The American Trap, page 21
Patrick Kron also announces that Alstom is in the process of finalizing an agreement with the DOJ. The company finally decided to plead guilty and pay a fine. The DOJ set the amount at approximately €700 million. Yet once again the final agreement does not match the projections. The Department of Justice refuses to let GE pay this colossal amount. This fine will therefore be paid by Alstom (or what remains of Alstom). I’m not surprised as I always considered this part of the agreement to be illegal. It’s just rather bizarre that the US DOJ did not express its disapproval earlier on in June. I quickly conclude that they were in fact silent accomplices in June in the ploy set up by GE and Alstom, whose purpose was simply to eliminate Siemens.
But that’s not all. Since Alstom will now have to pay €700 million more, it appears logical that the purchase price of €12.35 billion negotiated in June should be raised by the same amount to avoid penalizing Alstom. Contrary to expectations, though, Patrick Kron says that the sale price will remain the same. And to justify his point, he uses an argument that even a five-year-old wouldn’t swallow: GE will buy back some additional Alstom assets for around €300 million. This then leaves a €400 million difference remaining which the CEO considers as negligible. In his words: ‘They correspond to the standard adjustment margin of a deal of such magnitude.’ This comment meets with strong reaction from some of the attendees.
‘You are confusing the two’, says Marie-Jeanne Pasquette of minoritaires.com, denouncing ‘a fully fledged shell game’.
In a matter of minutes, the small shareholders realize that Alstom has actually lost nearly €1.4 billion, i.e. the €700 million fine, plus the €700 million that GE will no longer be paying. The icing on the cake is that the Board of Directors has proposed that Kron be granted an exceptional bonus of €4 million for bringing these negotiations to a successful conclusion. The Americans must be rolling about in stitches.
I have trouble containing myself. I want to get up and vent my anger. A €4 million bonus for selling off an industrial gem! Four million for allowing a system of corruption to thrive for more than ten years. Where else but France would such an aberration occur? In France, board members form such a tight clan that no one dares to speak out. This is in direct contrast to Germany, where in 2008 the iconic chief of Siemens was fired in complete disgrace, then sued by his own company, which had to pay a fine of $800 million to the DOJ. In France, however, Alstom’s incestuous Board decides that Kron merits a bonus and this does not seem to bother anyone. No reaction from the financial press, no reaction from the Finance Ministry or the government, no reaction from the main investors, no reaction from Bouygues, Alstom’s main shareholder, no reaction from the AMF (French Markets Authority) either. Only a few small shareholders speak up.
The first on the attack is a certain Bulidon, who has been haunting the shareholders’ meetings for more than ten years. He cuts to the chase.
‘Let’s be clear on this. I’m going to be belligerent and vote against this resolution as it represents the sale of two-thirds of the business.’
Bulidon pursues his rhetoric in an increasingly bitter tone.
‘You always promised you would never sell Alstom off in bits, yet that’s exactly what you’re asking us to agree to today.’
Then he goes in for the kill.
‘And as a reward for such a “fantastic deal”, the Board of Directors is awarding you a bonus of four million euros. Mr Kron, if you have any professional conscience at all, forgo this bonus and resign!’
Instead of answering, Patrick Kron half smiles. Having been head of the group for over ten years, he has seen and heard a lot. Nevertheless, he must admit that Mr Bulidon, despite being very upset, is not entirely wrong.
‘The three joint ventures are what they are,’ he admits. ‘They are explained in the presentation document. However, GE will indeed be in charge of operational control, but this is essential and quite normal.’
The CEO therefore clearly acknowledges that he is selling, and that it is ‘normal’ for the buyer to control the property he has acquired. Nothing could be more natural. Then why under these circumstances has he spun the truth until this meeting today?
A market investor, René Pernollet, grabs the microphone.
‘I heard this morning on the radio [in the enquiry launched by Matthieu Aron] that the US court proceedings were instrumental in your decision to sell. Is that correct, Mr Chairman?’
‘Okay, okay,’ mumbles Patrick Kron, ‘it’s easy for you to lecture me and yell, but if we made this deal with GE it was to avert the imminent danger of turmoil within the company.’ Then, once again in a deceptively caring tone, he continues: ‘Don’t scratch your brains out looking for arguments that don’t exist. It’s a good deal, full stop!’
