On December 27, 2010, Alcatel-Lucent, S.A. (“Alcatel-Lucent”), a French telecommunications equipment and services provider, settled charges with the US government under the Foreign Corrupt Practices Act (“FCPA”). The agreements resolved allegations that between 2000 and 2006 Alcatel-Lucent and several of its non-US subsidiaries made improper payments through third-party consultants to officials in Costa Rica, Honduras, Taiwan, Malaysia, and other countries. The payments were made to officers and employees of state-owned or -controlled entities, high-ranking executive branch officials, political party officials, and legislators. Some of these officials, as well as their family members and associates, received gifts or took “primarily pleasure trips” to Paris and other locations at the company’s expense. In exchange, Alcatel-Lucent obtained lucrative contracts, non-public information concerning public tenders, and other business advantages totaling $48.1 million.
Under the terms of Alcatel-Lucent’s three-year Deferred Prosecution Agreement (“DPA”) with the US Department of Justice (“DOJ”), the company must pay a $92 million criminal penalty, cooperate with ongoing investigations, implement compliance program enhancements, and retain a French compliance monitor.  DOJ will dismiss the criminal information upon expiration of the DPA provided that Alcatel-Lucent has complied with its terms. To settle the Securities and Exchange Commission’s (“SEC”) charges, Alcatel-Lucent agreed to digorge $45.4 million of profits.
These agreements mark the latest in a series of significant FCPA settlements with non-US companies. Alcatel-Lucent’s settlement is notable not only for the size of the penalty—the seventh highest in FCPA history. It also illustrates the statute’s expansive jurisdictional reach and offers insights into the US government’s current baseline for due diligence procedures and compliance programs. The settlement also reflects a continuing trend of international cooperation amongst enforcement authorities. Its monitorship provisions suggest a growing deference to foreign law and to DOJ’s foreign enforcement counterparts. The matter also highlights the risk to both individuals and companies of collateral actions relating to corrupt conduct.
Charges and Jurisdiction
Although DOJ refers to “improper payments” throughout the information it filed against Alcatel-Lucent, DOJ limited its charges against the parent entity to criminal violations of the FCPA’s internal controls and books and records provisions. The SEC’s complaint, in contrast, charged Alcatel-Lucent with civil violations of the FCPA’s anti-bribery, books and records, and internal controls provisions. Both DOJ and SEC based FCPA jurisdiction over Alcatel-Lucent on the company’s status as an “issuer” of American Depository Receipts (“ADRs”) traded on the New York Stock Exchange until November 2006.
Alcatel-Lucent’s resolution of DOJ’s charges without pleading guilty to a violation of the FCPA’s anti-bribery provisions is noteworthy. Like Siemens AG’s settlement with DOJ, the first case in which a criminal internal controls charge was brought, this disposition may help shelter Alcatel-Lucent from government contract debarment under the EU Public Procurement Directive, US regulations, and the rules of various multilateral development banks. Several Alcatel-Lucent subsidiaries, however, including one based in the European Union, agreed to plead guilty to a charge of conspiring to violate the FCPA’s anti-bribery provisions, which may not exclude the possibility of debarment for those entities.
Unlike DOJ, the SEC charged Alcatel-Lucent with civil violations of the FCPA’s anti-bribery provisions, apparently based on an agency theory. The SEC’s complaint asserts that Alcatel-Lucent violated the FCPA “through its subsidiaries and agents.” In support of this theory, the SEC alleged that Alcatel-Lucent “conducted its commercial transactions through its subsidiaries” and “itself did not conduct actual business with any customer.” Beyond this, the SEC cites scant evidence that Alcatel-Lucent itself—as opposed to management-level personnel of various subsidiaries—authorized or was otherwise involved in any improper payments.
Alcatel-Lucent’s Non-US Subsidiaries
DOJ filed a separate information against several non-US Alcatel-Lucent subsidiaries: Paris-based Alcatel-Lucent France, S.A. (“Alcatel CIT”), Switzerland-based Alcatel-Lucent Trade (“Alcatel Standard”), and Costa-Rica-based Alcatel CentroAmerica, S.A. (“Alcatel de Costa Rica” or “ACR”). DOJ charged these subsidiaries with conspiracy to violate the FCPA’s anti-bribery, books and records, and internal controls provisions. Unless there was a tolling agreement in place, DOJ’s use of a conspiracy theory, for which the statute of limitations runs from the last overt act, appears to have allowed DOJ to reach conduct dating back to 2000—well beyond the FCPA’s five-year statute of limitations.
