The Coalition of the US Justice Department and GE against Alstom

France doesn’t know it, but we are at war with the US. … Yes, the Americans are hard-nosed, they are voracious, they want unilateral global dominance. It is an unknown war, an ongoing war, with no apparent deaths and yet a war to the death.

François Mitterand

A Frenchman called Frédéric Pierucci, with co-author journalist Matthieu Aron, has recently published a book titled Le Piège Américain (The American Trap).

It is a real thriller, with a not very happy ending. There are no dead bodies, albeit there is a significant corporate murder. But before the resolution comes the nightmare.

A Frenchman savors the pleasure of American incarceration

On 14 April 2013, Pierucci is arrested at JFK airport after an exhausting flight from his home in Singapore. Immediately chained, he is herded to FBI headquarters in Manhattan, where he is grilled by an arrogant youngish prosecutor named David Novick. This first encounter will reflect standard practice – nobody is interested in what Pierucci has to say. He is already guilty, though of exactly what will vary at prosecutorial discretion.

Pierucci is soon carted off, in chains, to the high security prison Wyatt in Rhode Island. On 12 June 2014, fourteen months later, he is finally released on bail. But what is his crime?

Pierucci was then head of a subdivision of Alstom Power. Alstom, and its previous incarnations, was a French industrial flagship in (amongst other domains) power generating equipment and in transport.

In 2003, Alstom tendered to build an electricity power plant on Sumatra. The job was relatively small scale as power plants go. However, Alstom had targeted a success on this contract as symbolic because it was then in trouble. In 2000, Alstom acquired the gas turbine assets of its then joint venture partner ABB, but ABB’s flawed equipment proved a financial disaster for Alstom, with debilitating consequences.

For the Indonesian bid, Alstom had arguably a superior design. But a US company became the favored bidder, rumored to be the product of a bribe. In any case, Indonesia in the Suharto era was seen as natural American territory. In response, Alstom found another intermediary ‘consultant’ and it subsequently won the contract in 2004. Pierucci, then US-based during 1999-2006, knew of the initial Indonesian bid, explicitly refused to sanction a bribe via the first intermediary but knew nothing of the bribe that clinched the deal. That bribe was the hook by which Pierucci was arrested and imprisoned in 2013.

The Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act (FCPA) was passed in 1977 under the Carter Presidency. In the process of post-Watergate investigations of Nixon-era corruption, the authorities discover a widespread practice of US companies bribing foreign officials to obtain state-funded contracts. American companies fought back, claiming that the law will severely disadvantage American companies while non-American companies carry on the practice.

The asymmetry could not be permitted to prevail. The FCPA was applied only rarely during 1977-2001, and then predominantly against second rung companies. The US pressured the OECD to develop a comparable anti-bribery convention covering all member countries (in effect, enforceable from the US) – a convention established in 1997, formally effective 1999. The French government ratified the convention in September 2000.

But the big changes occurred domestically. After 1993, the Clinton administration strategically expanded the use of intelligence services for purposes of economic warfare – which use would also piggyback on the yet further extended intelligence services apparatus following 9/11. In 1998, Congress gives the FCPA extra-territoriality, extending its reach to foreign corporations. The previous presumed asymmetry of FCPA would be reversed to operate in American corporations’ favor. Henceforth all commercial secrets would become fair game.

Alstom and other companies declined to confront the implications of the new regime. Such companies, with ‘respectable’ consulting firms offering advice, set up schemes to dissimulate compliance. Alstom’s denial was cemented when Patrick Kron was brought in to repair the ABB-linked problems, becoming PDG (combines CEO & Board Chairman roles, common in French companies) of Alstom in early 2003.

Alstom’s then legal officer Fred Einbinder (American-born) advised Kron to get with the times, but Einbinder was pushed aside in 2010 and his job taken by Keith Carr. Carr told Pierucci shortly before the latter’s 2013 trip to the US that if anything happened Pierucci should contact him. Pierucci did not know then the meaning of that cryptic message, and Carr would prove to be no help at all.

American justice and its centers of correction

In Pierucci’s book there are ancillary descriptions and lessons regarding the American ‘justice’ system and the American prison system.

On the justice system, Pierucci’s fate is in the hands of Department of Justice prosecutors David Novick and his immediate boss Daniel Kahn. Everything is manipulated.