This investor was merely asking a legitimate question, whereas Kron attempts to convince us that it is a good idea to shoot ourselves in the foot by divesting ourselves of our thermal sector, which is by far the most profitable sector. A few seats from me, I notice Claude Mandard, representative of the investment fund reserved for Alstom employees. Calmly and methodically, he in turn delivers his own indictment.
‘It’s a total botch-up and immense waste of our industry. In addition, you stabbed us in the back. If the press hadn’t leaked it, we would have been faced with a fait accompli.’
This time Kron can’t contain himself and explodes: ‘First of all, the press leak has got us into a lot of trouble! Yes, it’s put us in deep shit! For God’s sake stop thinking that we were planning the hold-up of the century behind everyone’s back.’
His violent outburst does not quell the anger of the small shareholders. The questions continue to be fired at him, each one more incriminating than the one before. The CEO then takes out his calculator.
‘The sale of Alstom,’ he explains, ‘will net us 12.35 billion euros, from which we have to subtract cash, our investment in the three joint ventures, the buy-back of shares, and payment of the impending fine to the US authorities.’
He doesn’t have time to finish.
‘Please stop your subtractions,’ a new speaker interrupts him sharply. ‘Just tell us exactly what is left in Alstom’s coffers.’
I had wondered myself. And the result is simply astounding, since it amounts to a big fat zero! Not only have we sold a world-renowned industrial asset, but we have nothing to show for it. To get the full picture, each element should be examined in turn. The sale price amounts to €12.35 billion. But from this €12.35 billion, you have to subtract cash (€1.9 billion), investment in the three joint ventures (€2.4 billion), capital gains allocated to shareholders (€3.2 billion), not to mention the €3 billion of debt to be repaid, then post in the accounts the purchase of GE’s rail-signalling branch (€0.7 billion), and last but not least, payment of the fine to the DOJ: €0.7 billion. Of course, to all intents and purposes the company is debt-free, but its balance is close to zero.FN18
This sale can only be described as downright lousy and is without doubt one of the most nonsensical industrial initiatives to have been taken in recent years. It’s abysmal. Patrick Kron denies this is the case, dismissing the facts as ‘absurd conspiracy theories’. (He has never deviated from this line, writing in Le Figaro on 24 June 2019 that: ‘There is no relationship between the conduct of an investigation by the US Justice (DOJ) on a limited number of old corruption facts and the merger with General Electric . . . I never had a discussion with the DOJ about a possible project with General Electric until the leak in the media made this public and led the DOJ to question the parties about the contents of the project and its possible consequences on the current procedure.’)
Despite Patrick Kron’s denial, dismissing the facts as ‘absurd conspiracy theories’, I remain convinced that the US proceedings must be at the root of Alstom’s dismemberment.
During the shareholders’ meeting, questions on this subject are fired at him continuously. He is even asked about my detention in the United States. He is very wary and prefers to hide behind his confidentiality obligation rather than answer the question.
‘The American case is ongoing, so it is impossible for me to make any comments whatsoever; it is simply impossible.’
At this point, Jean-Martin Folz, one of the members of the Board of Directors, decides it is time to intervene. He is a close friend of Patrick Kron, they met when they were both at Péchiney. Moreover, Jean-Martin Folz has been chairman of Alstom’s Ethics Committee since 2011. He looks outraged, and in a serious tone he claims that the accusations are unfounded.
‘The operations revealed by the Department of Justice in the United States are old, or indeed ancient, and do not involve the current Board of Directors. Since becoming head of Alstom, Patrick Kron has done his utmost to ensure that the company conducts its business affairs in an appropriate and acceptable manner. He has spent the last ten years doing everything possible to meet this objective.’
Three days later, the chairman of the Ethics Committee receives the most scathing counterattack in response.
Chapter 39
The DOJ prosecution show
I wouldn’t have missed this for the world. I didn’t see it live but the images were gripping. On 22 December 2014, seventy-two hours after Alstom’s shareholders’ meeting, the US judicial hierarchy calls a high-profile press conference. Dozens of journalists were present, and American TV stations were also at the ready. The footage was then broadcast worldwide on social media platforms.
