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FRANCE: Prosecutors probe Alstom for contract corruption

May 6th, 2008

PARIS (AFP) - French prosecutors suspect engineering giant Alstom, builder of power stations and high-speed trains, of bribing foreign officials to win contracts, a judicial source said Tuesday.

Prosecutors started an investigation on November 7 into suspected "corruption of foreign public agents" and "abusive use of assets," the source said.

The source spoke after The Wall Street Journal newspaper reported evidence that the company had "paid hundreds of million dollars in bribes to win contracts in Asia and South America between 1995 and 2003."

Alsom told the paper its offices had been searched by French authorities but that no charges had been laid.

The company told AFP on Tuesday that the newspaper report was based on "hypotheses and speculation" and that "there is no judicial procedure accusing the company of corruption."

Brokers however took the allegations seriously and the price of Alstom shares fell 2.17 percent to 147.03 euros at mid-day.

The French judicial source said the investigation was the result of information provided by Swiss judicial authorities in May, but no-one had yet been charged.

The WSJ said its report that Alstom was under investigation in Switzerland and France was based on information from people involved in the matter.

The report was also based on findings by auditing firm KPMG which, it said, came across evidence by chance while working for the Swiss Federal Banking Commission on an audit of a small private Swiss bank.

The auditors allegedly found evidence that Alstom had circulated about 20 million euros (31 million dollars) to "shell companies" in Switzerland and Liechtenstein, which was transferred to marketing people working for Alstom in Singapore, Indonesia, Venezuela and Brazil, "in stacks of 100-dollar bills."

The audit found that Alstom also set up accounts in Liechtenstein, Switzerland, the United States, Singapore, Hong Kong, Bahrain and Thailand.

These were used "to transfer more than 12 million dollars (7.74 million euros) to individuals in Venezuela, Singapore, Thailand and China," the report alleged, referring to the audit.

The newspaper noted that paying "commissions" to foreign officials was legal and even tax deductible in many European countries until the Organisation for Economic Cooperation and Development began a campaign against the practice in 1997. France made such payments illegal in July 2000.

Until then, French law permitted tax deduction of commissions of up to 7.5 percent if they were declared to local tax authorities.

Alstom was saved from bankruptcy in 2004 by state intervention orchestrated by the then finance minister Nicolas Sarkozy, now French president.

One probe concerned a budget of 200 million dollars (129 million euros) for suspected commissions of 15 percent to win a contract for a power plant in Brazil which was completed in 2001.

Another probe concerned a 45-million-dollar contract for the Sao Paolo subway, and others covered payments of about 200 million dollars for projects in Brazil, Venezuela, Singapore and Indonesia, the report alleged.

The newspaper said some of the projects concerned had also involved financing from the World Bank, which had declined to comment.

In Paris, Credit Mutuel-CIC brokers commented in a client note with a reference to an investigation in Germany into alleged suspicious payments by German engineering group Siemens.

It said that although it was too early to know the facts of the matter at Alstom, the Siemens case "leads one to think that we may be set for a media-judicial saga lasting years."

Natixis brokers said that some investors "may fear that this is only the tip of the iceberg" but that others might consider this to be an old story concerning a previous management.

The newspaper interviewed one former Alstom consultant, named as Michel Mignot, who said: "I never took a cent for myself." He said: "I didn't think the transactions were illegal, because they were done to get civil engineering contracts around the world."

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