On December 19, 2006, a federal grand jury in Miami returned a ten count indictment against Christian Sapsizian, a former Deputy Vice President of a Paris-based subsidiary of Alcatel, the French telecommunication equipment and service provider, charging him with violations of the anti-bribery provisions of the Foreign Corrupt Practices Act (“FCPA”), money laundering, and conspiracy. According to the indictment, Sapsizian, who oversaw Latin American operations for the Alcatel subsidiary, approved and implemented a scheme to funnel illegal payments to an unnamed senior official of the Instituto Costarricense de Electricidad (“ICE”), Costa Rica’s state-owned telecommunications authority, and another senior Costa Rican official, to secure support for Alcatel’s bid to win lucrative telecommunications contracts. The indictment followed the December 1 arrest of Sapsizian in Miami and the filing of a criminal complaint.
The United States jurisdictional nexus cited in the indictment included wire transfers to and from the United States. However, what is notable about this matter is the willingness of the Department of Justice, coming on the heels of its deferred prosecution of another foreign company, Statoil, to prosecute a foreign citizen, employed by a foreign company, residing and having his office outside the United States, for allegedly corrupt payments to a foreign official. Equally notable is the fact that the conduct in question was investigated by law enforcement officials in Costa Rica, whose official was allegedly bribed; in the United States, whose banks were allegedly used to transmit the corrupt payments; and in France, where the company on whose behalf the payments were allegedly made is located. To date, however, France is the only jurisdiction that has not initiated an enforcement action.
Until November 30, 2006, Alcatel, S.A. was a French publicly-traded company whose American Depository Shares were traded on the New York Stock Exchange and were registered pursuant to Section 12(b) of the Securities Exchange Act. On that date, Alcatel merged with Lucent Technologies Inc. in the United States and changed its name to Alcatel-Lucent. After the merger, the company’s stock was traded on the New York Stock Exchange. As such, Alcatel was an “issuer” within the meaning of the FCPA both at the time of the events alleged in the complaint and following the merger.
Prior to the merger, Alcatel had operations in more than 130 countries. The charges filed against Sapsizian relate to Alcatel’s efforts to secure contracts through ICE to provide telecommunications services in Costa Rica. Before 2000, Alcatel’s attempts to secure such contracts in Costa Rica were frequently unsuccessful. In 2001, however, the company entered into a consulting contract with Servicious Notariales, Q.C. to assist it in obtaining contracts with ICE. Three consulting contracts executed between Alcatel and Servicious Notariales from 2001 to October 2004 gave the Costa Rican consulting firm up to 9.75% of the value of any contract it obtained on behalf of Alcatel. With Servicious Notariales’ assistance, Alcatel became more competitive in Costa Rica, and, in 2001, Alcatel CIT, S.A. obtained a contract from ICE to develop a new mobile telephone network with 400,000 lines of mobile telephone service (the “400K GSM Contract”). According to the indictment, the contract was valued at approximately $149 million. According to the indictment, Alcatel’s changed fortune was the result of an illicit deal struck in the fall of 2000 in which Sapsizian, on behalf of Alcatel, agreed to pay an unnamed ICE official bribes ranging from 1.5% to 2% of the value of the 400K GSM Contract. In return for these improper payments, the ICE official allegedly pledged his vote in favor of Alcatel and promised to “otherwise assist Alcatel” in securing contracts. This ICE official recruited another senior Costa Rican government official who was also “in a significant position to influence the policy decisions made by ICE and the contracts awarded by ICE” and agreed to share the bribe payments with him, after advising both Sapsizian and Alcatel’s senior official in charge of day-to-day operations in Costa Rica about the arrangement. Between December 2001 and October 2003, Sapsizian is alleged to have implemented a plan to make and disguise the agreed-upon payments to the ICE official. Servicious Notariales would submit “commission” invoices to Alcatel’s senior Costa Rican official who then forwarded them to Sapsizian in Paris. Sapsizian would authorize payment from Alcatel’s bank in New York, through a bank in Miami, to an overseas account of Servicious Notariales. In total, from October 2001 through October 2003, Alcatel allegedly wired approximately $14 million to Servicious Notariales through this process which, at the direction of Sapsizian and his unnamed co-conspirators, funneled $2.56 million in bribe payments to the ICE official, most of them by wire transfers from banks in Miami to offshore accounts in the name of the ICE official’s wife.
The criminal complaint filed on December 1, 2006 also stated that Sapsizian admitted to the FBI following his arrest that, despite the size of the invoices submitted by Servicious Notariales, he did not question their amount. The complaint also contended that Sapsizian could not articulate what services the consultants had performed to warrant the payments.
