French and Swiss authorities are investigating whether Alstom SA, a Paris-based engineering giant, paid hundreds of millions of dollars in bribes to win contracts in Asia and South America between 1995 and 2003, people involved in the matter say.
Alstom, one of France's biggest companies, sells everything from equipment for power plants to France's signature high-speed trains to New York subway cars. One of its chief competitors, Germany's Siemens AG, is itself being investigated for bribery in Germany and elsewhere in connection with suspicious payments totaling more than €1.3 billion, or about $2 billion.
The two investigations suggest that Europe's prosecutors have begun taking a tougher line on business practices their U.S. counterparts have long treated as criminal. American multinational companies have complained for years that foreign competitors had an unfair advantage getting business in developing nations, where making payments to snag contracts is commonplace.
For many years, paying "commissions" to foreign officials was not only permissible in many European countries, but the payments themselves were tax deductible. That began to change in 1997, when the Organization for Economic Cooperation and Development, an intergovernmental group based in Paris, called on all member states to ban the practice. France outlawed bribery of foreign officials in July 2000.
Last week, Swiss police officials met with their counterparts in Brazil to discuss payments totaling about $6.8 million that they suspect Alstom officials made to win a $45 million contract to install equipment for a São Paulo subway expansion, according to people knowledgeable about the meeting. Investigators also are looking into about $200 million of suspicious payments Alstom made in connection with a hydroelectric project in Brazil and projects in Venezuela, Singapore and Indonesia. Payments connected to those projects are outlined in Alstom documents obtained by investigators and reviewed by The Wall Street Journal.
Last year, two former Alstom representatives told investigators they had made payments on behalf of the company, people with knowledge of the investigations say. In an interview with the Journal, one of them, Michel Mignot, said he was just doing his job. "I never took a cent for myself," said the former Alstom consultant. "I didn't think the transactions were illegal, because they were done to get civil-engineering contracts around the world."
A spokesman for Alstom acknowledges that the company's offices have been searched in connection with an investigation by French authorities, but notes that no formal charges have been filed. "Alstom's code of conduct is to comply strictly with all laws and rules applicable to trade practices," he says.
Flow of Cash
The current investigation began in 2004, after auditors from KPMG Fides Peat in Switzerland, working for the Swiss Federal Banking Commission, discovered documents detailing the flow of about €20 million from Alstom to shell companies in Switzerland and Liechtenstein, according to a February 2004 KPMG report reviewed by the Journal. That money flowed to Alstom marketing officials in Singapore, Indonesia, Venezuela and Brazil, who picked it up in stacks of $100 bills, the report says. The nature of the transactions and the documents, which were often handwritten, "leads to the conclusion corruption is involved," the report says.
Some of the projects involved, including the São Paulo, Brazil, subway, were funded in part by the World Bank. It is unclear whether the World Bank is also looking into the matter. A spokesman declined to comment.
In February, a French investigative magistrate questioned Alstom's general counsel, Fred Einbinder, and its compliance chief, Jean-Daniel Laine. Alstom's spokesman confirms that the two executives were questioned, but declines to provide details.
In statements to the French police, Mr. Mignot, a former Alstom consultant, and Yves Barbier de la Serre, a former chief operating officer of an Alstom subsidiary, said that between 1998 and 2002, the company paid commissions to win contracts, using cash from a "caisse noire," or slush fund, according to a summary of their statements reviewed by the Journal.
Mr. Mignot said in a recent interview that he told the police the funds weren't recorded in Alstom's regular financial books, but he believed the arrangement was legal because it was ordered by senior managers at Alstom.
Mr. Barbier de la Serre, who left Alstom in 2001, said in a brief interview that the allegations against Alstom are "unproved." He declined to discuss details of his statement to the French police.
Alstom's spokesman confirms that both men were affiliated with the company.
Requests for Help
Swiss authorities have formally requested help from French and Brazilian investigators. Their written requests name 24 people suspected of either receiving bribes or assisting in their payment, according to people familiar with the documents. Some of the Alstom money was channeled through accounts controlled by Messrs. Barbier de la Serre and Mignot, according to documents cited in their requests.
The list of names includes one Brazilian who is said to have negotiated with Alstom officials. He claimed to be an intermediary for an unnamed Brazilian politician, according to an Alstom document describing the meeting, which was reviewed by the Journal. The man offered political support for a São Paulo subway project in exchange for a 7.5% commission, the document indicates. It is unclear if such a payment was ever made. The Brazilian man couldn't be located for comment. Alstom won the contract in the late 1990s and completed the work several years later, according to World Bank records.
Securing the Deal
Investigators are also looking into Alstom's contract to help build a $1.4 billion hydroelectric power plant in Itá, Brazil, a project completed in 2001. Alstom documents reviewed by investigators indicate that the company budgeted around $200 million -- 15% of the contract value -- to pay commissions to secure the deal, according to Alstom documents. The documents specify that half of those commissions, equaling 7.5% of the contract value, should be paid through offshore bank accounts.
