Chapter II - The "Overbillings"
Scratch the judge and you will find the executioner.
The documents submitted by José Corral to the judge related to the audit of transmission product prices charged to France Telecom in 1988-1989. When Alcatel CIT discovered, after t
he firing of José Corral, that the falsified documents had been submitted to France Telecom, the company immediately alerted its customer. The two parties agreed to ask the former director of France Telecom’s audit department to take on the mission of proposing a settlement in order to prevent any litigation between Alcatel CIT and its customer. The settlement proposed was accepted by the two parties and Alcatel CIT paid France Telecom a lump sum amount of ₣62.6 million. Alcatel CIT did not admit to any wrongdoing but considered this payment as an indemnity for moral prejudice because the good faith of its customer had been abused by a company representative. For Alcatel and France Telecom the affair had been concluded in the autumn of 1993. But the judge considered that there had been embezzlement and, on his own initiative, charged the executives of Alcatel CIT and curiously protected José Corral even though he was the author of the documents that were the subject of the case. For my part this indictment for fraud and benefiting from stolen property happened in March 1995 without anyone ever knowing precisely if it related to the transmission audit or the switching audit or both.
The judge interrogated me first and primarily on transmission. His job was not easy because the structure of the group showed that I was never involved in the commercial discussions of the subsidiaries. Alcatel CIT represented less than 10% of the total activity of Alcatel Alsthom and France Telecom was not the largest customer of the group. Moreover, the CEO of France Telecom, Marcel Roulet, attested in writing that I never participated in the commercial discussions.
In reality the judge did not understand, or, worse, did not want to understand, the role of the CEO of a group employing over 200,000 people, spread out over several hundred companies located in practically all the countries of the world. The table below (taken from Alcatel Alsthom’s 1994 Annual Report) summarizes the group’s businesses and activities in 1994.
As President of the Executive Committee of Alcatel, the holding company that regrouped the telecommunications subsidiaries of the group, I received each month a report on the activity of the sector. The report of June 30, 1991, for example, was 106 pages long. It dealt with 230 operating units (divisions, companies or groups of companies) exercising different business activities. These operating units were grouped together by product line or by country and legal structure, in total 246 combined units. The monthly report gave for each of the operating units the standard kind of information: Amount of sales and operating margins, both compared with budget. One of these operating units was the transmission activity of Alcatel CIT, another its switching business. For switching, as for transmission, only the total activity of the unit was reported. Sales to France Telecom were aggregated with those of the other customers of Alcatel CIT. There was nothing that appeared anomalous about the operating margin before tax that this report set out for France. For switching the operating margin for the whole of Alcatel was 19%. For France it was 20%, for Germany 22%, Italy 16%, Belgium 19%, Spain 22% and Taiwan 17%. For transmission, it was 15.9% for all of Alcatel, with the following for each of the countries indicated: Germany 17.5%, Belgium 19.8%, Spain 37.3%, Portugal 19.5%, Mexico 23.4%, Australia 17.6%, USA 8.5% and only 6.3% for France.
But José Corral had convinced the judge that I could not have been unaware of the “exceptional margins” on the products sold to France Telecom. However, Mr. Corral had difficulty showing that during the period of the applicable audit (1988-1989), when I headed the whole group, this type of information rose to the level of the group’s CEO. He thought he could get the proof he wanted by referring to the period 1984-1986 when, before becoming CEO of the group in July 1986, I was the President of Alcatel CIT in charge of supervising transmission as well as other activities. A colleague, also with the title of President, was in charge of switching. José Corral convinced the judge that at least during that period I was aware of the monthly spreadsheets that he prepared for the management of his department and which showed margins in excess of 8%, which, according to him, was the norm accepted by the administration.
As a result, I had to spend an entire morning confronted by José Corral, each of us assisted by his lawyer. Before having me enter his office, the judge had had a long meeting with Corral and his attorney. The confrontation meeting was strange. Corral had furnished examples of his spreadsheets from the period. The judge presented them to me and tried to show that on looking at the figures it was evident that any “responsible, informed person” (a phrase used by the court’s expert) could calculate the level of margin for the products sold to France Telecom. The judge became confused during the demonstration. Corral went swiftly to his aid and, as was his habit, added to the confusion. His lawyer intervened to say that in any case it was clear during their preliminary meeting! In the end the confrontation did not bring together the different points of view. When it became necessary to prepare the minutes of the meeting, I wanted the judge’s clerk to write that even after ten minutes of explanations José Corral had not been able to present evidence of the rate of margin for the products sold to France Telecom. The judge corrected me—five minutes, he said. I agreed.
