ABB: The Price Was Agreed Before the Negotiation

The ABB FCPA case brought a $75 million civil penalty from the Securities and Exchange Commission in December 2022 over bribery tied to South Africa’s Kusile power project, where subcontractors helped turn public contract payments into money intended for an official. ABB’s admissions in the accompanying criminal agreement under the Foreign Corrupt Practices Act show the decisions behind the invoices: confidential bid information, a supplier that failed due diligence, and contract changes whose prices were agreed before the supposed negotiations. If you worked on the tender, the supplier approval or the project accounts, those are decisions you may recognize.

ABB, the Swiss technology group whose businesses include electrification and automation, admitted the South African scheme in its December 2, 2022 deferred prosecution agreement with the Justice Department. The parent entered that agreement, while ABB South Africa and ABB Management Services entered guilty pleas. The Securities and Exchange Commission’s separate civil order, dated December 3, addressed bribery, false books and inadequate accounting controls. These FCPA proceedings followed earlier ABB matters involving different subsidiaries and countries.

The Kusile Contract and the Local Partner

Kusile was a coal-fired power project for Eskom, South Africa’s state-owned electricity company. In its criminal agreement, ABB admitted pursuing the project’s control and instrumentation work after learning that Eskom planned to reconsider previously awarded engineering contracts. It assembled a Capture Team and an internal consortium involving its South African, German and Italian businesses, with oversight from Swiss-based ABB Management Services.

Local subcontractors mattered commercially. The agreement explains that South Africa’s Black Economic Empowerment and localization policies made ABB’s access to Eskom contracts depend partly on engaging local businesses. A senior Eskom official introduced an ABB manager to a friend who ran one such business, and the manager asked colleagues to examine the prospective partner’s political connections and obtain its banking details.

The Securities and Exchange Commission alleged that a supply chain manager outside the bribery scheme raised concerns that this subcontractor lacked the qualifications for the work and wanted too much money. Management in South Africa and Switzerland allegedly left those concerns unaddressed.

This is the part of construction and power procurement that an employee can see before any payment reaches an official. The candidate’s capabilities, the price objection and management’s response were already inside the business. We see a company finding a way around information its own staff had put in front of it.

Confidential Bid Information and an Early Payment

ABB’s criminal admissions describe an advantage that arrived before the award. After ABB learned that its bid exceeded the closest competing bid by approximately $45 million, a manager said the subcontractor’s executive should prove his value. The executive and the Eskom official then supplied confidential information about the award process and schedule, followed by negotiation and pricing information.

One confidential negotiation memorandum went to an ABB manager’s personal email account. The manager deleted the email to conceal its receipt. For a competing bidder, this form of procurement bribery means the other side has access to information that should not be in its bid room. For an insider, the source and timing of that information can explain why a proposal changed.

The agreement also describes how the first payment bypassed the subcontract’s terms. ABB South Africa promised an advance, but the conditions making it due had not yet been met when a manager pressed for payment because of the relationship with the official. ABB admitted making the payment knowing that part was intended as a bribe, then recording it as an “advanced payment” for services.

ABB learned of a dispute between the official and the subcontractor, and an ABB manager unsuccessfully tried to mediate it. The company also encountered problems with the subcontractor’s work because its personnel lacked experience. The relationship that had helped win the job was failing both as a payment channel and on the project itself.

The Supplier Failed Due Diligence and Got a Waiver

A second subcontractor failed multiple parts of ABB’s routine qualification process. Under the criminal agreement’s admitted facts, employees in South Africa and the United States questioned its qualifications and financial stability. An ABB manager nevertheless directed colleagues to approve it “as fast as possible.”

Procurement and compliance employees in the United States drafted a waiver of the standard qualification requirements. ABB granted it on the premise that the subcontractor would work through other businesses qualified to do the job. The due diligence file and waiver therefore recorded both the reasons for concern and the decision to proceed.

The Securities and Exchange Commission’s order supplies an additional view of that pressure. It alleged that the subcontractor had already started work on site without completing qualification or having a contract in place. An American supply chain specialist sent to South Africa felt he had no choice but to arrange the waiver because the workers were already there and ABB South Africa said Eskom required that supplier.

The sequence matters to anyone who handles supplier approvals. By the time the waiver reached the specialist, the commercial decision was already being implemented. We would want to understand who committed the project, who required the supplier and what the people asked to approve it were told.

Variation Orders With the Answer Written In

Variation orders change the work under an existing contract and can increase what the customer pays. In ABB’s admitted scheme, the Eskom official and an ABB manager agreed on a target price before ABB submitted its quotation. Hiring the second subcontractor was a condition of getting the additional work.

The criminal agreement describes what happened next:

The bargaining had an agreed destination before it began. We would call that a performance for the file: the quotation and negotiation records made a predetermined price look like the result of commercial bargaining. The official’s close relative also became a director of the favored subcontractor and held an ownership interest through a trust soon after ABB engaged it.

