Getting Ethics Right: Lessons Learned from Alstom’s Long-Term Compliance Woes
It’s been quite a five-year run – but not in a good way – for Alstom, the France-based multinational rail transport giant, which is trying to emerge clean and fresh from repeated compliance and ethical lapses.
— In 2014, the company was slapped with a $772 million fine by the U.S. Department of Justice after admitting to bribes given to influencers in Indonesia, Saudi Arabia, Egypt, and the Bahamas who helped Alstom win lucrative rail and train contracts.
— In 2016, Alstom Power Ltd – an Alstom unit – pleaded guilty to corruption charges in the U.K. Specifically, Alstom Power paid $23 million in fines for bribing Lithuanian officials to win a $240 million power station project. In addition to the fine, three Alstom executives went to jail after either pleading guilty or being found guilty in court over the bribes.
— In 2019, Alstom Network UK Ltd, another division of Alstom, was fined $21.2 million for overseas bribes in Tunisia over a contract to supply trams for the Northwest Africa country. An investigation by the U.K.-based Serious Fraud Office (SFO) found that Alstom paid an intermediary called Construction et Gestion Nevco Inc. (Nevco) $2.6 million for a contract with Tunisia Metro worth $88 million.
The SFO said that Nevco was a “conduit for bribes” with Alstom generating fraudulent compliance reports showing that Nevco provided services that, in actuality, never occurred, according to the SFO report. The report also showed that Nevco was a shell company tied to the brother-in-law of Tunisia’s ousted president, Zine El Abidine Ben Ali, who served as president from 1987 to 2011.
Altogether, Alstom shelled out more than $75 million in bribes to land $4 billion in global transit contracts, with a profit to the company of an estimated $300 million, according to the U.S. Department of Justice.
Fixing a Widespread Culture of Corruption
How do you handle a widespread reputation as a company with a “widespread culture of corruption,” in the words of Lisa Osofsky, director at the SFO?
For starters, by transparently admitting guilt and embracing a new compliance model that promises to keep Alstom out of legal troubles and enhance the company’s ethical reputation going forward
“Over the past 10 years, there have been significant changes within the Alstom Group,” the company said in a statement after the Tunisia case. “Alstom is committed to being a leading company for the purposes of ethics and compliance, not only in France but also internationally.”
Alstom says it’s taking concrete steps to fix its image problem after repeated instances of illegalities. Chief among them is boosting its compliance operations to promote a more robust “checks and balances” in its business operations.
Here’s what Alstom is doing to promote a more stringent corporate compliance policy:
Curbing the use of outside consultants. Repeatedly, Alstom found itself in legal hot water through the misuse of third-party intermediaries.
Regulators pointed again and again to company consultants who had no specific expertise in the industries that the company was trying to break into, nor did those consultants have the contract expertise needed to take on negotiations from a legal point of view.
Additionally, Alstom contacts were paid in bank accounts and currencies outside the countries where they were operating on behalf of Alstom, and where the contracts would ultimately lead to business operations. Paying consultants in different currencies and in out-of-country bank accounts is viewed dimly by regulators, and Alstom left itself wide open to charges of fraud and bribery when the investigators honed in on company payments to contractors.
Change is in the air, however. Alstom’s new Ethics & Compliance team has been tasked to “provide guidance and strict rules to employees, especially with regards to Consulting Companies, Joint Venture and Consortium, Suppliers and Contractors,” the company reports in a compliance mission statement.
Barbara Petitti only joined Alstom in 2012 and walked into a significant undertaking. Since then she has done some tactical investments to ensure their approach provides the tools, education and resources for their business units can take action, such as implementing a global hotline in 2013 and engaging the International Organization for Standardization in 2017 to certify its anti-bribery management systems. Most notably, thought, she shifted the tone from “enforcement fatigue” to taking ownership: promoting greater proactive and comprehensive investment into revitalizing ethical business practices.
Working more closely with law enforcement and regulators. The buzz among U.S. Department of Justice focused on Alstom’s abject refusal to cooperate with agency officials conducting investigations into the company. Grand jury subpoenas and requests for documents were routinely ignored and management was nowhere to be found when DOJ officials turned up the heat.
Alstom aims to turn that “see no evil” culture around with new company compliance initiatives with better compliance awareness training.
“Communication actions to ensure that employees are well informed about ethics and compliance,” Alstom states in its ethics and compliance mission statement. Additionally, “a community of E&C Ambassadors, all volunteers and coming mainly from the Legal, Finance and HR functions have been appointed to disseminate the Alstom Integrity Culture. They run Ethics & Compliance Awareness sessions and are points of contact for any questions about Ethics & Compliance.”
Do business with, and learn from companies with sterling ethical reputations. Regulators also seemed to believe that Alstom wouldn’t come around and work with DOJ investigators until pushed to do so by General Electric, which bought out Alstom Power in 2015 as the latter company was mired in legal, financial and ethical woes.
Pushed by GE to resolve the DOJ complaints before the much-desired merger could be closed, Alstom found its way to the negotiating table, took a more transparent stance, and cut a deal with investigators before the year-end deadline GE reportedly required as part of its takeover agreement with Alstom.
As a condition of merger approval by government regulators, GE promised to directly address Alstom’s compliance and ethical lapses. Known widely as a high-integrity company, GE did so and in the process, helped instill a new ethics model that is governing Alstom going forward.
The Takeaway on Alstom and Culture-Changing Compliance Models
Compliance industry observers are starting to see more concrete examples of Alstom toeing the line with internal compliance management.
That’s especially the case with business divisions working more transparently and aggressively with the company’s compliance area to nip potential ethical problems in the bud – before they lead to more regulators, more investigations, and more legal and financial problems.
Barbara Petitti, Alstom’s chief compliance officer says the key in changing the company’s ethical culture was educating not just decision-makers in the executive suite but also training rank and file staffers, too.
“The different functional areas are much more educated about the policies and procedures, so when they do come to us, their questions are much more advanced,” Petitti noted in a recent forum hosted by The Wall Street Journal and Dow Jones Risk & Compliance in New York.
Add to the mix a new management initiative to give Alstom employees the tools and support needed to address ethical questions (like Alstom’s new hotline where staffers can report ethical and compliances lapses), and a determination to “get ahead” of ethical problems instead of fighting them in court, should benefit Alstom going forward.
Compliance.ai board advisor, Dr. Marsha Ershaghi Hames, CCEP, agrees: “Embedding ethical decision making into the business is where the rubber hits the road. Shifting the mindset of compliance from abstract rules and policies to accountable business practices is how organizations are slowly transforming their corporate cultures.” Dr. Hames added, “engaging key influential stakeholders in leadership starting at the board, executive team, through front-line management, is where the day to day ‘walk the talk’ can bring the compliance program strategy into action.”
Creating a new ethical business culture after years of neglect isn’t easy, and the company really has no choice, but Alstom seems committed to cleaning up its act and hopefully benefitting from that cultural shift now, and down the road.
It had better. Given the company’s troubled ethics history, failure is not an option.