This interrogation was doubly surrealistic. It was based on documents that predated the audit at issue and it is difficult to see what argument the judge could hope to make to prove my responsibility for the facts he was investigating, which occurred five years later.
Moreover this confrontation was a real denial of justice. The judge wanted to establish that the margin exceeded the norm of 8% and that I could not have been unaware of it. But in fact this margin of 8% was not the one taken into account during the discussions between suppliers and the administration for purchases during the period that followed the price audit of 1983, the period covered by the documents examined in the confrontation with José Corral. The judge had in his hands the documents seized from France Telecom on July 7, 1994 and which were listed in sealed file No. 11. In one of them the Minister agreed to margins of 30% to 60%, depending on the supplier. But the judge concealed these essential documents. He hid them from the experts that he had designated and so the experts concluded, as the judge desired, that the margin must be 8%. All precautions had therefore been taken so that neither the indictments nor the judicial experts could refer to them.
Thanks to the perseverance of the lawyers for Alcatel CIT, and in spite of the procedural obstruction that the judge imposed, the documents were finally discovered in July 2002. The lawyers knew of the existence of the file that contained them because the judge had presented a document from it when the CEO of France Telecom was heard on September 29, 1994. Alcatel’s lawyers had realized the importance of this document for our case because it authorized margins well in excess of 8%. But they found themselves, in spite of repeated requests, systematically refused access to the file. It was only by turning to the archives of the police officer at Versailles, who had seized the documents eight years earlier, that the file came to light and its journey could be reconstituted. Instead of being placed with the other files, the judge kept the documents in his possession until the second half of 1998. At that time the documents were inventoried, counted and classified but under a false wording which rendered it impossible to find. It was only by returning to the numbering system of the police that it was possible to find the documents. And it wasn’t until July 31, 2002 that Alcatel’s lawyers were to get access to them.
I don’t know how to qualify, in terms of penal law, this dissimulation by the judge of documents that undermined his case. Unfortunately this was not the only grave irregularity in this investigation. The switching part furnished other examples.
The declarations of Denis Gazeau, largely repeated by the press, gave, in the autumn of 1994, a whole new dimension to the affair of the “overbilling.” He spoke of billions of Francs improperly billed to France Telecom and even referred to a “hold-up.” This was followed in the press by hints of the existence of gigantic slush funds to feed political parties, corruption and the personal expenses of the executives. All the denials of the company and its executives were useless. The larger the sums involved, the more it was assured to have a media impact. And yet any reasonable person could not doubt that in a group as complex as Alcatel Alsthom, with its internal control procedures, involving transactions by a State-owned company, its billings were made in conformance with its contracts and all payments were accounted for. The “sources close to the investigation” nevertheless let this nonsense thrive.
The CEO of France Telecom, who had to know the procedures and practices relating to purchases made by his establishment, brought France Telecom into the procedure as a civil plaintiff, no doubt in order to avoid pressure from the unions. This initiative, which gave credit to the thesis of the investigating judge, would eventually prove to be perilous for the case of France Telecom and could have led to its public disgrace had it not withdrawn its complaint eight years later under conditions that we will see.
The affair of “overbilling” in the switching area proved to be, from the beginning, fundamentally different from that of transmission, in spite of the fact that the two were lumped together by the “sources close to the investigation” and the press. It was different first by the supposed size (billions of Francs versus several tens of millions), second by France Telecom joining as a civil plaintiff, and especially by the facts which motivated it in the eyes of Alcatel CIT’s accusers.
This time it was in effect claimed that the company’s financial accounts contained provisions for unknown factors or expenses for studies which had been hidden from France Telecom and that these costs should have been taken into account in the cost plus price of the products as the administration defined those costs. The experts designated by the judge confirmed this, even though the first reports were annulled for faults in the procedure but were reproduced in successive reports (including with all the spelling mistakes) by copying and pasting. These reports estimated the damage to France Telecom at several hundreds of millions of Francs per year.
The accusers and experts ignored, or pretended to ignore, the fact that since January 1, 1991 France Telecom had become an industrial and commercial public establishment, so the administrative regulations regarding purchases were no longer applicable. Instead, purchases were thereafter governed by the civil law, as indicated earlier. As of that date France Telecom redefined its commercial relations with its suppliers by making them sign a contract that gave it the right to verify their financial accounts but no longer permitted France Telecom to define the overhead and commercial expenses that entered into the cost plus price of a product.