ABB admitted carrying out four variation orders under this arrangement. For the order accelerating work on the first generating unit, it paid the subcontractor approximately 11.6 million South African rand and falsely described the payment as “work done.” Part of that payment was intended to benefit the Eskom official.

In its separate account, the SEC alleged that ABB South Africa paid the second service provider approximately $37 million between April 2016 and December 2017. It alleged that much of the money was intended as bribes and that the payments appeared in the books as legitimate engineering services. False purchase orders and contracts helped give the transfers a business explanation.

An Ordinary Expense in the Group Accounts

ABB admitted that the local false entries reached its consolidated financial statements and SEC filings. Its annual Form 20-F for fiscal 2015 included the corrupt advance as a legitimate business expense, and the filing for fiscal 2016 similarly included the corrupt variation-order payments. The description invented around a project payment became part of the parent’s public financial reporting.

That connection makes books and records a practical subject for finance employees. The invoice says services, the supplier file questions whether the business can perform them, and the approval chain explains why it was paid anyway. A person who understands those records can connect a routine-looking entry to the decision it conceals.

The same accounting path appears in SAP‘s South African conduct. In its criminal deferred prosecution agreement, SAP admitted that an intermediary passed nearly all of certain commissions to businesses owned or controlled by an official without providing substantive work. SAP also admitted that false records for payments lacking a legitimate business purpose reached its consolidated financial reporting. Different supplier labels, the same need to connect the recorded service to what the money actually bought.

Earlier ABB Matters Show Why the Bid Records Matter

The Earlier Corporate Cases

The Securities and Exchange Commission’s 2022 order recounts its earlier civil cases against ABB. In 2004, it alleged illicit payments by subsidiaries operating in Nigeria, Angola and Kazakhstan. In 2010, it alleged bribes to Mexican officials to obtain business with government-owned power companies and kickbacks in Iraq to obtain United Nations Oil-for-Food contracts. ABB’s criminal agreement also records subsidiary guilty pleas in both episodes.

The Nigerian Tender and the False Consulting Invoices

The Securities and Exchange Commission’s July 2006 case against four former subsidiary employees concerned a bid to supply equipment for Nigeria’s offshore Bonga oil field. The agency alleged that sales, operations and finance executives participated in payments to officials overseeing oil exploration and production. The alleged purpose was to obtain confidential competitor bid information and favorable treatment for ABB’s bid.

The agency alleged that the finance executive arranged to funnel $800,000 through a local consultant using false consulting invoices. The regional sales manager allegedly negotiated the payments, and an operations executive instructed colleagues to arrange them. All four former employees agreed to settle the civil charges.

The connection to Kusile is concrete. Confidential tender information was something officials could supply, and an intermediary’s invoice gave the resulting payment a commercial label. A bid-team employee and a finance employee could each see a different part of that arrangement.

A Commission Can Describe Who Is Being Paid to Deliver Access

In its guilty plea, Alstom admitted a consultant arrangement in which a commission fell from 3% to 1% when part of the assignment moved to another consultant. The commercial terms themselves can show how an intermediary’s role changed. A revised commission or a required subcontractor can connect a public contract decision to the people paid to influence it.

The Civil Payments and the Earlier South African Settlement

The $75 million civil penalty followed a main contract worth approximately $160 million, according to the Securities and Exchange Commission’s order. The order also required $58 million in disgorgement, the return of gains from the conduct, but treated that obligation and its associated interest as satisfied by ABB’s earlier South African settlement. We see a repayment demand settled with a check already written.

The order states that ABB paid $107 million under the December 2020 civil settlement with South Africa’s Special Investigating Unit and others. That payment included reimbursement of the government for overpayments on Kusile and interest. The connection to public money is direct: inflated project charges had left the government paying more for the work.

What the Insider Adds

ABB’s admitted facts connect records held across a business: tender information, supplier qualifications, waiver approvals, change orders, invoices and consolidated accounts. An insider may know why a particular supplier had to be used or why a price was agreed before the quotation existed. That knowledge gives the paperwork its meaning.

A March 2019 working paper hosted by MIT Sloan, Do Corporate Whistleblower Laws Deter Accounting Fraud?, studied companies exposed to state False Claims Acts through state pension fund ownership. It estimated a 5% to 9% reduction in accounting-fraud likelihood after that exposure. In a smaller subset, it found little evidence that increased internal-audit spending explained the result.

For foreign bribery under the Foreign Corrupt Practices Act, our work with you includes evaluating the SEC whistleblower opportunity around the information you hold. Eligible whistleblowers can receive 10% to 30% of qualifying sanctions collected. A company’s disclosure of its own conduct and an employee’s reward opportunity are separate questions we work through with you.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. That law addresses fraud against the U.S. government. We work out the relevant path with you around the actual transactions.

You Know Why That Supplier Was Chosen

If you know why an unqualified subcontractor kept getting work or why the negotiation file differs from the deal already agreed, speak with our whistleblower experts. We connect your knowledge of the project to the payments and accounts, bring in foreign bribery whistleblower lawyers who understand public procurement, and stay with you as the case develops.