Alcatel-Lucent pays US$137m over bribery rort

By Brett Winterford on Dec 29, 2010 1:53 PM
Filed under Networking

Offences occured during reign of NBN Co's current CEO and CFO.

Alcatel-Lucent, network equipment supplier to Australia's NBN project, has been fined US$137 million by the U.S. Securities and Exchange Commission (SEC) after it was caught paying bribes to government officials to win business in Asia and Latin America.

The SEC today issued a release detailing the charges against the networking vendor, which has agreed to pay the US$137 million in fines.

The SEC found that Alcatel's subsidiaries around the world used third party consultants "who performed little or no legitimate work" to pass on millions of dollars in bribes to officials in Taiwan, Malaysia, Honduras and Costa Rica between December 2001 and June 2006.

These bribery 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 bribery scandal will prove embarassing to the Australian Government, which has already paid
Alcatel-Lucent $70 million for networking kit and hired several former Alcatel staff to set up NBN Co.

Among these staff is NBN Co CEO Mike Quigley, who was COO at Alcatel-Lucent until November 2006, and NBN Co chief finance officer Jean-Pascal Beaufret - who was Alcatel-Lucent's chief finance officer from 1999-2007.

The SEC complaint noted that Alcatel-Lucent's CEO and CFO did not "explicitly conduct actual business with any customer."

Rather, the company "typically used a subsidiary" for such transactions. Most of the suspect transactions investigated by the SEC were signed off by a subsidiary set up in Switzerland called Alcatel Standard A.G.

The complaint nonetheless noted that senior executives of the company chose to ignore "red flags" suggesting corruption in each individual territorry. Senior executives at Alcatel-Lucent had even instituted a training program to on how to "paper" consulting agreements to have them appear legitimate.

"Alcatel and its subsidiaries failed to detect or investigate numerous red flags suggesting their employees were directing sham consultants to provide gifts and payments to foreign government officials to illegally win business," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Alcatel's bribery scheme was the product of a lax corporate control environment at the company."

Alcatel-Lucent pays US$137m over bribery rort

19 comments in this discussion

"@Ezy2Confuze you are right they are incorporated in France, I guess it must have to do with being listed and traded on the New York Stock Exchange, I can't see how SEC would have any jurisdiction ..."