DOJ alleged that each of the charged subsidiaries was a “person other than an issuer…or a domestic concern,” citing 15 U.S.C. §17dd-3. Jurisdiction under this provision requires an act in furtherance of a corrupt payment to be done “while in the territory of the United States.” Relying on a conspiracy theory, pursuant to which each member is responsible for the acts other members take in furtherance of the conspiracy, DOJ alleged that “at least one of the co-conspirators committed or caused to be committed” various acts in the United States. In particular, DOJ cited meetings, e-mails, and phone calls that Alcatel CIT and ACR personnel had with individuals in Miami, Florida, concerning the improper third-party payments. DOJ also detailed a series of wire transfer payments. These included both payments that Alcatel CIT and Alcatel SEL made from US bank accounts, as well as payments that Alcatel Standard made from foreign accounts that were routed through US correspondent accounts.
Guidance on Due Diligence and Compliance Programs
Because Alcatel-Lucent’s internal controls failures rose to the level of criminal violations, the government’s filed charges offer valuable guidance as to the controls it considers adequate. In describing the “state of [Alcatel-Lucent’s] internal controls,” DOJ appeared to criticize the company’s overall business model. DOJ concluded that the company “suffered from” decentralized business structures in which its use of third-party consultants was “prone to corruption.” The gravamen of both DOJ’s and SEC’s internal controls charges was Alcatel-Lucent’s inadequate procedures for vetting, contracting with, and overseeing third-party consultants around the world. DOJ described such failures in Costa Rica, Honduras, Taiwan, Malaysia, Kenya, Nigeria, Bangladesh, Nicaragua, Ecuador, Angola, Ivory Coast, Uganda, and Mali.
In particular, DOJ noted, Alcatel-Lucent permitted personnel at various operating subsidiaries, who were “more interested in obtaining business than ensuring that business was won ethically and legally,” to perform initial vetting of local consultants. These personnel completed consultant profiles and service authorization requests. A sole Alcatel Standard executive in Switzerland was responsible for performing due diligence on the consultants. His effort was limited to obtaining a Dun & Bradstreet report to confirm the existence and address of the consultant. He did not require information regarding conflicts of interest and relationships with government officials, and he failed to follow up when such red flags were present. In a number of cases, the consultants lacked relevant skills and experience. One consultant in Honduras, for example, had experience only in door-to-door perfume sales. Nonetheless, Alcatel Standard routinely executed agreements with consultants to perform “vaguely described marketing services.” The company agreed to provide high commissions, sometimes “in excess of 10%,” for consultants to perform little to no legitimate work. DOJ and SEC were similarly critical of Alcatel-Lucent’s “understaffed” and insufficiently independent FCPA compliance function, the lack of written compliance policies and procedures in place at certain subsidiaries, and the failure to conduct thorough anti-bribery training.
DOJ and SEC denounced related failures in the company’s dealings with third parties in support of their books and records charges. These included a pattern of third-party consultant contracts executed after services had been rendered, unwritten “gentlemen’s agreements,” false invoices, inadequate verification of services rendered, and inaccurate recordation of improper payments as legitimate “consulting” fees in the company’s books and records.
The flaws that DOJ and SEC identified in Alcatel-Lucent’s controls reinforce the need to implement compliance programs that effectively address third-party risks. The use of consultant profiles and similar forms is inadequate absent a substantive verification of the consultant’s experience, qualifications, finances, and relationships. Companies must follow up on red flags, require written contracts with appropriate FCPA safeguards, pay only reasonable amounts for bona fide services, and accurately record all payments in their books and records. As part of Alcatel-Lucent’s DPA with DOJ, the company is required to implement and maintain a compliance program with due diligence and other elements largely mirroring the February 2010 OECD Good Practice Guidance on Internal Controls, Ethics, and Compliance. Other recent DOJ settlements, such as the July 2010 Technip DPA, have outlined substantially similar compliance standards.
Monetary Sanctions: Record Fines Mitigated by Cooperation and Acceptance of Responsibility
With fines and disgorgement totaling $137 million, the Alcatel-Lucent settlement is one of the ten largest in FCPA history. Of those ten, eight involve foreign companies. In resolving recent cases against non-US companies, DOJ has emphasized its commitment to “aggressively investigate and prosecute international bribery by US and foreign corporations alike.”
