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GRC Professional : GRC Spring 2011
17 Case study: Alcatel Alcatel-Lucent S.A. and three of its subsidiaries have agreed to pay a combined US$92million penalty to resolve a Foreign Corrupt Practices Act (FCPA) investigation. The fine relates to sales practices of three subsidiaries, which were each charged with conspiring to violate the anti-bribery, books and records, and internal controls provisions of the FCPA. According to court documents, Alcatel pursued business opportunities around the world using third-party agents and consultants. “This business model was shown to be prone to corruption, as consultants were repeatedly used as conduits for bribe payments to foreign officials and business executives of private customers to obtain or retain business in many countries,” the US Department of Justice said. The three Alcatel subsidiaries paid millions of dollars in improper payments to foreign officials in Costa Rica, Honduras, Malaysia and Taiwan. In addition, the company also admitted to violating the internal controls and books and records provisions of the FCPA related to the hiring of third-party agents in Kenya, Nigeria, Bangladesh, Ecuador, Nicaragua, Angola, Ivory Coast, Uganda and Mali. Overall, the company earned approximately US$48.1 million in profits as a result of these improper payments. The US Department of Justice said in one example of corruption, two consultants in Costa Rica were wired US$18 million. The consultants created phony invoices and “senior Alcatel executives approved the retention of and payments to the consultants despite obvious indications that the consultants were performing little or no legitimate work”. 1996 2007 Jul 2007 Aug 2007 Apr 2008 may 2009 oct 2010 Jul 2011 Securency established RBA board briefed on bribery allegations Whistle blower approaches AFP AFP investigates allegations First bribery allegations raised internally Freehills investigation reveals no Australian laws had been breached Whistle blower approaches The Age newspaper and story is published First arrests made » securency BriBery alleGations In the case of Note Printing Australia (NPA), red flags were noticed and the concerns were serious enough that in 2007 the Reserve Bank’s chief auditor, Paul Apps, was asked to investigate. Apps found serious problems with NPA’s use of agents. NPA therefore sacked all its agents and hired law firm Freehills to investigate whether Australian laws had been broken. The RBA says the Freehills investigation had found no breach of Australian law, so it didn’t take the matter any further. RBA has defended its decision not to go to the police, stating: “On any reasonable reading, the NPA Board at that time sought the appropriate information, sought appropriate advice, responded appropriately to the information it received, and reasonably relied on the advice it received.” At the time that NPA was warned about possible bribery in 2007, three of the company’s directors were also on the board of Securency, including former RBA Deputy Governor, Graeme Thompson, who chaired both companies. Despite the concerns within NPA, the three directors did not stop Securency from continuing to use its own network of agents to seek overseas contracts. Securency’s global network of agents received almost $50 million in commission payments since 2003, according to reports by Fairfax, which blew the lid on the scandal in a story in Melbourne’s The Age newspaper in May 2009. The questions now being asked are: why didn’t Securency heed the warnings from NPA? And why weren’t concerns addressed before they got so far that the AFP was called in to investigate? We are sure to find out more as the briber y case goes to court, with the next court date for Securency and NPA in mid-October and a court date set on 15 December in the Melbourne Magistrates Court relating to the seven individuals. •••
GRC Summer 2012