Prior to the passage of the antibribery law in 2000, French law allowed companies to take tax deductions for 7.5% commissions on international sales, so long as those payments were declared to tax authorities. The investigators are looking into whether Alstom channeled a portion of the payments through accounts at offshore companies, because bribe recipients in Brazil, Venezuela and Indonesia demanded 15% commissions, according to documents connected to the investigation.
The 2000 law, however, prohibited all bribery payments. After the law changed, Alstom routed more of the payments through offshore accounts, according to the KPMG report.
By that time, Alstom was running into serious financial trouble, in part because of problems in its power-generation equipment business. In 2004, Nicolas Sarkozy, then finance minister and now France's president, helped broker a state bailout of the company, which had been near bankruptcy. The French government injected several billion euros into it, staving off its possible dismantling.
Last November, a French online magazine, Bakchich.info, reported that Swiss and French authorities were investigating possible bribery by Alstom officials. That report included minimal detail about the individuals or projects involved or the magnitude of the payments.
The probe of Alstom began by chance. KPMG Fides Peat in Switzerland had been commissioned by the Swiss Federal Banking Commission to conduct an audit of Tempus Privatbank AG, a small private bank. The bank's chief executive, Oskar Holenweger, at the time was being held as a suspect in an investigation into links between Swiss banks and South American drug cartels.
In January 2004, while visiting the home of a bank secretary on maternity leave, the KPMG auditors were shown nine binders of the records documenting Alstom-related transactions made by Mr. Holenweger, whom the auditors identified as one of Alstom's bankers.
In their subsequent report, the KPMG auditors said, "Mr. Holenweger served repeatedly as a relay point for payments by Alstom." In a Jan. 30, 2004, letter appended to the report, a lawyer representing Mr. Holenweger declined a request by KPMG to discuss questions raised during the audit. No charges have been filed against Mr. Holenweger in connection with the investigation. Lorenz Erni, another lawyer for Mr. Holenweger, says his client isn't guilty of any wrongdoing. (Mr. Holenweger is no longer being detained in connection with the investigation of banks and drug cartels, although that case remains under investigation, his lawyer says.)
Investigators believe that Alstom transactions arranged by Mr. Holenweger date back 10 years. Two Liechtenstein banks initially balked at executing transactions that appeared suspicious, then went ahead once account trustees proved they were acting on behalf of Alstom, the investigators believe. The funds moved through a series of Alstom-controlled accounts and offshore companies, according to records at one of those two banks, LGT Group, Liechtenstein's largest bank. The funds were then paid in cash to Alstom marketing officials, according to Alstom documents. The KPMG report says the Alstom officials picked up cash at various bank offices outside Europe, including in Singapore.
Hundreds of pages of Alstom documents related to the transactions in Liechtenstein and Switzerland were handwritten, allegedly to avoid leaving a digital footprint, according to affidavits by investigators that were reviewed by the Journal.
Mr. Mignot, the former Alstom consultant, who is now 77 years old, controlled a numbered account, code-named "Zurich," at the Swiss subsidiary of BNP Paribas. He was authorized to sign transaction orders using a single name, Doirat, according to a bank authorization document reviewed by the Journal. The document is marked with a notice that it shouldn't be copied and should be stored in a special bank vault. Mr. Mignot said in an interview that he used several fictitious names when signing payment orders, because the bank asked him to.
That account was at the end of a chain of bank accounts and offshore companies that Mr. Holenweger helped set up for Alstom in Liechtenstein, Switzerland, the U.S., Singapore, Hong Kong, Bahrain and Thailand, according to the KPMG audit. These were used to transfer more than $12 million to individuals in Venezuela, Singapore, Thailand and China, the audit claims.
In January 1999, Alstom and Mr. Holenweger, acting on behalf of an offshore company called Janus Holding Ltd., signed consulting contracts valued at about $1.8 million, according to the contracts, which were reviewed by the Journal. The contracts purported to relate to work on two Alstom projects: the $1.4 billion hydroelectric project in Brazil and a power substation in Singapore. The KPMG report says that Mr. Holenweger passed on the money to a series of recipients, receiving a 2% fee from Alstom for his services. Mr. Holenweger's lawyer declines to discuss specifics of his client's involvement with Alstom.
Even after France outlawed bribery of foreign officials, suspicious payments continued, the KPMG report indicates. Mr. Holenweger transferred about $12 million for Alstom and a subsidiary in 2001, $1.5 million in 2002 and $800,000 in 2003, receiving a 2% commission in each case, the report says.
--Max Colchester in Paris and Antonio Regalado in São Paulo contributed to this article.
Write to David Crawford at email@example.com