Compared to other recent DOJ settlements with non-US companies, the Alcatel-Lucent fine reflects the company’s more limited cooperation with DOJ. Technip’s cooperation with the DOJ investigation earned it a criminal fine 25% below the bottom of the applicable Sentencing Guidelines range. In contrast, Alcatel-Lucent’s initially “limited and inadequate cooperation for a substantial period of time,” followed by “substantially improved” cooperation, yielded a fine 6% higher than the bottom of the applicable range.
While non-US corporations Technip, Siemens, and Daimler received a two-point culpability score reduction for full cooperation and affirmative acceptance of responsibility under the Federal Sentencing Guidelines, and US corporation Pride received the maximum five-point reduction for self-reporting prior to an imminent threat of disclosure or government investigation, Alcatel-Lucent’s initially limited cooperation earned only a one-point reduction. This was in spite of Alcatel-Lucent’s “extraordinary” step of terminating third-party sales and marketing relationships “at a substantial cost.” Had Alcatel-Lucent’s cooperation merited a two-point culpability score reduction, its fine range could have been approximately $9.6 million lower.
Compliance Monitorship: Increasing Deference to Foreign Laws and Authorities
The Alcatel-Lucent DPA represents the latest example in what appears to be a trend of increasing DOJ deference to foreign monitors, laws, and enforcement authorities. In DOJ’s recent settlements with non-US companies, DOJ has shown flexibility in the approach taken to particular aspects of the monitorship. Overall, the Alcatel-Lucent DPA contemplates greater involvement by the foreign enforcement authority, in this case an unspecified “French authority” to be designated by DOJ, in the various issues arising in the course of the monitorship than in other settlement agreements. These include, among others, activities surrounding work plans, disputes over access to information and persons during the monitor’s review, disputes over the monitor’s recommendations, the transmission of reports, and the handling of any findings of improper activities.
Consistent with the June 2010 Technip settlement with DOJ, Alcatel-Lucent agreed to engage a French compliance monitor with demonstrated expertise in FCPA compliance, to be selected by DOJ from a pool of candidates proposed by the company. This approach differs from the Siemens plea agreement, in which DOJ allowed Siemens to retain a named German monitor along with independent US counsel to the monitor. It also contrasts with the Daimler DPA, in which Daimler proposed and DOJ approved an American monitor.
With respect to work plans, the Alcatel-Lucent monitor is directed to submit work plans to the company and to the French authority, which may transmit the work plans to DOJ. This contrasts with the Daimler, Siemens, and Technip agreements, pursuant to which the monitor is directed to submit work plans to the company and directly to DOJ. As in the Daimler and Siemens monitorship provisions, any disputes between Alcatel-Lucent and its monitor over the work plan are decided by DOJ “in its sole discretion.” The Technip settlement, which confers authority on the monitor to resolve any disputes among the company, DOJ, and the monitor with respect to work plans, appears to be an outlier.
The Alcatel-Lucent DPA, like the Technip DPA, acknowledges the possibility of a conflict between certain local laws—such as the French Blocking Statute—and the company’s obligation under the DPA to provide the monitor access to information and persons. The agreements differ in their approach to resolving such conflicts. The Technip DPA directs the company to work cooperatively with the monitor to resolve any disputes under French data protection and labor laws, the attorney-client privilege, or the attorney work product doctrine. If Technip and the monitor cannot resolve the dispute, DOJ is notified in writing and a “qualified French legal expert” appointed by the monitor resolves the dispute. Under the Alcatel-Lucent DPA, in contrast, written notice is provided to the French authority. The French authority “may then transmit such information in accordance with French law to [DOJ].”
The Technip and Alcatel-Lucent DPAs also differ with respect to the transmission of the monitors’ reports to DOJ. Technip’s monitor is directed to submit a report contemporaneously to the company’s board of directors and to DOJ. If the monitor determines that transmittal to DOJ would violate the French Blocking Statute, the monitor must provide DOJ a redacted copy of the report. Technip is then required to cooperate with DOJ’s efforts to obtain an unredacted copy through a mutual legal assistance request to the appropriate French authority. The Alcatel-Lucent DPA, in contrast, directs the monitor to submit the report contemporaneously to the company’s board of directors and to the French authority. The French authority “may then transmit such information in accordance with French law to [DOJ].”
