July 12, 2021 – SYSTRA SA, a France headquartered engineering group specialized in the mobility sector, agreed to pay a €7,496,000 fine (approx. $8.9M) for corruption of foreign public officials. The company, a subsidiary of state-owned French public transport operator RATP and railway company SNCF, entered into a Convention judiciaire d’intérêt public (CJIP) with the French Authorities.
This is the 8th CJIP entered into by the PNF.
Following a denunciation by the Japanese judicial authorities in 2015, an investigation was opened by the PNF in 2017 (it is unclear why it took so long to investigate). The facts denounced concerned an engineering contract relating to the modernization and re-electrification of a railway line in Uzbekistan.
An employee of Japan Transportation Consultants, Inc (JTC) who was an expatriate in Uzbekistan explained that an official of the Uzbek national railway company LTY, who was head of the section in charge of awarding public contracts, had asked him to submit an inappropriate proposal in order to favor SYSTRA in the processing of the call for tenders in the bid relating to the public electrification of the railway line between the towns of Marakand and Karshi. The official guaranteed in return to JTC that SYSTRA would also submit such an offer so that the public electrification contract for the Karshi-Termez railway line would be awarded to him.
In return for this agreement for the distribution of worksites, the official imposed to choose a particular subcontractor on SYSTRA and JTC, on the pretext of logistics services for construction workers and expatriates. The subcontractor, KIRKLISTON DEVELOPEMENT LP, is a UK-based company.
The investigation showed that between January and December 2013, SYSTRA SA had paid $575,954.97 in an account in Latvia belonging to the company KIRKLISTON DEVELOPEMENT. The economic beneficiary of this company was none than the Uzbek official.
KIRKLISTON DEVELOPMENT LP was also renting apartments for workers of SYSTRA and JTC and their expatriate employees at prices much higher than those on the market. The owners of the apartments were in fact the members of the selection committee in charge of awarding of public contracts.
SYSTRA and JTC had hired a former employee of the UTY who acted as the intermediary between the companies and members of the same selection committee.
These facts were concealed by the local management of SYSTRA SA. When the SYSTRA SA Board of Directors learned of it in 2015, it immediately demanded the termination of the disputed contracts and commissioned a full audit of payments in this region in order to verify the absence of other suspicious transactions.
The facts concern the award of an engineering contract for the Baku metro in Azerbaijan in 2009. SYSTRA SA had created, at the request of the Baku public metro company, a consortium with two foreign partners from the Czech Republic and Korea to modernize and extend the Baku metro network. A local branch called SYSTRA AZ was created in 2010 for the needs of the execution of the services which had been entrusted to it.
The investigation uncovered a system of payment of “commissions” through the intermediary of two subcontractor companies, FORAL and A+A.
SYSTRA SA would also remunerate a commercial agent Mr. B.G., an Israeli national of Russian origin. This agent, who also worked for for the Baku public metro company, had access to the Azeri Minister of the Economy, who supervised the metro company.
The payment of commissions to the two subcontractors and to the business intermediary could reach 30% of the sums invoiced by the consortium.
These facts were concealed by the local management of SYSTRA SA. When the SYSTRA SA Board of Directors learned of the incriminating contracts in 2014, it quickly took corrective measures, including a change of its local management team, and strengthening its accounting controls and compliance procedures in order to prevent the recurrence of such misconduct.
The financial public prosecutor considered that all of these facts were likely to receive the qualification of corruption of a foreign public official provided for in article 435-3 of the French penal code. The president of the judicial tribunal of Paris and the representatives of the PNF however noted the “will of the company to put an end to these acts when they were discovered”.
The fine was calculated as follows:
- Theoretical maximum amount for the public interest fine: €87,217,100
- Benefits derived from breaches: € 4,997,428 (calculated from net margin after taking into account the direct and indirect costs linked to the litigious contracts obtained)
- Additional penalty due to the gravity of the facts and the use by the local management team of sophisticated tools to conceal undue payments: €2,498,572
- Fine retained by the PNF and approved by the President of the Paris Court of Justice: € 7,496,000 euros (corresponding to the benefits withdrawn and the additional penalty) payable in ten installments within twelve months.
The Authorities took in consideration as mitigating factors (i) the ancient nature of the facts, (ii) the implementation of a reinforced compliance program since the discovery of the facts and (iii) the active cooperation of the new management of SYSTRA.
