Alstom's bid to clear its name
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Graham Ruddick, 21:10, Saturday 12 June 2010
In an exclusive interview Jean-Daniel Laine, head of compliance at the French engineer, explains how the company is still in the dark over the March raids and how the war on bribery now tops the corporate agenda
Almost three months after three of its senior executives were arrested during dramatic dawn raids across the UK, Alstom (Paris: FR0010220475 - news) wants to make a few things clear.
Sitting in the offices of the 11bn (£9bn) power and transport engineer on a serene, tree-fringed street outside central Paris, the drama of the Serious Fraud Office's Operation Ruthenium seems a world away. On March 24, 109 staff from the SFO and 44 police officers raided five Alstom properties and four residential addresses across the UK on suspicion of bribery, money laundering and false accounting. The arrested executives were later released without charge.
Speaking for the first time since the raids, Jean-Daniel Laine, head of ethics and compliance at Alstom, has launched a rigorous defence of the engineer's anti-corruption procedures, suggesting the anti-corruption probe is a world away from reality at the company.
"I know a lot of my peers in the compliance community," he tells The Sunday Telegraph . "I participate in a lot of conferences on the anti-corruption subject. I have the opportunity to review all these topics and issues, and I consider that we are among the best in class."
Since 2006, Laine has overseen the rapid development of Alstom's compliance and ethics programmes, as the threat of corruption investigations has risen up the agenda for companies around the world.
Fraud agencies appear to be launching multinational drives to secure high-profile prizes, and new legislation, such as the Bribery Act in the UK, has made businesses more liable for the actions of their employees and even third-party sales agents.
The likes of BAE and Rio Tinto (LSE: RIO.L - news) have already become embroiled in international probes and the consequences of being convicted are potentially catastrophic for businesses. European Union directives are warning that businesses found guilty of corruption could be banned from winning contracts from governments and the reputational damage would likely hurt sales.
At Alstom, Laine says the company's ethics and compliance programme "has reached a point where it is difficult to be better", yet its executives have been arrested and the doors on its properties broken down.
Tommy Helsby, Eurasia chairman at Kroll, the corporate intelligence business, says: "A few years ago the concern was health and safety, then it became competition issues, now it is corruption.
"I can think of only one UK company I have visited in the past six months where it wasn't on top of the agenda. But it was after we had spoken to them.
"The commercial risk balance has changed dramatically. This is not just something that companies ought to do, they need to be able to demonstrate that they have done it, that the procedures are in place."
Laine was brought into his role at Alstom in January 2006, leaving his career in engineering to head an anti-corruption drive amid investigations by Swiss authorities.
A string of new measures have been introduced, such as a new code of ethics being sent to all 76,500 staff, the appointment of 200 compliance ambassadors to spread the standards around the 70 countries in which Alstom operates, and a due diligence process being implemented for the appointment of sales and marketing agents.
Laine says there is a "determination" from the top to the bottom of the company to set the highest ethical standards, and that a carefully choreographed, independent compliance and ethics organisation has been created to enforce it.
Insiders at Alstom are understood, therefore, to be highly frustrated at the SFO's raids in March, although Laine would not say so. Stephen Burgin, the UK president, Robert Purcell, finance director, and Altan Cledwyn-Davies, legal director, were arrested as well as offices and homes searched. Mr Cledwyn-Davies has since died. No allegations have been formally put to Alstom or made their way to the court, despite the investigation trailing back to the early in the last decade.
The company, which is building two gas power stations in the UK and maintains the Eurostar and Virgin Pendolino train fleets, believes it has become a victim of its drive to strengthen its compliance procedures by centralising payments to consultants working for its two divisions power and transport.
It is understood the SFO launched Operation Ruthenium in the UK after a request from Swiss authorities who are pursuing unspecified allegations relating to misconduct before the arrival of current management.
The Swiss inquiry began about 10 years ago when an investment banker being investigated over alleged connections to a Colombian drug cartel was found to have links to an Alstom subsidiary in Switzerland, formed by the engineer to pay consultants doing work for its power business around the world.
Since then, the investigation has been an on-off affair, with Alstom believing Swiss federal prosecutors were suspicious about the use of the centralised payment system and paper trails within it.