With respect to any disputes over the monitor’s recommendations, the Technip settlement provides for the monitor and company to consult with France’s Central Service for the Prevention of Corruption, attached to the French Ministry of Justice, in an attempt to reach an agreement. If this procedure does not result in an agreement, the monitor’s determination as to whether Technip should adopt the recommendation or an alternative recommendation is binding. In contrast, DOJ retained authority in the Alcatel-Lucent DPA to resolve any disputes that Alcatel-Lucent and its monitor are unable to resolve on their own.
The Alcatel-Lucent DPA’s instructions with respect to disclosure of improper conduct also reflect an evolution in the contemplated interaction between US and French authorities. Under the Technip DPA, if the monitor determines that Technip has not dealt adequately with evidence of improper conduct during the monitorship, Technip or the monitor must report the matter to French authorities. At the same time, DOJ must be provided sufficient evidence, “consistent with French law,” to evaluate the nature of the potential violation. The Technip DPA allows the monitor to consult French legal counsel to assist with drafting the DOJ notification so as to avoid violating the French Blocking Statute. If DOJ decides to seek the report from the French authority, Technip is required to cooperate.  Under the Alcatel-Lucent DPA, the monitor is directed to report improper activity in writing to DOJ unless it determines that such a report would violate the French Blocking Statute or other law. In that case, the monitor may make the report to the French authority, which “may then transmit such information in accordance with French law to [DOJ].” Neither the March 2010 Siemens Plea Agreement nor the 2008 Daimler DPA contains provisions restricting the obligation to inform DOJ of significant legal violations discovered in the course of the monitorship.
Related Actions and Investigations
The facts giving rise to corporate settlements with US authorities under the FCPA often place companies and their personnel at risk of further criminal or civil investigations and liability in the United States and abroad. Individual prosecutions, class action and shareholder derivative suits, sovereign damages actions, civil RICO actions, and parallel foreign investigations are on the rise. Consequences can be severe, including substantial civil damages, criminal fines, debarment from contracting with governments and international organizations, and imprisonment for individuals. The Alcatel-Lucent matter illustrates several of these risks.
Individual Criminal Liability
Alcatel-Lucent’s settlement with DOJ and SEC lagged by several years DOJ’s prosecution of two former employees in connection with the company’s activities in Costa Rica: Edgar Valverde Acosta, a Costa Rican citizen and former senior country officer in Costa Rica, and Christian Sapsizian, a French national and former deputy vice-president for Latin America. Acosta was indicted in 2007 but remains a fugitive. Sapsizian, who was apprehended in a Miami airport, was indicted in December 2006 on corruption, money laundering, and conspiracy charges. FCPA jurisdiction over Sapsizian was based on his status as an officer and agent of an “issuer” who caused payments to be made through US banks. Sapsizian pleaded guilty to FCPA anti-bribery and conspiracy charges in June 2007 and was sentenced in September 2007 to 30-months imprisonment and forfeiture of $261,500.
In January 2010, Alcatel-Lucent settled claims for “social damages” with Costa-Rican prosecutors, agreeing to pay approximately $10 million. On April 20, 2010, El Instituto Costarricense de Electricidiad (“ICE”), one of the Costa Rican state-owned entities whose officials received improper payments through Alcatel-Lucent consultants, filed a civil RICO action in Florida state court. ICE, which did not participate in Alcatel-Lucent’s agreement with Costa-Rican prosecutors, sought $73 million in damages as a result of Alcatel-Lucent’s “worldwide scheme of bribery and corruption.” According to ICE, the bribes its officials received caused it to overpay for and receive poor service under the tainted contracts. On January 11, 2011, the Florida court issued an order dismissing the action on forum non conveniens grounds. ICE has appealed the order.
Ongoing Investigations and International Cooperation
In addition to the US authorities’ investigation of Alcatel-Lucent’s activities, Alcatel-Lucent has been subject to investigations in France and Costa Rica for related conduct. In announcing settlements with Alcatel-Lucent, DOJ and SEC acknowledged assistance from Costa Rican and French authorities. Multinational companies increasingly face parallel investigations and prosecutions by US authorities and their foreign counterparts under the FCPA and analogous laws in other countries. In February 2010, new agreements between the United States and EU countries went into effect that will facilitate information exchanges for criminal investigations and trials as well extradition.