Alstom – whilst bidders circle, the potential fines grow(From a new flow firm)
One might ask as to why Alstom management seem so keen to listen to bidder’s overtures regarding its power business; could it be that management are realising that the sheer scale of fines that it faces regarding bribery and corruption issues in its transport business from Brazil, the US and the UK will likely dwarf those of all previous such cases?
Since our last update of the Alstom archive much has happened: the Swiss judiciary has now sent documented evidence of financial transactions and of Swiss bank accounts to inspectors in Brazil; and firstly GE and then Siemens have explicitly stated their respective interests in buying or merging in Alstom’s power business. It would seem that there is no stated interest for the transport business: readers of our reports will not be surprised, given the sheer scale of potential penalties Alstom might have to pay should the company, its employees or agents be found ‘guilty’ of corruption.
Under the terms of Brazil’s new anti-corruption law Alstom is liable for the actions of the company, its directors, its employees and any third party agents and consultants that might have been involved in corrupt activities that benefitted the company. This makes the scale of Brazilian fines far heavier than those imposable in the US. The main Brazilian bribery case is around price-fixing in transport contracts – the relevant data has been passed to the authorities by a whistle-blower that was a key member of that price-fixing cartel: Siemens.
At the get-go of the Brazilian inspections the local prosecutor is pushing for fines of $1.7bn based on a fine of twice the ‘overpricing’ involved. But under the terms of Brazil’s new law the potential scale of penalties that Alstom might suffer in Brazil could reach €1.5bn (20% of total revenues) if more payments on more contracts come to light; then one has to add the possible FCPA fines that would be forthcoming. One US attorney recently stated that he expected Alstom to become the new “poster-child” of anti-corruption enforcement and that the US fines could “in 2015, the settlement will eventually eclipse Siemens in terms of corporate fines and individuals prosecuted. Alstom is a company that is living on the edge of corporate culture and will pay a significant price for its systemic breakdowns.” In 2008 Siemens paid out $1.34bn in FCPA related fines.
Alstom’s market capitalisation is currently €8.33bn and fines could potentially reach a quarter of that amount.