Pierucci is regularly carted off, preliminary body search, in an armored vehicle, in chains, to New Haven three hours away, for a brief hearing before judge Joan Margolis. Ten charges (over a 72-page dossier) are laid that could sum to a sentence of one hundred and twenty-five years. Margolis kowtows to the vindictive Novick, who demands continued imprisonment because there is no extradition treaty with France, claiming that the serious charges are worthy of life imprisonment. Pierucci is returned to Wyatt with no progress. Pierucci is a pawn in Justice’s pursuit of Alstom.

Pierucci obtains one lawyer, then two, initially at Alstom’s expense. These urge Pierucci to play by the rules. The rules dictate that one confesses to ‘the crime’ in the hope of being handed a lesser sentence. Pierucci’s guilt is foreordained, although the details of his crime are fashioned pragmatically and are altered on the hop. It is a Kafkaesque environment, an adjective employed accurately by Pierucci in the book.

His lawyers early suggest that $100,000 might suffice to obtain bail; then they come back to ask him how much resources he commands. The answer is, nominally $400,000 maximum, to which the lawyers reply – hm, that isn’t going to be enough. Later, the judge demands $1 million from Alstom and $400,000 from Pierucci himself. The sum will be later increased.

Meanwhile, daily life in Wyatt is grim. Being the only white collar professional detainee in the place, he writes an account as inmate that adds to previous exposés of the US prison system. There is the predictable deprivation of liberties, the heady dose of gratuitous humiliation and dehumanization. All personal possessions are immediately confiscated, including the wedding ring. Access to natural light and air is a luxury. Connection with the outside world is tightly restricted. Being a privately-operated profit-driven prison, inmates have to pay for everything, the pricing to the captive consumer being exorbitant. The food is execrable. For a time, his only reading matter allowed is the prison rulebook.

Early on, Pierucci receives calls from Tim Curran, head of Alstom Power (US), and Keith Carr, legal officer, that negotiations are occurring with the Justice Department and he will be freed overnight. Carr himself had travelled to the US to meet Justice Department official merely a day after Pierucci’s arrest, but the key man condoning Alstom’s subterfuge had been allowed to jet off back home.

Pierucci needs documents from Alstom that would prove his innocence with respect to the Indonesian affair, but Alstom could not provide such documents without instead implicating senior executives in facilitating and covering up the affair.

Alstom offered no support to its incarcerated senior employee, save for paying the lawyer bills for a time – with the demand that if Pierucci is found guilty he will have to pay back the legal expenses. Early on, Alstom cuts off all his firm-based connections – phone, email, etc. After 21 years’ service he becomes a non-person.

Worse, the French government was also silent. Only one official, a Boston-based consulate employee, offered emotional support.

Pierucci was thus abandoned, facing an intolerable daily prison regimen, and malevolent prosecutors fronting, with complicit useless lawyers, a judicial system without honor. The barbarous treatment of whistleblower Chelsea Manning is prime testament to the subordination of American justice to the machinations of power.

On 29 July 2013, under instructions from his lawyers, Pierucci pleaded ‘guilty’ to being complicit, with his ‘co-conspirators’, in the Indonesian contract bribe. Things get worse rather than offering relief. The prosecution takes the plea literally, while knowing otherwise. Pierucci is being held as hostage to up the ante on Alstom.

Alstom, also taking the plea literally while knowing otherwise, abandons Pierucci completely by ceasing to fund his lawyers. No-one in Alstom dares to go near him, or near family members seeking means of redress. In September, Alstom sacks Pierucci for not being present to do his job. More:

Your admission of guilt … carries an undeniable prejudice to Alstom’s global image. In effect the nature of your acts, strictly contrary to the policies and values of the Alstom Group … [etc.]

The Department of Justice had been pursuing Alstom aggressively since 2010. Some foreign companies subject to the same pursuit came to the party early and were repaid with lesser fines attributed. Alstom, under Kron’s management, declined to do so – thus Pierucci’s ongoing imprisonment. Several other Alstom executives were also arrested, but Pierucci’s fate was then made to hinge on how these other executives responded to charges against them. One, being American, was bailed and in no hurry to come to the party.

Gradually, in prison, Pierucci gains ‘right’ of access to outside materials, and family and friends oblige. Pierucci devotes himself fulltime to the study of the Foreign Corrupt Practices Act and its operations. He discovers that the FCPA has been applied selectively. The FCPA has become an integral arm of foreign economic policy.

