Daniel Lainé. When at Alstom Mr Lainé was VP of the Chairman's Office from 1998-2003, and then from 2006-2013 he was what Alstom defined as the Group Director for Ethics and Compliance.   Whilst in that role, in fact from April 2005 through to October 2012 he was a designated signatory and director of Alstom Prom, which as stated above became known as Alstom Network  Schweiz AG - the target of the Swiss investigation and subsequent sentencing. The corporate data file on Alstom Schweiz highlights the relevant data (tap in Ctrl-F Lainé here). So at the same time as Alstom was deftly managing "third-party consultants", M.Lainé was one of the company's signatories. On Jan 1st 2006 Mr Lainé was appointed director of Alstom Network UK; a role he held through until June 2013. As the Swiss authorities put it:  "ALSTOM Network Schweiz AG is found guilty of a criminal offense (…) committed during the period between October 2003 and May 2010 through the failure to take all necessary and reasonable organizational precautions to prevent bribery of foreign public officials in Latvia (Plavinas projects), Tunisia (Rades project), and Malaysia (Perlis project)". Thus whatever brand of "compliance" Mr Lainé was in charge of, it was at best lackadaisical, or at worst "cosmetic", and what is more, in his position he should have been aware of this.

This UK investigation is not a stand-alone allegation, but part of a co-ordinated international investigation led (probably) by the US Department of Justice and involving the UK, Swiss, Brazilian and Indian authorities.  At the heart of this global investigation is the allegation that Alstom ran an international bribery network.  The Summary Punishment Order of the Swiss Federal Attorney General sets out some of the evidence collected by investigators over the course of its four year investigation and shows why Alstom Network UK has 

Summary Punishment Order page 2, clause 3.

been targeted by the SFO.  Clause 3 of the "Subject Matter" (see page 2) states that in 2000 Alstom centralised the global management and payment of external consultants in to two companies. These two companies were Alstom Network Schweiz AG (previously called Alstom Prom Ltd.) for the power division, and Alstom Network UK for the transport division: both companies were responsible for managing agreements with Alstom's "external consultants".   The Swiss authorities initially accused Alstom Network Schweiz of bribery, but eventually found it guilty of the criminal offense of "failure (…) to prevent bribery of foreign public officials" (see page 10 clause 1).  Thus - as Alstom Schweiz to the power generation division, Alstom Network UK was to the group's transport division, which after the 2015 sale of the power generation business to GE, is all that remains of the group. 

Alstom is also being investigated for bribery by the Brazilian authorities regarding various power and transport contracts.  These documents first surfaced in the Brazilian press back in 2006, and were linked in an article by O Estadao in April 2014 (follow the hyperlink above the exhibit of the first page).  The attached 21 page file comes via the Brazilian daily newspaper from the archives of the Federal Police in Sao Paolo. It is a photocopy of invoices and a contract between Alstom Prom Ltd. Alstom (Switzerland) Ltd  and a "consultant". 

The documents are notionally verifiable because of the stamp on the top-right of each page which reads DELEFIN/DRCORISR/DPF/SP, which stands for Delegation for Repression of Financial Crime and Misappropriation of Public Funds (DELEFIN - part of the Ministry of Justice) and DRCOR, which is the Regional Delegation of Investigation against Organised Crime; DPF stands for Departamento de Policia Federal i.e. the Federal Police; and finally SP - Sao Paolo.  This is about as close to full verification that one ever gets on the internet. (The consultant named in this contract, Luis Geraldo Tourinho Costa was arrested in 2006 for this contract, amongst other things).

If the documents are truly genuine, the paper trail is alarming. Whilst the first page is merely an email asking for an invoice to be paid, pages 2-8 seems to be a copy of a service agreement between Alstom and a Uruguayan "consultant". This consultant is to be paid a fee for "Change Order Amounts" which relate to any increases in the overall contract amount for Alstom's Termo Rio contract (a $600mn dollar contract for Petrobras' Termo Rio thermo-electrical plant in the State of Rio de Janeiro).  Under the terms of the deal the consultant is to be paid up to 6% of the face value of any increase in the overall contract size.  Alstom is notified by the consultant that the contract is increased by $22mn and hence owes $1.1mn of which $550k is billed immediately.  The invoiced party in these documents is Alstom Prom Ltd (aka Alstom Network Schweiz AG) of Brown Boveri Strasse in Baden, Switzerland i.e. the company that was specifically fined and found guilty by the Swiss authorities in 2011. It should be underlined that the invoice is dated 2004, a year before Mr Lainé's arrival; but as both the Swiss and US prosecutors point out, Alstom Network Schweiz never really changed its purpose until the Swiss judiciary pounced in 2011.

The true role of Jean-Daniel Lainé.

As director of both of the "external consultant" hubs (Alstom Network Schweiz and Alstom Network UK) it seems likely that Mr Lainé, as a corporate signatory, carried some notional responsibility for the actions of the company, despite his title as "Head of Ethics & Compliance" and his direct reporting line to the President of Alstom SA. It will be interesting to see what he has to say in court.