Unlike other companies that have entered into a CJIP, SYSTRA is not subject to an obligation to implement an anti-corruption compliance program.
It is interesting to note, however that this isn’t SYSTRA’s first encounter with antibribery enforcement actions.
In July 2019, The World Bank announced a 24-month sanction of India-based SAI Consulting Engineering Ltd (SAI) in connection with corrupt practices during the company’s participation in three projects in Africa: East Africa Trade & Transport Facilitation Project (Tanzania), Mozambique Roads and Bridges Management and Maintenance Project, and the Ghana Transport Sector Project.
The settlement agreement was between the World Bank and both SAI and SYSTRA that acquired 65 percent of SAI in 2014. The sanction was reduced in recognition that SYSTRA voluntarily disclosed SAI’s corrupt practices to the World Bank Group’s Integrity Vice Presidency (INT).
As a condition for release from sanction under the terms of the settlement agreement with the World Bank, SAI committed to developing an integrity compliance program consistent with the principles set out in the World Bank Group Integrity Compliance Guidelines, and fully cooperate with the World Bank Group Integrity Vice Presidency.
The sanction would have effectively ended on July 10 this year, which makes for an interesting timing by the French Authorities who released details of this CJIP on July 12, 2021.
ISO 37001 Certification, a mitigating factor?
Also noteworthy in this case, in November 2020, SYSTRA announced that it had obtained international ISO 37001 certification for its anti-bribery management system in France and India. This was the first time that an engineering group had joined the limited circle of companies certified for anti-corruption in France. The EUROCOMPLIANCE certification body awarded SYSTRA ISO 37001 certification following an audit of its anti-bribery management system carried out in France and India.
The ISO 37001 standard, published in 2016, “sets out requirements and provides guidance for a management system designed to help an organization to prevent, detect and respond to bribery and comply with anti-bribery laws and voluntary commitments applicable to its activities.”
To comply with the Standard, an organization must implement a series of measures and controls in a reasonable and proportionate manner to help prevent, detect, and deal with bribery, including:
- An anti-bribery policy that prohibits bribery
- The expression of leadership commitment and responsibility
- Communication of the policy directly to both personnel and business associates
- Appointment of a person or function to oversee the program
- Personnel controls and training
- Regular assessments of the bribery risk to which the organization is exposed
- Due diligence on projects and business associates
- Implementation of anti-bribery controls by controlled organizations and by business associations
- Implementation of appropriate financial and non-financial controls to prevent the bribery risk
- Reporting, monitoring, investigating, and auditing
- Corrective action and continual improvement
The SYSTRA example may re-ignite the passionate debate surrounding the standard which draws in both criticism and praise from the compliance community. For big Western multinationals (mostly in Anglo-Saxon countries) —the ISO standard is of little consequence, as they tend to develop robust anti-corruption programs following the compliance guidance imposed by the regulators. They are also of the opinion that enforcement agencies haven’t endorsed the standard, and don’t have confidence in the quality of the review process or the reviewers. Some may also view the standard as a “tick the box” superficial formality.
For others, mostly in emerging markets, with antibribery compliance systems not as mature as in the Western markets, ISO 37001 certification is the way to go. There has certainly been a vested interest in the standard in countries in Latin America, the Middle East, and Africa.
Notwithstanding on which side of the debate, one is on, one may attempt to extract a relevant lesson from the SYSTRA example. One may wonder for example whether SYSTRA certified for the purpose of obtaining a more favorable judgment from the French Authorities. The timing certainly suggests some overlap. After all, for a company that finds itself in the middle of a bribery investigation, ISO 37001 certification does offer additional evidence that an organization has taken reasonable, proactive steps to prevent bribery.
Did the PNF officially recognize or take in consideration SYSTRA’s certification in its mitigating factors? Unclear, the CJIP only praised SYSTRA’s reinforcement of its “internal controls and compliance program”. One may assume that as part of obtaining certification, SYSTRA did have to reinforce its internal controls and compliance program.
The certification itself does not offer an absolute protection against the prosecution of the organization for bribery occurring in its sphere of activity. It may, however, reduce its liability.
What would be interesting to follow is whether SYSRA has genuinely learned lessons from its enforcement actions, and whether it will maintain its certification and the certification’s stringent requirements beyond this CJIP.