Alcatel and Three Subsidiaries Settle FCPA Charges with DOJ and SEC

11 January 2011 Publication

On December 27, telecommunications company Alcatel-Lucent S.A. and three of its subsidiaries agreed to settle FCPA charges with the United States Department of Justice (DOJ) and Securities and Exchange Commission (SEC) for fines and penalties totaling $137 million. The settlement related to the FCPA investigation into the worldwide sales practices of Alcatel S.A. prior to its 2006 merger with Lucent.

Alcatel-Lucent pleaded guilty to one count of violating the internal control provisions of the FCPA and one count of violating the books and records provisions of the FCPA. Its three subsidiaries: Alcatel-Lucent France S.A., formerly known as Alcatel CIT S.A.; Alcatel-Lucent Trade International A.G., formerly known as Alcatel Standard A.G.; and Alcatel Centroamerica S.A., formerly known as Alcatel de Costa Rica S.A., were each charged with conspiring to violate the anti-bribery, books and records, and internal controls provisions of the FCPA. Each of the subsidiaries pleaded guilty.

The DOJ and SEC alleged that, from December 2001 through June 2006, Alcatel-Lucent, through its subsidiaries, made millions of dollars in improper payments to government officials in order to obtain or retain business in Costa Rica, Honduras, Malaysia, and Taiwan. Alcatel-Lucent also violated the internal controls and books and records provisions of the FCPA regarding the hiring of third-party agents in Kenya, Nigeria, Bangladesh, Ecuador, Nicaragua, Angola, Ivory Coast, Uganda, and Mali. Alcatel-Lucent admitted that it earned approximately $48.1 million in profits as a result of these payments.

In Costa Rica, Alcatel CIT was alleged to have won contracts worth more than $300 million and a profit of more than $23 million as a result of corrupt payments. According to court documents, Alcatel CIT wired more than $18 million to two consultants in Cost Rica. Over half this money was then passed to various Costa Rican government officials that assisted Alcatel CIT and Alcatel de Costa Rica in obtaining and retaining business. According to court documents, Alcatel-Lucent executives approved the retention of and payments to the consultants despite obvious indications that the consultants provided little to no bona fide work.

Additionally, according to court documents, Alcatel Standard hired a consultant in Honduras who was a perfume distributor with no experience in telecommunications. The consultant was selected by the brother of a senior Honduran government official and executives at Alcatel CIT were alleged to have known that a significant portion of the money paid to the consultant would be paid to the family of the senior Honduran official in exchange for favorable treatment of Alcatel CIT. The bribes produced contracts worth approximately $47 million and profits of approximately $870,000.

In Taiwan, Alcatel Standard retained two consultants on behalf of another Alcatel subsidiary in Taiwan. These consultants had no experience in the telecommunication business but were paid more than $950,000. According to court documents, the purpose of hiring these consultants was so that Alcatel could funnel payments to Taiwanese legislators who had influence in awarding an axle counting contract worth approximately $19.2 million. Alcatel earned approximately $4.34 million from this contract.

As part of the settlement, Alcatel-Lucent agreed to enter into a deferred prosecution agreement for a term of three years. The company also agreed to retain an independent compliance monitor for a period of three years. The company and the three subsidiaries agreed to pay a combined criminal fine of $92 million. In addition, Alcatel-Lucent and its subsidiaries agreed to implement rigorous compliance enhancements, including an unprecedented pledge to stop using third-party sales and marketing agents in conducting its worldwide business. In order to settle the SEC charges, Alcatel-Lucent agreed to pay $45,372,000 in disgorgement and prejudgment interest.