By Rachel Louise Ensign And Ted Mann
When the U.S. Justice Department announced a record $772 million
foreign-bribery settlement with Alstom SA in December, there was a
hitch: The French engineering company couldn't pay without hurting
its ability to do business.
So Alstom got a break: approval from a court to wait until its
$17 billion deal with General Electric Co. closes before making the
payment.
The delay--the reason for which hasn't previously been
reported--gives Alstom more time than some other companies have had
to pay criminal penalties for violating U.S. foreign-bribery laws,
which often come due 10 business days after a sentencing.
"This is a very leisurely schedule," Judge Janet Bond Arterton
said at the time.
It also underscores how penalties under the powerful Foreign
Corrupt Practices Act have grown so large that they can create
substantial burdens for companies undergoing financial stress.
An Alstom spokeswoman declined to comment. A Justice Department
spokesman also declined to comment.
Other companies have also had to bear large costs as a result of
the law. Avon Products Inc.'s FCPA settlement last year required it
to pay $135 million on top of the $350 million it had spent on
legal and other matters related to the investigation of bribery in
China and elsewhere--a big hit for a company with $10 billion in
revenue in 2013. Wal-Mart Stores Inc. has spent more than half a
billion dollars on its own probe into possible bribery in Mexico
and other countries, as well as a related compliance overhaul.
Wal-Mart has said it is cooperating with continuing investigations
by the Department of Justice and the U.S. Securities and Exchange
Commission, which also enforces the law.
In some cases, companies have been allowed to pay their fines in
installment plans. Alcoa Inc. and a company it controls are set to
pay part of its $384 million penalty in five equal installments
over four years, after the company it controls pleaded guilty a
year ago to bribing officials in Bahrain. Some other companies also
haven't had to pay immediately. Japanese trading company Marubeni
Corp., which last year pleaded guilty to bribery in connection with
a matter that also involved Alstom, had a roughly two-month
gap.
The act gives U.S. authorities the ability to pursue charges
against foreign companies when a U.S. unit or employees were
involved, or if the company lists securities on a U.S.
exchange.
The Justice Department investigated allegations of bribery by
Alstom dating back years in countries including Indonesia, Saudi
Arabia and Egypt. By the time the probe was coming to a head last
year, Alstom was struggling financially and working on the deal to
sell its power-generation business to GE.
"We routinely do due diligence on issues such as this," said GE
spokesman Dominic McMullan. "It was a well-publicized issue, so we
were well aware of it."
Alstom pleaded guilty to the foreign-bribery charges. At a plea
hearing in the U.S. District Court for the District of Connecticut
on Dec. 22, the same day the record settlement was announced,
lawyer Robert Luskin, who was representing Alstom, asked a judge to
push back the sentencing until the deal with GE closed, according
to the transcript.
"We have asked, and the government has concurred, that we would
make a request to the court to defer sentencing and entry of
judgment until after that transaction has closed," said Mr. Luskin,
a partner at Squire Patton Boggs. "That transaction will facilitate
the ability of Alstom to pay the fine without impairing its working
capital."
Alstom's sentencing is now scheduled for June 23. The deal with
GE isn't expected to close until midyear. If it closes sooner,
Alstom may request an earlier sentencing date. If the deal gets
delayed, Alstom may ask for a later date.
Assistant Attorney General Leslie Caldwell said in December that
prosecutors insisted GE not be responsible for any part of the
penalty.
Still, the asset sale to GE will help alleviate Alstom's
pain.
The French company said late last year that it had burned
through about EUR922 million ($1.04 billion) of cash between the
end of March and the end of September, leaving it with EUR1 billion
of cash on hand in addition to a EUR1.4 billion credit line.
Both companies also recently disclosed that GE will pay more in
the deal than previously announced, though they both say Alstom
will cover the settlement payment.
Alstom Chief Executive Patrick Kron told investors last month
that his company would receive the equivalent of more than $450
million in "additional proceeds" from GE through business deals
negotiated after the original deal was announced last summer. The
deals include an agreement to let GE license the Alstom brand name
for 25 years instead of the originally planned five. Mr. Kron said
those funds would help offset the fine's cost.
GE Chief Financial Officer Jeff Bornstein told investors in
January that the company would wind up paying the equivalent of
about $280 million more to Alstom, but acknowledged that he wasn't
including some costs included in Mr. Kron's estimate, including the
value of interest on cash GE allowed Alstom to use free of charge
during 2014.
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