IHS Global Insight Perspective | |
Significance | The U.S. Justice Department will defer prosecution and drop the case against Alcatel-Lucent after three years, if the equipment vendor improves under a compliance programme agreed with French antitrust authorities. |
Implications | Alcatel-Lucent says it is now a "radically different company", with a "zero-tolerance policy" on bribery and corruption. |
Outlook | With a reserve fund set aside for the settlement, Alcatel-Lucent says that the payment will not affect this year's financial results. |
Alcatel-Lucent has agreed to pay more than US$137 million to the U.S. government, to settle bribery charges related to business wins in Latin America and Asia. The France-based equipment vendor has agreed the settlement following charges from the U.S. antitrust watchdog, the Securities and Exchange Commission (SEC), which had accused it of paying bribes to foreign government officials to secure contracts in Costa Rica, Honduras, Malaysia and Taiwan between December 2001 and June 2006.
The equipment vendor agreed to pay more than US$45 million to settle the SEC's charges. It will pay an additional US$92 million to settle separate criminal charges announced by the U.S. Justice Department, after three subsidiaries agreed to plead guilty to anti-bribery provisions under the Foreign Corrupt Practices Act (FCPA). In its complaint, the SEC claims that all of the bribery payments were undocumented or improperly recorded as consulting fees by Alcatel subsidiaries, and then consolidated into the company's financial statements. The complaint added that leaders of several Alcatel subsidiaries and geographical regions either knew, or were severely reckless in not knowing, about the misconduct.
The SEC's complaint refers to activities that took place before the merger of Alcatel and Lucent, which came about following Alcatel's acquisition of U.S.-based Lucent Technologies at the end of 2006. The settlement is subject to court approval. The Justice Department will defer prosecution and drop the case after three years if the company improves under a compliance programme agreed with French antitrust authorities.
Outlook and Implications
- A "Radically Different Company": Robert Khuzami, director of the SEC's division of enforcement, said that Alcatel and its subsidiaries failed to detect or investigate numerous red flags, suggesting their employees were directing bogus consultants to provide gifts and payments to foreign-government officials to illegally win business. Although Alcatel has not admitted strict liability for the charges, the company's legal representative Steve Reynolds said: "We take responsibility for and regret what happened and have implemented policies and procedures to prevent these violations from happening again".
In February this year, Alcatel-Lucent created a reserve for a settlement of 97 million euro (US$127 million), following a 2007 bribery case involving Alcatel executive Christian Sapsizian—who pled guilty to bribing Costa Rican officials to gain contracts for mobile infrastructure—and pending ongoing investigations into practices elsewhere (see United States: 22 February 2010: Alcatel-Lucent Strikes US$125-mil. Deal in Bribery Case).
Alcatel-Lucent spokesperson Mary Ward said that the vendor was now a "radically different company", with different managers and a culture "that reflects integrity and transparency". The spokesperson added that the equipment vendor now had a "zero-tolerance policy" regarding bribery and corruption, and a system in place with processes and training designed to prevent these types of situations. Companies doing business globally are increasingly facing problems as local expectations can clash with international laws regarding gifts, or bribes. A recent report from Forbes suggests that nearly two-thirds of executives surveyed in countries including Egypt, India, Indonesia, Morocco and Pakistan reported having been solicited for a bribe. - No Impact on Annual Results Expected: With a reserve set aside for the settlement, Alcatel-Lucent says that the payment will not affect this year's results. It recently reported that its third-quarter revenue rose 10.3% year-on-year to 4.07 billion euro, boosted by recovering demand for mobile networks and growth in Asia and Eastern Europe (see World: 4 November 2010: Alcatel-Lucent's Q3 Revenues Up 10% on Emerging Market Growth).
The vendor also managed to stay in the black with profits of 25 million euro in the quarter, compared with losses of 182 million euro in the same period in 2009. Alcatel-Lucent chief executive officer Ben Verwaayen said that demand for telecoms equipment and related services was recovering, thanks to booming data traffic and demand for improved network efficiency. He added that the quarter's growth included recovery in U.S. markets and rising sales in India, Russia, China, and Eastern Europe. The vendor has recently announced significant deals in China, with three framework agreements with the main operators—China Mobile, China Telecom, and China Unicom—to provide network and application solutions, and integration and maintenance services, valued at 1.178 billion euro in total (see China: 5 November 2010: Alcatel-Lucent to Sign US$1.67-Bil. Framework Agreement with Chinese Telcos).