SEC considers legal action on Lucent in China

The US Securities and Exchange Commission has told Lucent Technologies that it might face legal action stemming from an investigation into allegations of corrupt practices in the telecom equipment maker’s Chinese operations.

Lucent confirmed in a filing with the SEC that it has been told to expect a “Wells” notice advising the company that the SEC’s staff investigators have recommended “enforcement action” against the US-based company.

Lucent confirmed that the notice related to a previously disclosed probe of its China operations under the Foreign Corrupt Practices Act.

The US company fired four China executives in April 2004 as part of an investigation that found potential violations of the act, which bars the payment of bribes by US companies operating overseas.

Lucent’s admission that some of top China managers might have violated the Foreign Corrupt Practices Act offered a tantalising glimpse into an issue with widespread resonance in the Chinese telecom sector.

Although listed offshore, the telecom companies are state-run and operated as vast bureaucracies in which managers of dozens of provincial operations have discretion in purchasing decisions often involving many millions of dollars.

The operators also have tight links to the sector’s regulator, the notoriously opaque Ministry of Information Industry (MII).

Reports in late 2004 that Lucent had turned over to Chinese officials the results of an internal investigation into problems at its local operation prompted speculation that it would lead to a major anti-corruption probe led by the MII.

However, the ministry on Thursday declined to comment on whether it had looked into the problems. “For this, you will have to go and ask the judicial departments,” an MII official said.

Details of the alleged “internal control deficiencies” for which Lucent fired four of its top China executives remains unclear. Lucent’s China spokesperson was on Thursday unavailable to comment.

Lucent has been tainted by allegations of corruption practices in recent years. In 2004, three former Lucent executives were accused of giving bribes in Saudi Arabia. A lawsuit by a Saudi communications company accused Lucent and a Swiss company of bribing a local official with $15m, medical expenses and free use of private jets.