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Alcatel-Lucent Settles With Feds Over Bribery Charges
Samsung Should Be Next

Von XChange
December 29, 2010

Telecommunications equipment maker Alcatel-Lucent S.A. has agreed to pay more than $229 million in disgorgement and fines to settle charges that its agents and subsidiaries paid millions of dollars in bribes to foreign government officials over a period of several years.

The Department of Justice on Monday disclosed that Alcatel-Lucent S.A. and three of its subsidiaries have agreed to pay a $92 million penalty to resolve charges that Alcatel S.A. violated the Foreign Corrupt Practices Act prior to its 2006 merger with Lucent Technologies Inc. Federal authorities allege Alcatel S.A. bribed officials in order to retain or acquire hundreds of millions of dollars in contracts.

Alcatel-Lucent also has entered into an agreement with the Securities and Exchange Commission to pay roughly $137 million in disgorgement and fines.

The DOJ will defer prosecution of charges against Alcatel-Lucent for three years, and a DOJ spokesperson confirmed the charges would be dropped if the company complied with specific conditions. Under the settlement with the DOJ, three Alcatel-Lucent subsidiaries also will plead guilty to violating the Foreign Corrupt Practices Act.

Alcatel-Lucent said the settlements will be submitted early next year to a federal court for formal approval.

In a complaint filed in the U.S. District Court for the Southern District of Florida, the SEC claims Alcatel S.A. paid more than $8 million in bribes to foreign government officials. The SEC alleges that, from 2001 through 2006, Alcatel-Lucent paid bribes to officials in Costa Rica, Honduras, Malaysia and Taiwan.

“All of these 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 SEC states in the complaint. “A lax corporate control environment aided Alcatel’s improper conduct. Alcatel failed to detect or investigate numerous red flags suggesting that its business consultants were likely making illicit payments and gifts to government officials in these countries at the direction of certain Alcatel employees."

The DOJ revealed that Alcatel-Lucent admitted earning roughly $48.1 million in profits as a result of improper payments.

In a statement, Alcatel-Lucent General Counsel Steve Reynolds said his employer is a “radically different company today" that includes new management and does not tolerate bribery or corruption. In 2008, Reynolds said, the company announced discontinuing the use of sales agents and consultants, whom represented “the primary means by which certain former employees made the improper payments" described by federal authorities. Alcatel relied heavily on subsidiaries and their third-party agents and consultants in the pursuit of global business opportunities, according to the DOJ.

The DOJ also said Alcatel-Lucent admitted violating the Foreign Corruption Practices Act in connection with the hiring of third-party agents in Angola, Bangladesh, Ecuador, Ivory Coast, Kenya, Mali, Nicaragua, Nigeria and Uganda.

More than three years ago, in a related case, two former Alcatel executives were charged with conspiring to violate the Foreign Corruption Practices Act, making corrupt payments in violation of the same federal law, and laundering the bribe payments through a third party. Edgar Valverde Acosta, who served as president of Alcatel de Costa Rica, remains a fugitive and the outcome of his case has not been decided, the DOJ said. Christian Sapsizian, a French citizen and former Alcatel CIT executive, pleaded guilty on June 6, 2007, to violations of the Foreign Corruption Practices Act. In the fall of 2008, he was sentenced to 30 months in prison.

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