In 2008, French officials said they had opened up a preliminary investigation into Alstom reportedly over the bribery of foreign officials to win contracts between 1995 and 2003 but no charges were forthcoming. Alstom has stated that an internal investigation found no evidence of wrongdoing.
When the SFO made its arrests in March, it said it was working closely with federal police in Switzerland on suspicion of "suspected payment of bribes" by companies within the UK in order to win overseas contracts. The UK is where Alstom set up its centralised company for paying consultants in its transport division.
No further comment has been made by the SFO on the specific allegations, prompting Burgin to write a letter to UK staff in May expressing his "dismay" at the conduct of an investigation "which regrettably called into question our carefully built and protected reputation". He wrote: "No charges have been brought against the company or its executives and we still have not been notified of specific allegations."
The SFO told The Sunday Telegraph that its investigation was "ongoing", but would not provide details.
Laine admits he is "disappointed" by the latest searches but insists, despite the inter-agency co-operation involved in the investigation, the company will make no "knee-jerk" changes to its procedures because it has reached a level "where it is difficult to progress".
"Of course I am disappointed because I consider that when you have your name in the press and when you consider that you have done a good job, of course it's not pleasant," he says.
"But we have to face this. It's the reason why I am answering your questions. I consider that sometimes you have to defend your position and defend your integrity programme. We have to reassert that we have very tough and robust procedures."
The growth of Alstom's compliance and ethics programme began in 2000 with the centralising of payments following new OECD (Organisation for Economic Co-operation and Development) regulations, and the formation of ethical rules across the group.
Under Laine, the Alstom Integrity Programme has developed quickly. The first code of ethics was launched in 2007 and other measures include the 35,000 managers in the company being required to complete an online training course called e-Ethics, and the creation of an alert procedure for workers identifying violations of the code.
However, the backbone of Alstom's compliance and ethics programme is the rules for dealing with sales and marketing agents, the area where bribery proceedings over the last few months, such as the BAE case, have been particularly targeted.
Emma Scott, representations manager at the Chartered Institute of Purchasing and Supply, said it was "really important" for companies to be aware of where the tension points could be in their supply chain. "I don't think companies are aware of the scale of the dangers," she added. "It is one thing to put measures in place for staff, but it is also needed for external partners."
Laine and his team of 17 must approve every consultant appointed by Alstom. Each manager is quizzed on the purpose of the agent they are looking to appoint. A due diligence process, combined with an external audit report, checks the financial status and reputation of the third party. The remuneration and appointment must then be unanimously approved by a five-man compliance panel, before the payment is made from one of the two dedicated payment subsidiaries.
Alstom, which has benchmarked its rules against global companies, believes it is the strongest process in the engineering industry. The procedure has been externally certified by Ethic Intelligence International and Swiss audit company SGS.
However, whether it has been a success is questionable. It has not stopped Alstom being investigated although the case originates from before Laine took up his role, and the compliance chief accepts it will be years before it emerges whether the rules have prevented fraud during his tenure.
"What we want to apply is a zero-tolerance policy," he says. "The objective is to have zero risk, but it is like in health and safety. We want to take all the measures to prevent accidents but sometimes we have an accident. We consider that if we can validate the consultant, we have little risk with this consultant."
"Several" members of staff a year have contacted the compliance unit with concerns since Laine took over usually relating to conflict of interest complaints and more than 10 staff have been dismissed each year. However, only when it is clear that no fraud probes have been launched relating to incidents during his tenure will Laine's effectiveness be known.
It is a situation that highlights how dealing with potential corruption in businesses is riddled with uncertainty. Laine, who has avoided becoming involved in the internal response to the SFO's searches, insists the key is influencing each employee.
"For me, this [the latest searches] shows that I have to continue like this. To be more tough. We must take profit out of this bad experience to continue to strengthen, to mobilise the employees.
"We must be ethical individually and collectively. We could have the best thoughts and the best procedure, but acting with integrity is a personal attitude. We have to have all the employees to adhere to this concept."
Given that the employees of multinational companies are spread across every corner of the globe and a variety of cultures, that is a major challenge for ethics and compliance teams. And it is one now being tested to the full by the international co-operation of fraud agencies.
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