According to the then-current commercial practice, companies were free to choose the structure for their financial accounting and the manner in which their costs were allocated, depending on their commercial policy. Alcatel CIT could, therefore, in accordance with its own criteria, freely allocate its R&D costs for new products, its marketing costs for finding new markets and its provisions to cover manufacturing risks. In this context France Telecom could ask for all the documents that it wanted to examine but could not require that they be prepared according to the old rules applicable to price audits.
The audit of the switching division conducted by France Telecom in 1991-1992 necessarily had to be based on the new accounting standards. But the routine examination followed by the auditors often caused them implicitly to stick to the old practices, thus causing confusion in the designation and content of the documents that they presented and examined.
The confusion was purposely maintained before the investigating judge. There again one tends towards a denial of justice. France Telecom submitted to the judge two attestations that stated that it had continued to benefit from the old prerogatives of the administration during the whole period covered by the investigation. Thus, the accounting firm Cooper & Lybrant wrote: “The Law of 4/2/1964 defined the list of national enterprises and the joint State and private sector companies entitled to audit the cost plus price. France Telecom was authorized to continue to benefit from this law after the change of its status in 1991.” And, worse still, one can read at page 8 of the report of the Cour des Comptes dated July 28, 1996: “The investigations of costs must be considerably improved. France Telecom has a service in charge of the economic and financial control of its suppliers, a service in which the investigators are authorized to carry out investigations of costs in the inter-ministerial framework defined by Article 54 of the 1963 Initial Finance Law. Their mission was not altered with the change of status of France Telecom.”
This position was also constantly defended by the official representative of France Telecom. Rémy Dullieux, Director of Industrial and International Affairs, who at the end of the investigation again stated to the investigating judge: “The first thing that appears clear to me is that this audit was made for us in the spirit and framework of the audit of prices set out in the 1963 Law of Finance. This law is very plain and clear. We consider that we were acting in this very precise legal framework….I must stress this with much force. We were a public establishment, respecting the laws. It is in conformity with those laws that we acted. I am categorical on this subject.”
This grandiose declaration is all the more shocking because it was Rémy Dullieux himself who had signed the letter by which France Telecom requested, on February 4, 1991, to the secretary general of the Commission of Central Markets that France Telecom be inscribed on the list of public enterprises authorized to carry out investigations pursuant to Article 54 of the 1963 Law of Finances, an inscription that it only obtained on September 27, 1993. The representative of France Telecom in the procedure knew full well that during the period of the switching audit (which was the subject of the investigation) his company no longer had the regime of administrative purchases available to it, and yet he did not stop peremptorily affirming the contrary.
This lie served the purposes of the investigating judge because he remained deaf to the demands of Alcatel CIT attempting to have entered into the record the letter of February 4, 1991 which showed that France Telecom no longer benefited from the regime on administrative purchases and that France Telecom knew it. Very formally, Alcatel CIT filed a petition (Article 81) on February 4, 2000 requesting the judge to demand a copy of that letter either from France Telecom or from the Commission for Central Markets. The judge’s successor refused on the ground that the object of the letter did not concern the procedure (!), a position confirmed on appeal by the President of the Chambre de l’Instruction. Alcatel CIT finally obtained a copy of the letter from the Commission for Access to Administrative Documents, which gave a favorable opinion for the communication of the letter, an opinion that was followed by the Minister of Economy and Finance. As a result, in 2003 Alcatel CIT was finally able to incorporate in the file this essential letter which showed that there could not have been an “overbilling” in 1992 because at that time Alcatel CIT was free to allocate as it chose its costs (including for products sold to France Telecom), its research expenses (even those subcontracted to other subsidiaries of the group), and its risk provisions. This letter absolutely invalidated the affirmations of the experts and representatives of France Telecom.
This collective distortion of the facts on the part of the representatives of France Telecom on a major point on which the judge based his accusation is profoundly surprising. How could they mislead a consultant of international reputation like Coopers & Lybrand and a prestigious institution like the Cour des Comptes? The position of the representatives of France Telecom certainly influenced the experts who, in spite of all the declarations to the contrary by those who had been indicted and by Alcatel CIT, and perhaps victims of the lack of thoroughness of their work, still wrote, in their last report dated January 25, 2000, an ambiguous conclusion: “The relations between Alcatel CIT and France Telecom have for many years been the subject of a purchase contract of the nature of a ‘cost plus contract’—that is, a contract in which the supplier is required to permit an audit of the cost plus price, which serves to determine the transaction price. This mechanism, responding to legal constraints before January 1, 1991, was pursued in a contractual framework after the transformation on that date of the status of France Telecom.”
