ABB has been fined more than $300 million for bribery in the construction of one of the world’s largest coal-fired power plants. American investigators are demanding stricter controls. Switzerland only imposes a small fine.
Outdated coal-fired power plants keep causing power outages in South Africa – but ABB didn’t stay clean on a major new build.
ABB has come significantly closer to the end of a corruption scandal that is costing the industrial group hundreds of millions. Over the past few days, authorities in the USA, Switzerland and South Africa have ended their investigations into the Swiss company and imposed penalties. The investigations were prompted by corruption surrounding the construction of the world’s fourth-largest coal-fired power plant in South Africa, where ABB had bribed orders.
The US Department of Justice has therefore issued a fine of 315 million dollars, as announced on Friday. Between 2014 and 2017, the group bribed a high-ranking representative of the state-owned South African energy giant Eskom, which built the power plant. This penalty is offset to a large extent against other fines that the authorities of other countries have already imposed. Taken together, ABB has to pay $327 million, the company said in a statement.
A scheme of manipulated orders
The coal-fired power station called Kusile in northeastern South Africa has been in development for around 15 years. The project was severely delayed and expensive. After completion, the power plant will consist of six blocks with a total output of 4,800 megawatts. The fourth block went into operation in the spring. The total output is more than 50 percent more than all three Swiss nuclear power plants still in operation together.
During the construction of the first two units, ABB employees bribed the company to obtain contracts for the control and instrumentation of the plants. With the bribe of at least 1.3 million Swiss francs, ABB secured orders worth at least 200 million dollars, according to the Swiss federal prosecutor. ABB received the order in 2015.
For the bribe, the employees had set up a scheme with increased payments to subcontractors. As the US Department of Justice explains, these subcontractors were connected to the corrupt Eskom manager. ABB falsified negotiations in order to place orders with the companies at artificially inflated prices. The companies commissioned were also poorly qualified and did not have the necessary experience.
Switzerland is reluctant to impose penalties
Part of the $327 million fine is a settlement that South African prosecutors agreed with ABB. It amounts to the equivalent of $ 150 million, as announced on Thursday. Like the US authorities, the South African investigators also praised the company’s concessions and cooperation in the investigation. The investigations into two long-dismissed ABB employees in South Africa and their wives have not been completed, but this no longer affects the company.
The Swiss Attorney General also issued a fine on Thursday. At 4 million Swiss francs, it is low in comparison. However, the possible maximum penalty for a company for allowing corruption is only 5 million Swiss francs. The federal prosecutor complained that ABB had not taken all possible internal measures to prevent bribery of public officials in South Africa.
When Geneva-based commodities trader Gunvor was convicted of bribing oil deals in the Republic of Congo and Ivory Coast in 2019, the fine was also just 4 million francs. In Gunvor’s case, however, there was a so-called compensation claim of almost CHF 90 million, which corresponded to the profit made from the bribery. With a claim for compensation, a company is supposed to repay the unlawfully acquired benefit.
In the case of ABB, the federal prosecutor’s office waived such a demand. This is because ABB had already made a compensation payment of 104 million dollars to the South African power company Eskom in 2020. At that time, ABB wrote that they had voluntarily disclosed the illegal bribes.
«Decades of criminal history» by ABB
Eskom is the largest electricity producer on the African continent. The South African authorities are investigating several cases of corruption at the state-owned company. The investigations are related to the investigation of widespread state corruption over the past decade, during the tenure of President Jacob Zuma.
Although the American investigators noted an “extraordinary” cooperation from ABB, they also referred to a “decades-long criminal past” of the Swiss group. They include the manipulation of a tender in 2001 and two cases of corruption in 2004 and 2010. In 2010, ABB agreed to pay US authorities $58 million for bribing contracts in Mexico and Iraq, Reuters reported.
However, the Kusile affair in the USA is not quite over yet. The authorities initially refrain from further investigations for three years. After that, the case could be dropped if ABB is able to strengthen its internal controls during this time and demonstrate their effectiveness.
ABB also has to wait for a possible penalty from Germany, where observers assume the order of magnitude is smaller than in the USA or South Africa. ABB accrued $325 million in the third quarter for Kusile. That pushed earnings reported for July through September to $360 million. The fines are likely to impact cash flow primarily in the current quarter.
You can refer to Benjamin Triebe, Editor for Business and Business Twitter follow.