According to its latest consolidated financial statements, Alcatel-Lucent has reached agreement in principle with the Justice Department and the Securities and Exchange Commission to settle Foreign Corrupt Practices Act offenses related to Costa Rica, Taiwan and Kenya. If the settlement goes ahead, the company will pay a $92 million criminal fine (payable over three years) and a $45.4 million in disgorgement to the SEC.
The settlement with the DOJ would be structured similar to Siemens’, with the company entering into a three-year deferred prosecution agreement for accounting and internal controls offenses, while three subsidiaries — Alcatel-Lucent France, Alcatel-Lucent Trade and Alcatel Centroamerica — would each plead guilty to violating the FCPA’s antibribery, books and records and internal controls provisions. The DOJ agreement would require appointment of a French compliance monitor (in Siemens’ case, the monitor was German).
The Paris-based telecommunications company was formed with the 2006 merger of French-firm Alcatel and the American company Lucent Technologies Inc. Before the merger, Alcatel had American depositary receipts traded on the New York Stock Exchange and Lucent was also listed on the NYSE. The merged company’s shares trade on the NYSE under the symbol ALU.
We’ve written about both companies before.
In September 2008, former Alcatel executive Christian Sapsizian, 62, was sentenced to 30 months in prison, three years of supervised release, and forfeiture of $261,500 for bribing employees of the state-owned telecommunications authority in Costa Rica. He had pleaded guilty in June 2007 to two counts of violating the Foreign Corrupt Practices Act.
Sapsizian, a French citizen, was a 20-year Alcatel employee and served as the company’s deputy vice president for Latin America. In August 2001, Alcatel received a $149 million cellular network contract from Costa Rica’s El Instituto Costarricense de Electricidad (ICE). Sapsizian had promised to pay an ICE board member and other officials up to 2 percent of the value of the contract. Before being fired in 2004, he caused Alcatel to wire $14 million in “commission” payments to a consultant, who then transferred $2.5 million to the ICE official.
Sapsizian admitted to conspiring with Edgar Valverde Acosta, a citizen of Costa Rica who was Alcatel’s senior country officer there, to arrange the bribes. Acosta was indicted with Sapsizian on June 14, 2007. He’s an FCPA fugitive, last known address: Costa Rica.
The U.S. indictments of Sapsizian and Acosta resulted from bribery investigations by Costa Rican authorities. In October 2004, Alcatel learned of the investigations. It fired Sapsizian and Acosta and disclosed to U.S. authorities that it had uncovered payments from employees and consultants to government officials, ICE employees, and political parties.
Lucent, meanwhile, settled Foreign Corrupt Practices Act charges in December 2007 with the DOJ and SEC. Its violations occurred before the merger with Alcatel. The settlement included a $1 million criminal fine and $1.5 million in civil penalties. Lucent’s offenses involved payment of travel expenses for Chinese government officials from 2000 to 2003. The FCPA includes an affirmative defense that allows payment or reimbursement of expenses of foreign officials that are directly related to “the promotion, demonstration, or explanation of products or services.” 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A). Many of Lucent’s payments, however, were not directly related to legitimate business purposes and were not recorded accurately in its books and records.
In April 2009, Alcatel-Lucent signed agreements in Washington, D.C. worth $1.7 billion with China Mobile and China Telecom to help the Chinese companies roll out 3G technology.
Here’s part of the company’s disclosure from its latest Form 10-K:
As previously disclosed in its public filings, Alcatel-Lucent has engaged in settlement discussions with the DOJ and the SEC with regard to the ongoing FCPA investigations. These discussions have resulted in December 2009 in agreements in principle with the staffs of each of the agencies. There can be no assurances, however, that final agreements will be reached with the agencies or accepted in court. If finalized, the agreements would relate to alleged violations of the FCPA involving several countries, including Costa Rica, Taiwan, and Kenya.
Under the agreement in principle with the SEC, Alcatel-Lucent would enter into a consent decree under which Alcatel-Lucent would neither admit nor deny violations of the antibribery, internal controls and books and records provisions of the FCPA and would be enjoined from future violations of U.S. securities laws, pay U.S. $45.4 million in disgorgement of profits and prejudgment interest and agree to a three-year French anticorruption compliance monitor to evaluate in accordance with the provisions of the consent decree (unless any specific provision therein is expressly determined by the French Ministry of Justice to violate French law) the effectiveness of Alcatel-Lucent’s internal controls, record-keeping and financial reporting policies and procedures. Under the agreement in principle with the DOJ, Alcatel-Lucent would enter into a three-year deferred prosecution agreement (DPA), charging Alcatel-Lucent with violations of the internal controls and books and records provisions of the FCPA, and Alcatel-Lucent would pay a total criminal fine of U.S. $ 92 million—payable in four installments over the course of three years.
In addition, three Alcatel-Lucent subsidiaries—Alcatel-Lucent France, Alcatel-Lucent Trade and Alcatel Centroamerica—would each plead guilty to violations of the FCPA’s antibribery, books and records and internal accounting controls provisions. The agreement with the DOJ would also contain provisions relating to a three-year French anticorruption compliance monitor. If Alcatel-Lucent fully complies with the terms of the DPA, the DOJ would dismiss the charges upon conclusion of the three-year term.