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The Cost Of Recalcitrance

Last month, Alcatel-Lucent and three subsidiaries settled FCPA-related charges. They paid $92 million to resolve criminal charges with the DOJ and $45 million in disgorgement to the SEC. Let’s look at the criminal fine.

In the deferred prosecution agreement, the DOJ recited some of the good works Alcatel-Lucent had done to deserve the settlement: (1) it conducted a global investigation into possible corruption, (2) it self-reported the findings to the U.S. government, (3) it fired employees involved in bribery and adopted a new compliance program, and (4) it stopped using agents and intermediaries.

But buried inside that recitation of good works was something else — a statement that Alcatel-Lucent hadn’t always been helpful. “[A]fter limited and inadequate cooperation for a substantial period of time, Alcatel-Lucent substantially improved its cooperation with the [DOJ’s] investigation in this matter, as well as the SEC’s investigation.”

What’s that mean?

In its computations under the federal sentencing guidelines, the DOJ penalized Alcatel-Lucent. Instead of awarding the company the usual 2 points for cooperation, it awarded just one. How much difference did that make? A lot. Based on outcomes in other cases, that single withheld point may have been worth more than $20 million.

That’s our number. The DOJ didn’t put a price tag on the withheld point. It referred to it, however, in its release about the settlement: “The charging documents and penalty reflect, among other things, that there was limited and inadequate cooperation by the company for a substantial period of time, but that after the merger, Alcatel-Lucent substantially improved its cooperation with the department’s investigation.”

Here’s the math:

Alcatel-Lucent paid a criminal penalty of $92 million. Its fine range calculated under the federal sentencing guidelines started at $86 million. So it paid a premium of about 7%.

For comparison, Daimler’s fine range started at $116 million. But it received 2 points for cooperation and paid a criminal penalty of $93.6 million, a 20% discount.

Control Components Inc. received full credit for cooperation. It paid an $18.2 million criminal fine, representing a 35% discount from the start of its fine range of $27.9 million.

ABB received full credit for cooperation but lost points because of an earlier FCPA offense. It paid a criminal fine of $28.5 million, the same amount as the start of its fine range under the guidelines.

Finally, BAE — also initially recalcitrant — was penalized a point for cooperation, just like Alcatel-Lucent. BAE’s fine range, using a gain/loss calculation that was the most unfavorable to the defendant, started at $360 million. BAE paid a criminal penalty of $400 million, an 11% premium.

So, coming back to Alcatel-Lucent, how much did its initial non-cooperation cost? Measured against other cases, the company probably lost a discount of at least 20% and instead paid a premium of 7%. That would equate to a criminal penalty of about $23 million more than a fully cooperating defendant in the same circumstances may have paid. 


View the DOJ’s December 27, 2010 release here.

Download the criminal information in US v. Alcatel-Lucent, S.A. here.

Download the deferred prosecution agreement in US v. Alcatel-Lucent, S.A. here.

Download the criminal information in US v. Alcatel-Lucent France, S.A. et al here.

Download the plea agreement in US v. Alcatel Centroamerica, S.A. (Costa Rica) here.

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