If the position of France Telecom comforted the judge’s approach, the attitude of José Corral furnished him with the materials that made his investigation prosper. Corral’s declarations were words from heaven. The judge indicted twelve executives in the overbilling affair, all before the end of 1995. José Corral was not indicted, although he was, as alleged in the case, either the author or an accomplice in the facts for which the judge indicted other people in the transmission part of the investigation.
Curiously the judge seemed to change his mind, four years later, by indicting José Corral on November 25 1999, an indictment qualified as “late” by the Office of the Public Prosecutor, which did not neglect to reveal this strange behavior in its final request for indictment. One could in effect analyze this decision of the judge as a maneuver to protect a witness who had supported him so much with his fanciful statements. The first interrogation of José Corral took place on December 3, 1999 at 10 am, followed the same day, at 11 am, by a second interrogation. Curiously the minutes of the interrogations didn’t set out any question that the judge posed to the newly indicted person. They only described the conclusions of a report of experts on transmission, a document that in fact had been shown to José Corral as early as 1994. The investigation of José Corral stopped there.
Curiously neither of these two minutes was signed, either by the judge or by the indicted person. Was this simple negligence or was it preserving, for use at a later date, a reason to nullify the indictment?
Even more surprising, Jean-Marie d’Huy delivered an order of dismissal for the benefit of José Corral several weeks later, on January 26, 2000, simultaneously with four similar orders for Alcatel CIT executives. At the same time he announced to all of those parties the closure of his investigation. The judge solicited the advice of the Office of the Public Prosecutor on the dismissal that he wanted to grant to José Corral (an obligatory step in the procedure). He did this on January 21, 2000, even before Corral’s attorney asked him to dismiss the case against his client. The memorandum of the lawyer, dated the same January 21, was not in fact recorded at Evry until January 24. One needs to understand that when a person who has been indicted receives a dismissal, that person can never again be charged with matters involving the same investigation. Thanks to this back and forth, the judge sheltered José Corral from any further pursuit. This was done at the time when the judge was departing Evry and when he was going to leave the file to a successor. That certainly resembled the payment of a debt!
But one must not forget the possibility that a civil plaintiff can file an appeal to a dismissal. Alcatel CIT had been designated as a civil plaintiff from the beginning of the affair but the company was not able to take advantage of that status because it was only a civil plaintiff for the part relating to the security work. The company had, in 1997, asked to be made a civil plaintiff on the “overbilling” part, but the investigating judge, and then the Chambre de l’Instruction, had refused it. Alcatel CIT appealed to the Cour de Cassation and its Criminal Chamber, in an order rendered on December 8, 1999, accepted the constitution of Alcatel CIT as a civil plaintiff. However, in order for this to be effective, it was necessary that the order be in the hands of the judge. That happened in time thanks to the diligence of Alcatel CIT. The company succeeded in obtaining the order from the Cour de Cassation before it arrived in the file by the normal route. Time was pressing! In announcing on January 26 the closure of his investigation, the judge opened a 20 day deadline for parties to demand further action. Alcatel CIT succeeded, a few hours before the expiration of the deadline, to register its constitution as a civil plaintiff and to interject an appeal against the dismissal that had just been granted for José Corral. On appeal the Chambre de l’instruction annulled the dismissal order on December 12, 2001. Corral appealed to the Cour de Cassation. That court sent the case to another appeals court and José Corral found himself definitively indicted on June 11, 2003. Jean-Marie d’Huy was no longer in charge of the case and could no longer make use of his favorite witness! His fourth successor sent José Corral before the Tribunal d’Evry, which condemned him in 2008.
The final major event in the development of the procedure: On October 6, 2004 France Telecom withdrew, purely and simply, its action as a civil plaintiff. It realized that there was no wrongdoing and maybe also was embarrassed by the untenable position that its representative had taken during the investigation and probably wanted to prevent any embarrassing publicity in a public hearing if the behavior of its agents was revealed. France Telecom even stated to Alcatel CIT, by a letter sent to it directly and dated February 16, 2005, that France Telecom considered that “[t]he facts relative to the switching part do not constitute fraudulent acts in the meaning of Article 313-1 of the Penal Code and do not reveal any fraudulent intent on the part of Alcatel CIT or its executives or others. France Telecom would have no objection for Alcatel CIT to produce this letter to the court and more generally to give it to any judicial authority that it may desire.”
