The appeal of telecommunications equipment supplier Alcatel-Lucent was rejected by French Courts, finalizing the judgment of 150,000 euros in fines levied against the group for bribery of foreign public officials in Costa Rica in the early 2000s.
Until Nov. 30, 2006, Alcatel was a French telecommunications company whose American depositary receipts were traded on the New York Stock Exchange. In 2016, the French-American group, was bought by the Finnish telecommunications company Nokia.
Before we dive into the French Courts’ decision, let’s dive first in Alcatel’s history a few years back in the United States…
Between 2001 and 2006, several million dollars in bribes were paid by Alcatel-Lucent to senior government officials, under the guise of consultancy contracts, to secure telephone contracts.
For its part in the bribery scheme, Alcatel-Lucent had agreed in 2010 to pay 137 million dollars to put an end to prosecutions for corruption in the United States, recognizing a lack of internal control. $92 million was agreed to be paid to resolve criminal charges with the DOJ and $45 million to be paid in disgorgement to the SEC.
According to the SEC’s complaint filed in the Southern District of Florida, Alcatel’s bribes went to government officials in Costa Rica, Honduras, Malaysia, and Taiwan.
An Alcatel subsidiary provided at least $14.5 million to consulting firms through sham consulting agreements for use in the bribery scheme in Costa Rica. Various high-level government officials in Costa Rica received at least $7 million of the $14.5 million to ensure Alcatel obtained or retained three telephone services contracts from the Costa Rican Institute of electricity (ICE).
The SEC alleges that the same Alcatel subsidiary bribed officials in the government of Honduras to obtain or retain five telecommunications contracts. Another Alcatel subsidiary made bribery payments to Malaysian government officials in order to procure a telecommunications contract. An Alcatel subsidiary also made illegal payments to various officials in the government of Taiwan to win a contract to supply railway axle counters to the Taiwan Railway Administration.
According to the SEC’s complaint, all of the bribery payments were undocumented or improperly recorded as consulting fees in the books of Alcatel’s subsidiaries and then consolidated into Alcatel’s financial statements. The leaders of several Alcatel subsidiaries and geographical regions, including some who reported directly to Alcatel’s executive committee, either knew or were severely reckless in not knowing about the misconduct.
Finnish network equipment maker Nokia disclosed in a 2019 filing with the SEC that it had “been made aware of certain practices relating to compliance issues at the former Alcatel-Lucent business that have raised concerns.”
Individual Liability under the FCPA vs. Money Laundering
For his role in the scheme, a Miami court imposed 30 months in prison on the former deputy vice-president of Alcatel for Latin America, Christian Sapsizian, a French citizen, who had pleaded guilty. The former general manager of Alcatel Costa Rica, Edgar Valverde Acosta, was sentenced in 2011 in Costa Rica to fifteen years in prison. Sapsizian supervised Valverde with regard to the approval and hiring of consultants in Costa Rica.
The length of each respective sentence is noteworthy. While FCPA charges can carry a maximum sentence of five years in prison, money laundering charges carry a maximum sentence of 20 years in prison. That is a substantial difference one ought to consider when educating executives about their personal liability under US laws. The US DOJ will not hesitate to use all prosecutorial tools in its toolbox to enforce overseas anti-corruption efforts, even when the misconduct is beyond the FCPA’s reach.
Compliance Lesson from the French Courts
In the French chapter, Alacatel was initially acquitted at first instance in 2017, the court not having “been able to identify the body or the representative having acted fraudulently on behalf of the company “. The prosecution had appealed. Alcatel was sentenced on appeal in 2020. Two former employees, however, were exonerated.
The Court of Appeal ruled that the bribes were not the only fact of ” two unscrupulous employees ” and pointed to a ” group policy ” which aimed to ” dilute responsibilities ” and allow the payment of bribes “ under the guise of legality ”. Alcated appealed to the highest court of the French judiciary (Cassation Court), stressing that the misconduct had already given rise to sanctions in the United States.
The Cassation Court however rejected the appeal on June 16, 2021 and upheld the appellate court’s findings. The Cassation Court’s decision is of interest: as per article 121-2 of the French penal code, legal persons are declared criminally responsible if it is established that an offense has been committed, on their behalf, by their subsidiaries or representatives.
In order to retain the criminal liability of the holding company, the Court held that the active bribery of a foreign public official was committed, on behalf of the company, by the combination of employees of its subsidiaries, de facto representatives of the parent company , and the central RAC, a body made up of group leaders whose mission led it to validate, on behalf of this group, the use of illegal payments under the guise of consultant contracts.
Similarly to the US, parent companies in France can be held accountable, directly or indirectly, for their subsidiaries’ actions resulting in a corruption violation. Even if the parent company does not instruct directly, the subsidiary to commit corruption, indirect responsibility of the parent company may arise in cases where it has a certain control mechanism over the subsidiary and, therefore, is aware of the subsidiaries’ activities and actions.
Compliance best practice: in order to evaluate whether the parent company has a control mechanism, consider whether there are directors holding dual positions or with intertwined reporting lines. In order to evaluate whether the parent company has knowledge of its subsidiary’s actions, consider whether the possibilities of corruption are being ignored, and whether adequate due diligence processes are adopted.
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