By deonast

Tags

alcatellucent, bribery, fines, sec, quigley, beaufret

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Comments: 19

EMwyres Dec 29, 2010 2:17 PM	Interesting, but I don't think there is any suggestion that Quigley or Beaufret were involved in any way...yes, you can look at it from an "it happened on their watch" perspective, but no CEO or COO of a company of that size can be expected to know what every last single employee is up to, especially when whoever did this clearly wouldn't want to be discovered by management, and would be doing everything to keep it under wraps...
BrettWinterford Dec 29, 2010 2:47 PM	Agreed @EMwyres, we make no assertion Quigley or Beaufret were directly involved in the corruption. But it raises the question - should executives, who are given bonuses when their sales staff win deals, be excused for turning a blind eye to how the deals were won? The SEC complaint clearly shows that management ignored the warning signs around corruption, and in some cases actively encouraged a culture of bribing officials.
Ace Dec 29, 2010 10:26 PM	Lets face it, any foreign company winning such deals in Asia etc would have had to pay appropriate bribes. It's the way business in some parts of the worlds is done. AWB know it, a lot of multi-nationals know it. Of course it can all go wrong if someone gets left out, as a couple of recent Australian business people could probably attest to. It's a fine line playing in these markets.
sydneyla Dec 30, 2010 8:49 AM	Yes totally agree Ace, you either play their game or you miss out. Having observed Mr Quigley as NBN Co. CEO he does seem a straight shooter and tells it like it is.
cduston Dec 30, 2010 9:12 AM	Clearly those running the company are responsible; if not those running it then who? Furthermore the SEC found the company either (a) failed to detect or (b) failed to investigate. Therefore they were either corrupt in turning a blind eye (in case of (b) -- or -- they were incompetent (in the case of (a). It might be the norm to bribe people in these countries, or that statement could be a slanderous load of bollocks. We have no proof to say which is the truth. Regardless, it is illegal to do so. Rather than observing media performances to make judgements I suggest it wiser to watch actions. Actions are much harder to fake. They should be charged as those responsible. Responsibility for running the company to legal standards is what they were paid to do. If they are not then the cost of their actions (or inactions) will fall on the shareholders who have no power in running the company to a legal standard.
hellfire Dec 30, 2010 10:19 AM	I am not surprised by the two top men in NBN Ltd being appointed by the Australian Govt being in charge of Alcatel-Lucent at the time these bribes occured. They should resign their positions immediately. It also shows me that the unrealistic claims of how fast the the new fibre system will perform that the Australian public are being fed are just unrealistic. the 100MB speed quoted takes no account of latency and other factors which would show that the the achieveable speeds are no better than those avaible by cable broadband at the present time. We the public and the Australian Government are being fed unrealistic statistics by these men.
serrendipity Dec 30, 2010 11:14 AM	I agree with cduston - the two men Quigley and Beaufret should be sacked by NBN and charged by the authorities. Whle at their previous place of employment Beaufret (CFO)was totally dishonest and actually approved the manipulation of these bribe fees into the Alcatel consolidated financial Statements. As COO Mike Quigley(COO of Alcatel and now CEO of NBN) would have needed to approve any expenditure related to these projects "Senior executives at Alcatel-Lucent had even instituted a training program to on how to "paper" consulting agreements to have them appear legitimate"How do we know that statements released by NBN so far have been true or have they been manipulated by these clever crooks. Serrendipity
Bazwalt Dec 30, 2010 12:48 PM	hellfire wrote: I am not surprised by the two top men in NBN Ltd being appointed by the Australian Govt being in charge of Alcatel-Lucent at the time these bribes occured. They should resign their positions immediately. It also shows me that the unrealistic claims of how fast the the new fibre system will perform that the Australian public are being fed are just unrealistic. the 100MB speed quoted takes no account of latency and other factors which would show that the the achieveable speeds are no better than those avaible by cable broadband at the present time. We the public and the Australian Government are being fed unrealistic statistics by these men. Why should they resign? They've yet to perform any actions that would suggest that they will do harm to the NBN. Furthermore, its possibly they are aware of the mistakes made and will make sure it won't happen again. One false move should not be enough to condemn a man (or men). I'd like to know how you can deem 100Mbit speeds unrealistic? We're talking about the speed of light here. There's nothing unrealistic about it at all. The governments only responsibility is to ensure that, at a minimum, the speeds proposed are attainable within Australia. Meaning that the blackspot upgrades and additional backhaul will be used to ensure this. Traffic outside of Australia is really none of NBN Cos responsibility or priority. Besides, if we can reach 100mbit in the country than its not exactly far-fetched to get those speeds from overseas so long as peering and routing is setup right. Learn more about the technology before you make such ridiculous claims.