Penalties explode after 2008. An appendix in the book lists the 26 companies (to 2018) for which a fine over $100 million has been applied. Five are US-based (KBR/Halliburton, Och-Ziff Capital Management, JP Morgan Chase and Avon Products), and twenty-one are foreign. Of the total of fines inflicted ($8,872,000) on this group, 20 per cent applied to the American corporations, 60 per cent applied to European companies and 20 percent to others. The American defense and energy giants, etc., are not on the list. And even amongst foreign corporations, the pursuit is selective – those in collaboration with US corporations are overlooked.

General Electric in the wings

Let’s cut to the chase. Alstom was being pursued not merely because it is competitive with US giants like General Electric, but also because GE wants its assets and attendant skills and order book. The pursuit of Alstom was a joint Justice Department / GE endeavor.

Alstom would become the fifth company that GE bought with Justice Department leverage. That GE was chock full of ex-Justice Department staff facilitated the joint venture. Justice and GE would mutually determine the timing of the takeover of Alstom Energy (the bulk of the Alstom group) and of the attribution of the fine.

In late 2016 I documented in detail the pursuit and ultimate absorption by GE of Alstom Energy (‘Behind GE’s Takeover of Alstom Energy’), drawing considerably on Jean-Michel Quatrepoint’s 2015 Alstom: scandale d’État. Pierucci’s insider account complements the story.

On 19 December 2014 the Alstom AGM legitimizes the takeover that had been determined at high level in June. The same day, Alstom finally pleads guilty to the charges. GE already knows the scale of the fine and can thus fix the purchase price. A mere three days later, the Justice Department throws a press conference with full fanfare. Deputy Prosecutor General James Cole orates, in front of an immense American flag:

We are here to include in in a historic decision that marks the culmination of a decade of corruption on an international scale. A system of corruption has been put in place and then concealed by a French multinational enterprise: Alstom. … Such an unbridled and blatant offense demands a strong response from the law. [etc.]

The purchase had been agreed between the GE CEO and Alstom PDG in June 2014. Why then did the Justice Department wait another six months to orchestrate the fine? Essentially Kron had to be kept in charge until the AGM legitimized the deal.

Kron, who had overseen the corrupt practices, is granted at the AGM a €4 million bonus for orchestrating so deftly the sale of Alstom Energy to GE. Pierucci estimates that Kron finally left Alstom with more than €12 million in gratuitous handouts.

The Justice Department had, in its charges, pursued Alstom for graft in only five countries, whereas it had information implicating Alstom elsewhere. The point? The pursuit was less about the pursuit of guilty parties but more about the control of Alstom.

And Pierucci? At the Justice Dept conference on 22 December 2014, Attorney General Leslie Caldwell incidentally admits that Pierucci (and several others) had been held hostage to force Alstom to cooperate with Justice’s pursuit.

For this masterly process of legal legerdemain prosecutors David Novick and Daniel Kahn received promotions. Kahn’s brief biography on his Harvard website has his career as embodying the utmost moral probity, a dogged champion of worthy causes. The site notes that he was recipient of an ‘Assistant Attorney General’s Award for Exceptional Service for his work on the prosecution of Alstom S.A. and its executives’. Omitted is any reference to the entirely corrupt procedure by which Alstom was pursued in the interests of GE, and for which Pierucci became a sacrificial lamb.

The takeover still needed approval from Brussels regarding its competition impact, which gives the green light (with minor demands) in September 2015. The sale is finally concluded in November 2015. Peculiarly, several days later, Judge Janet Bond Arterton approves Alstom’s guilty plea, eleven months after the plea and fine had been negotiated. The entire American legal system is in on the act.

Pierucci has a second sojourn in the clink

Pierucci was present at the 19 December AGM, seating himself prominently but being studiously ignored from the podium. Given bail in June 2014 on the strength of surety from two supporters, he has a forced stay in the US for several months then is allowed to return to France and to his family. For three years he lives as a dangling man, unemployable.

In September 2017 Pierucci must forcibly return to the US to be finally charged (4 ½ years after his arrest. New charges, false, are belatedly added. On the 25th, he is before federal judge Arterton (the same). He is not interrogated but lectured on his deep moral culpability and failings. Totting up all the points associated with his crimes, and allowing for no criminal record, the learned judge places the range of his possible sentence at between 262 to 327 months (à la 21 to 27 years)! Pierucci was expecting, his useless lawyer advising, no further imprisonment. Consistent with the arbitrariness of it all, to teach the morally deficient Pierucci and others a lesson, Arderton hands down a sentence of 30 months. With good behavior in Wyatt, the sentence is reduced to 12 months.