A camera follows the entry into the conference room of Deputy Attorney General James Cole, who is accompanied by Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division. The latter is a battle-hardened expert in charge of a 600-strong prosecution force.
The two prosecutors, with their serious faces and persuasive air, well aware that they are partaking in a historic moment, take their places in front of a lectern. A huge American flag, symbol of US supremacy, dominates the background. James Cole is the first to address the journalists.
‘We are here to announce a historic law enforcement action that marks the end of a decade-long transnational bribery scheme: a scheme that was both concocted and concealed by Alstom, a multinational French company and its subsidiaries in Switzerland, Connecticut and New Jersey.’
And the prosecutor continues, slightly short of breath but impressed it seems by the importance of what he is about to announce.
‘Today, those companies admit that, from at least 2000 to 2011, they bribed government officials and falsified accounting records in connection with lucrative power and transportation projects for state-owned entities across the globe. They [Alstom and its subsidiaries] used bribes to secure contracts in Indonesia, Egypt, Saudi Arabia, and the Bahamas. Altogether, Alstom paid tens of millions of dollars in bribes to win $4 billion in projects – and to secure approximately $300 million in profits for themselves.’
James Cole then takes the moral high ground.
‘Such rampant and flagrant wrongdoing demands an appropriately strong law enforcement response. Today I can announce that the Justice Department has filed a two-count criminal indictment against Alstom . . . charging Alstom with violating the Foreign Corrupt Practices Act by falsifying its books and records and failing to implement adequate internal controls.’FN19
And, finally, the prosecutor announces the long-awaited decision.
‘Alstom has agreed to plead guilty to these charges, to admit its criminal conduct and to pay a criminal penalty of more than seven hundred and seventy-two million dollars, the largest foreign bribery penalty in the history of the United States Department of Justice.’
In a matter of seconds, the American prosecutor has just destroyed the entire defence of Patrick Kron and his board of directors. The American investigators were not digging up stuff from long ago. Nor did they focus exclusively on ‘old or indeed ancient’ facts as maintained by Jean-Martin Folz, Chairman of the group’s Ethics Committee three days ago at the shareholders’ meeting. On the contrary, the DOJ investigated the last decade (2000–11) and Patrick Kron was chairman of Alstom and responsible for its destiny since early 2003. He should therefore be held fully accountable. In most cases, it was the Swiss subsidiary, Alstom Prom, that was entrusted with the task of paying the ‘consultants’. The FBI was able to obtain all the bank transfers that were listed in detail in the indictment. Faced with this indisputable evidence, Alstom Prom and its parent company Alstom SA had no other alternative than to plead guilty and agree to pay the colossal fine inflicted on them. Two of the group’s other entities, Grid and Power, fared a little better. They managed to negotiate a ‘Deferred Prosecution Agreement’. They have undertaken to clean up their ranks and implement an appropriate anti-corruption programme. At the end of this time period, if the DOJ considers that the target has been achieved, they will be exempted from criminal sanctions definitively.
At this press conference, James Cole refers several times to a cardinal point of the file. Contrary to what Patrick Kron consistently maintained, ‘Alstom failed to implement adequate internal controls’. It was pure window dressing. On the face of it, Alstom’s policy was flawless, but behind the scenes the illicit behaviour continued in total obscurity. Its compliance programme was nothing but smoke and mirrors. And this system, according to James Cole, did not result from mere negligence or individual misconduct; it was carefully planned, codified and developed to perfection.
It was described by him as ‘breathtaking in its breadth, its brazenness, and its worldwide consequences’. Alstom’s corruption scheme was sustained over more than a decade and across several continents.
Finally, the Deputy Attorney General, in his closing remarks, issued a much more comprehensive warning.
‘Let me be very clear: corruption has no place in the global marketplace. And it is both my expectation – and my intention – that the comprehensive resolution we are announcing today will send an unmistakable message to other companies around the world. The Department of Justice will be relentless in rooting out and punishing corruption to the fullest extent of the law, no matter how sweeping its scale or how daunting its prosecution.’