According to the criminal complaint, Sapsizian admitted in his post-arrest statements that he himself received more than $300,000 by wire transfers from Servicious Notariales. The wire transfers were made to a Panamanian bank account held by Casconsult, S.A., a company for which Sapsizian held power of attorney. Sapsizian, who told the government that he did not inform Alcatal about these payments, could not explain why these funds were transferred to his company. Sapsizian is also alleged to have authorized the payment of expenses incurred by ICE officials during their travel to Paris in October 2003 while Alcatel was attempting to obtain an extension of a fixed network contract in Costa Rica. He allegedly admitted that he instructed Alcatel employees to pay for these expenses in cash in an effort to conceal the payments and avoid “leav[ing] a paper trail” leading to Alcatel.
Sapsizian pleaded not guilty at his arraignment on December 22. His attorney, Roy Kahn, was quoted as saying “[i]t appears that this is an institutionalized means of doing business by international companies in Latin America.”
Investigation of Alcatel Continues
While Alcatel’s former executive awaits trial, the company remains under investigation by the Department of Justice and the Securities and Exchange Commission, and by law enforcement authorities in France and Costa Rica.
Alcatel asserted in its SEC filings that it first learned of illicit payments in Costa Rica in early October 2004 when the Costa Rican Prosecutor’s Office and the National Congress launched investigations. Alcatel stated that it immediately initiated an internal investigation and cooperated fully with all investigating authorities. The government’s complaint against Sapsizian confirms the company’s active cooperation in the Department’s investigation.
Alcatel terminated both Sapsizian and its senior executive in Costa Rica and is currently pursuing criminal actions against both of them as well as Servicious Notariales. Alcatel also filed a civil fraud case against its employees seeking €11.2 million in damages.
The most significant jeopardy at the moment for Alcatel appears to be in Costa Rica where the Attorney General’s Office initiated a civil action against its subsidiary there, Alcatel CIT, seeking $17.8 million in damages. ICE also filed a separate lawsuit against Alcatel CIT “for the pecuniary damage caused by the alleged payments . . . to ICE and its customers, and for the harm to the reputation of ICE resulting from these events.” Alcatel has denied culpability in each of these actions.
In its SEC disclosure, Alcatel stated that it remains at risk of criminal prosecution in Costa Rica, and that it may be barred from eligibility for government procurement contracts in that country.
The French magistrate’s investigation of Alcatel is still active. Pursuant to the Organisation for Economic Co-operation and Development (“OECD”) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, to which it is a signatory, France amended its criminal code on June 30, 2000 to criminalize the bribing of foreign public officials in connection with international business transactions.
Accordingly, while until relatively recently bribe payments such as those alleged in the U.S. indictment would have been tolerated and even deductible for tax purposes under French law, such payments are now illegal and may result in penalties of up to ten years imprisonment and fines of up to €150,000. France, however, has yet to prosecute any company for such conduct although several corruption investigations are reportedly active.
In the OECD’s Phase II review of France’s implementation of the OECD convention, examiners noted that the country has not yet prosecuted any company for bribery16 and that French courts had yet to try a case involving bribery of foreign public officials. The OECD examiners specifically noted that one impediment to French prosecutions was the absolute prosecutorial discretion afforded the Public Prosecutor as well as France’s “slow . . . implementation of the criminal responsibility of legal persons.” For example, in contrast to the procedure applicable to the bribery of domestic officials or officials of European Union member countries, the Public Prosecutor has the sole discretion to initiate a prosecution involving the bribery of non-E.U. officials and the victims of such foreign bribery are not permitted to seek recourse from the French judiciary by bringing a civil party petition as part of the criminal proceedings.
In their response to the OECD examiners’ report, French officials cited a “circular” issued by the Ministry of Justice on June 21, 2004 that purportedly restricts the prosecutors’ discretion to not pursue or to close a case and encourages them to seek the indictment of corporate entities if culpable.
While the impact of this circular is not yet apparent, the most recent OECD working group report approvingly noted that France had demonstrated an overall “upward trend in the number of prosecutions against legal persons.”France’s ultimate decision in this matter will be revealing.
The decision of the Department of Justice to indict Christian Sapsizian, a French citizen who did not reside in the United States, for allegedly authorizing illicit payments to Costa Rican officials on behalf of his French employer from his office in Paris, is another example of the Department’s commitment to combat corruption globally, particularly in the absence of effective prosecution by authorities in a company’s home jurisdiction. On the heels of the action taken against Statoil, a foreign issuer that did not conduct business in the United States, the Sapsizian indictment demonstrates the Department’s continued aggressive enforcement of the FCPA, even when the conduct is tangentially connected to the United States. The prosecution is also notable in contrast to the lack of action by the French authorities against a major French company for activities allegedly committed by a French citizen in France.