deonast Dec 30, 2010 1:16 PM	Well cduston in response to your quote "It might be the norm to bribe people in these countries, or that statement could be a slanderous load of bollocks. We have no proof to say which is the truth. Regardless, it is illegal to do so" Is it illegal in those countries where the bribery was committed? I'm just wondering if we will see legal action there where the harm has actually been done. For Alcatel-Lucent it helped generate sales so was good for the bottom line until they got fined by the U.S. Securities and Exchange Commission (SEC) that is. So I guess if (and this is speculation) it is common in some asian countries for Bribery to occur, then would place US based companies at a disadvantage as I doubt asian countries would be held accountable to the U.S. Securities and Exchange Commission. I'm glad I don't deal with Global markets because laws and ethics tend to be regionally based.
deonast Dec 30, 2010 1:18 PM	sorry in my phrase above "asian countries" should have been "asian companies"
trimlad Dec 30, 2010 4:10 PM	Quote "Interesting, but I don't think there is any suggestion that Quigley or Beaufret were involved in any way." I beg to Differ, what is not in place is the link where the CEO or CFO would be saying, we don't care what you do just get the runs on the board or start shopping out your CV. To think or suggest otherwise is somewhat naive. Corruption starts at the top ..... ALWAYS.
cduston Dec 31, 2010 8:56 AM	@deonast I have no idea whether it's illegal in the country the bribery was committed, or if it is whether that means anything thing will happen in that country. However, we should try not to confuse morality with legality. The question as to what the negative competitive impact may be is a moral one. Regardless of anyone's position on that the legal question is clear. Bribery is illegal for a US registered company. And so they were fined because the truth is they did it. These two guys were responsible for and oversaw that illegal activity. Then they left others to face the consequences. If you believe character has any meaning in the world you must ask yourself who will be left holding the consequences of their decisions (or blind eyes) after they leave NBN.
NASA Dec 31, 2010 10:36 AM	This is very relevant to the current state of play with the NBN. Doesn't anyone remember when Alcatel Lucent won one of the first significant contracts for the NBN, the same time as Quigley donates his first year's salary to cancer research. Pure as the driven snow - yeah right! There needs to be some serious investigation into what is really going on in NBN and those that are running it. And some serious (and neutral) investigative journalism would be a great start. Questions like How did Corning connectorised become the automatic technical reference model when there are far better, more efficient and affordable technical models and deployment methods for fibre networks available internationally (that aren't out-dated 10 year old technologies that take a decade to implement!) Keep digging ITnews, inspire us with some serious investigative journalism on what's really going on with NBN Co...the public deserve the truth. They are after all paying for the NBN.
NASA Dec 31, 2010 11:10 AM	ITnews, please investigate how Alcatel really got the NBN/government contract for NTUs?
deonast Dec 31, 2010 3:26 PM	@cduston I'd be a bit careful with your wording "These two guys were responsible for and oversaw that illegal activity. Then they left others to face the consequences." You are getting in the territory of slander there without direct evidence of their personal involvement or collusion with those paying the bribes. I'm curious on the size of the bribes, because if they are not huge they may not stand out to a Chief Financial Officer who isn't specifically looking for them, they were down as consultants fees. SEC was looking for them as they got tipped off from someone (possibly a competitor who missed out on a deal). So I'd be very wary of making accusations without proof to back them up. As you say legal and morality are different, so it may be morally ok to make these statements to try and get others to seek the truth, but legally you could be up for Slander, Libel, defamation whatever name our law chooses to use.
Ace Jan 1, 2011 1:03 AM	I think it's a case of 'its only illegal if you get caught'. Corruption does not 'ALWAYS' start at the top. How many council members in the suburbs of Australian cities have been caught in various (usually building approval related) bribery offences? Quite a lot. And, 100Mb is connection speed, not the speed at which some random web page will download - and also has nothing to do with the article. In Australia, probity officers are involved in all such contracts (like NBN). I'm not sure of their line of reporting, but I know they're there in most meetings.
sydneyla Jan 1, 2011 9:55 AM	One NBNCo.appointment I would question is that of Mike Kaiser. Being from Queensland I do know of Kaiser's record and I do not think he is a fit person to be involved with the NBN.
Ezy2Confuze Jan 1, 2011 6:16 PM	What I find laughable is that the US fined a French company for doing this in countries outside the US, how is this possible? It sounds more like a US company cried foul hence the reason why the SEC's stepped in.
deonast Jan 2, 2011 11:00 AM	@Ezy2Confuze you are right they are incorporated in France, I guess it must have to do with being listed and traded on the New York Stock Exchange, I can't see how SEC would have any jurisdiction otherwise. Although we know America likes influence everyone in the world while not taking a good hard look what is wrong in their own backyard. Yes broad generalisation but sometimes you just feel like saying it.