James Cole then acknowledged the assistance of the authorities in Switzerland, Saudi Arabia, Italy, Indonesia, United Kingdom, Cyprus and Taiwan for aiding the FBI in this matter. He didn’t forget anyone. Though he did not mention France. And yet in Paris, as early as 7 November 2007, an investigation (revealed by the Wall Street Journal) was launched for ‘active and passive corruption of foreign public officials’, but the judges, for whatever reason, didn’t appear overly interested in it. Then, in 2013, the public prosecution service also opened a second judicial enquiry into corruption involving Alstom in Hungary, Poland and Tunisia. Once again, the case got stalled.
It was a different case in Washington, however, where such matters ‘excite’ the prosecutors. They immediately seized the opportunity to capture a new French multinational, after Total, Alcatel and Technip.
In total, the fines imposed on these four major French companies have netted $1.6 billion for the US Treasury. If we add to this the extraordinary penalty of $8.9 billion imposed on BNP Paribas in 2014 for breach of an embargo, the $787 million bill that Crédit Agricole had to pay in 2015, or the $1 billion paid in 2018 by Société Générale, the total amounts to over $12 billion. This is higher than the French judiciary’s annual budget. Imagine for a moment what the government could do with $12 billion. Let us take an example: the ‘Great Plan to Eradicate Poverty’ presented by Emmanuel Macron in September 2018. It amounts to €8 billion.
Back to Washington. Each prosecutor takes his turn and gives a dazzling performance. Next, the Department of Justice’s unstoppable Leslie Caldwell takes the floor, to explain the investigations conducted by her crew. A press release was issued by the Department of Justice to accompany the press conference. It filled in some of the details on the breadth and depth of the investigation. Other details I later discovered myself, having been put on the scent by Caldwell’s remarks.
It transpires that, in Saudi Arabia, as part of the Shoaiba project, an oil-fired power plant built on the Red Sea,FN20 the company paid forty-nine million dollars in kickbacks (bribes) and used a sophisticated network of external consultants, all of whom were given code names such as ‘Paris’, ‘Geneva’, ‘London’, ‘quiet man’ or ‘old friend’. Their mission was to bribe officials at the state-owned and state-controlled Saudi Electricity Company. The group also didn’t hesitate to bribe a foundation for Islamic education assistance. In Egypt, from 2003 to 2011, Alstom engaged in corruption to obtain contracts from the Egyptian Electricity Holding Company (EEHC) by bribing Managing Director Asem Elgawhary of the joint venture company that EEHC had created with the American Bechtel.FN21 Also, in the Bahamas, in an attempt to sell equipment, a consultant hired by Alstom bribed a member of the Bahamas Electricity Board of Directors. Finally, between 2001 and 2008, Alstom admitted to having paid bribes to Taiwanese officials to obtain contracts for the Taipei underground rail system.
At this press conference, Leslie Caldwell sought to justify the record-breaking fine imposed on the company.
‘Through Alstom’s parent level guilty plea and record-breaking criminal penalty Alstom is paying a historic price – as it should – for its criminal conduct and for its efforts to insulate culpable corporate employess and other corporate entitities. Alstom did not voluntarily disclose the conduct and did not agree to cooperate with the government – and in fact deliberately did not cooperate with the government – for some time.’
Finally, she utters a phrase that I have been recalling ever since.
‘Indeed, it was only after the department publicly charged several individual executives that Alstom finally, and reluctantly began cooperating.’
A confession at last! The Head of the DOJ has publicly admitted that I was used as leverage on my company. I wasn’t crazy or paranoid. I was used as a chintzy scarecrow to scare Alstom’s management into cooperating with the FBI. There is a lot I can say about this justice system that, to successfully pull off spectacular deals, uses individuals as pawns. However, what I find even more shameful is the attitude adopted by my company. According to Leslie Caldwell, Alstom’s management had refused to cooperate, contrary to its claims. In light of this, why didn’t they warn me in April 2013 of the risks I was incurring by travelling to the United States? Why did Keith Carr throw me into the lion’s den so to speak? I remember perfectly well his remarks made only a few days before my departure: ‘You have nothing to worry about, everything is under control.’