This realistic but courageous decision was taken by Thierry Breton, the new CEO of the enterprise, and by Didier Lombard, his right hand and later successor. Their predecessor, Michel Bon, preferred to ignore the position taken by his executives and let the complaint initiated by Marcel Roulet continue.
One must emphasize the perceptiveness and great courage of the new management of France Telecom, which, in withdrawing the complaint that they considered without foundation, in fact renewed the tradition of the enterprise. France Telecom, as with the Office of Telecommunications that preceded it, had, by the continuity and confidence in their relations with their suppliers, contributed greatly to France’s technical success (sometimes invented in France Telecom’s own centers of research) in the telecom market in France and abroad. This return to common sense deserves to be praised.
The withdrawal of France Telecom significantly weaken the case. The investigation continued intermittently. Finally, on May 16, 2006, the Vice President in charge of the investigation at the Tribunal d’Evry, the fourth successor of Jean-Marie d’Huy in the case—Jean-Wilfrid Noël—closed the investigation, following in that respect the request of the Office of the Public Prosecutor and, it would seem, in spite of last-minute interventions by Jean-Marie d’Huy, which were not in conformity with the code or procedure.
Pierre Guichet and I, as well as most of our colleagues, benefited from a dismissal. Corral and those directly above him in the hierarchy were sent to the tribunal. His director would however be acquitted one year later by the Tribunal d’Evry.
As far as I was concerned, the judge determined, for the transmission part where I was charged with fraud and benefiting from stolen property,that my participation had not been established and that I had obtained no profit from the affair. For the switching part the judge decided that there had been no wrongdoing. We had been charged with forgeries and the use of forgeries, fraud and benefiting from stolen property and the judge pronounced a general dismissal. This was finally the recognition of the true situation surrounding the purchases in 1992 from France Telecom that Jean-Marie d’Huy and his experts, as well as the representatives of France Telecom, pretended to ignore for more than 12 years.
To be complete, there remained, after this dismissal, another part of the investigation of Jean-Marie d’Huy. It concerned the payment of commissions to foreign agents by Alcatel CIT. The judge requested and obtained in 1999 the approval for his authority to be extended to Alcatel Alsthom, the parent company, as well as to the foreign subsidiaries of the group. The judge proceeded to make several investigations in Europe and even in the United States. He was searching for evidence of illicit payments that could have been made possible, according to his thesis, by the products of the “overbillings.” But there had not been any improper payments, any more than there had been “overbillings.” Moreover, at the time all payments of commissions to foreign agents had to be disclosed to the Government and approved by the Minister of Finance. The principal executives of the group were interrogated, but I was not. No indictment was pronounced. In November 2006, an order of dismissal also closed this part of the affair.
Thus, insofar as I was concerned, the investigation of Jean-Marie d’Huy was terminated by two unequivocal decisions—and this with the total indifference of the media. In 1995 (the 10th of March), in the middle of a deafening chorus generated by the media, I had been prohibited from working for Alcatel Alsthom and therefore was forced to leave my position as CEO of the group, for reasons that his fourth successor at the Tribunal de grande instance d’Evryjudged, 11 years later, to be without foundation. An investigating judge can, therefore, charge you, impose a draconian judicial control over you, end your professional life, and throw your reputation to a vindictive public, in complete disregard for the presumption of innocence, solely on the basis of denunciations that he obligingly listened to and that he allowed to thrive over a lengthy procedure that he did not hesitate to organize in a way that reinforced his own convictions. Happily for me and my colleagues, this unreasonable and onerous investigation fell, at the end of 12 years, into the hands of conscientious and courageous judges, at the Office of the Public Prosecutor, as well as at the Tribunal d’Evry, who dared vigorously to deny an investigation that had been turned into an extensive media spectacle thanks to the famous “sources close to the investigation” and who determined, in all honesty, that there was no wrongdoing.
Why did Jean-Marie d’Huy allow this extravagant procedure, founded on a basis that from the beginning appeared so weak, to go on and on and which, 12 years later, would be judged to be without foundation? Why was he so tenacious in trying to ruin my professional life, as well as the lives of executives at Alcatel CIT, and indirectly destroy Alcatel Alsthom? These questions remain unanswered. He ended my career on the basis of faults that did not exist, while he pursued his career, after a promotion, in spite of his faults and the errors that he made. Where is justice?
This lengthy investigation provoked other legal actions against me that I am now going to describe. They all ended with an acquittal and dismissal.