In October, Pierucci takes a taxi to imprisonment in another private prison, this time the GEO-owned Moshannon Valley Correction Center in central Pennsylvania. More institutionalized brutality, penny pinching and slave labor, but at least there’s a library. He pushes to be transferred to France, without success.

On 10 September 2018, Pierucci is chained hands and feet and subject to prison stops (a regular sadistic practice labelled ‘diesel therapy’) over three days, and then an 8-day stint in Brooklyn’s Metropolitan Correctional Center (the ‘Guantanamo of New York’), the same place where he began his American incarceration 5 ½ years previously. He is given no clothes and has no money. Hygiene is deplorable, leaking water everywhere, nothing works, mice infestation. Drug lord El Chapo is a resident at the same time, adding to the clamor. On 21 September, chained hands and feet again, he is finally put on a plane for France. Briefly imprisoned, a judge gives him conditional liberty on the 25th – 25 months in prison, 15 in high security, a patsy for other’s wrongdoing.

Some French confront the catastrophe, others not

In the meantime, a cross-Party handful of Deputies became hot under the collar over not merely the breakup of a major French industrial flagship, but the farcical manner in which the takeover had proceeded. They established an inquest in the National Assembly, beginning March 2015, before which Kron repeated the lie that the Alstom group lacked the scale to compete and denied a Deputy’s accusation, self-evident, that his key role in pursuing and facilitating the GE takeover was due to Justice’s threat over Alstom and him personally. Kron remained unrepentant regarding his actions and subsequently sailed off into the sunset with his loot.

Pierucci notes that the inquest elicited information on the handmaidens to the judicial and takeover process. Both GE and Alstom employed armies of law firms, banks and PR firms, with the Alstom disbursements disclosed as summing to a staggering €262 million.

During the entire episode, Emmanuel Macron – successively President Hollande’s economic adviser at the Élysée, Hollande’s Economy Minister and then himself President – looked the other way. Macron abjectly defends the takeover in May 2015. As President, Macron has been too busy privatizing everything that moves, presiding over a ‘wind-down nation’ rather than the ‘start-up nation’ that he promised the electorate.

Immediately after the judicially accepted Alstom guilty plea in November 2015, GE goes into overdrive. It announces a global restructuring with 10,000 employees to be sacked. Its promises of substantial employment generation in France itself are hollow. It breaks its commitment to selling its transport subsidiary to Alstom Transport. Most particularly, it ups the price on the maintenance of EDF’s electricity-generating nuclear reactors, which crucial service Alstom Energy had previously performed. Blackmail at the heart of the national interest.

Ironically, the takeover of Alstom Energy has proved to be not the trophy that GE expected. Ha ha ha! But GE always has state support and tax evasion on a massive scale to sustain it. GE is an arm of the state and the state is an arm of GE.

The big picture

The story of the GE Alstom takeover has broader implications. The affair is not an aberration but symptomatic of how global competition is played out. The US, with the greatest arsenal, is the most brutal player. China is now upping the ante (as with its rejection of Australian coal over Australia playing the usual lackey to the US). China’s Belt & Road Initiative is a grander and more sophisticated exemplar. Europe remains a babe in the woods regarding how the game is played.

Canada’s arrest in January 2019 of Meng Wanzhou, Huawei’s Chief Financial Officer, is utterly representative of the game. Huawei is a threat not primarily because it provides a backdoor to Chinese state snooping (the US IT companies already provide a template) but because its 5G structure is technologically superior.

Japan arrested and imprisoned Renault-Nissan’s Carlos Ghosn (PDG and Board Chairman respectively) in November 2018. Ghosn has been a prince amongst executives, treating himself and kindred to lavish emoluments, so the fall has been spectacular. The Japanese authorities have accused him of appropriating Nissan corporate funds for personal ends. The authorities may very well have cause, but the affair goes beyond a personal cooking of the books. It is a matter of Japan, long familiar with and practiced at state-corporate global economic assertiveness, attempting to recover Nissan from the suzerainty previously exercised by Renault and Ghosn at its helm.

Meanwhile the economics profession is still prattling on about the benefits of ‘competition’ and ‘free trade’ – all in the abstract. The preposterous notion of ‘comparative advantage’ still lurks in the litany. In the interests of enlightenment of tertiary-trained generations, it would be desirable to pension off those specialists in fairy tales, consign their syllabuses to the scrap heap, and replace them with experts who understand how the global economic game is really played.

Evan Jones is a francophile and retired political economist at University of Sydney. Read other articles by Evan.