Innovation at Work: Factory-Free Factory Tours

Lucent Technologies Inc.'s free trips were just a little unusual. The company flew an estimated 1,000 Chinese officials to the United States for "factory tours"—after it had already closed all its domestic factories and moved them abroad.

The trips violated the Foreign Corrupt Practices Act of 1977 according to the federal government, and the company has agreed to pay $2.5 million to the Securities and Exchange Commission and the Justice Department for ferrying Chinese officials to Disneyland, the Grand Canyon, Las Vegas, and other vacation spots.

The global communications provider paid $1.5 million in civil penalties to the S.E.C. and another $1 million fine to the Justice Department to resolve allegations those trips were unlawful.

Federal investigators said the company, which merged in November 2006 with Alcatel SA, spent more than $10 million for hundreds of senior level officials to sightsee between 2000 and 2003.

Employees at the company's corporate headquarters in Murray Hill, N.J., helped arrange the trips, which paid for "factory inspections" or "training trips" for heads of state-owned telecommunications companies in Beijing and leaders of provincial telecommunications subsidiaries.

However, the Justice Department noted, by 2001, Lucent had outsourced most of its manufacturing so there were no Lucent factories for the Chinese dignitaries to tour. According to the S.E.C., at least 160 such trips were booked to a "factory inspection account" despite the fact that no actual visits took place.

Lucent did not admit or deny the commission's allegations, but according to the Justice Department the company admitted that it underwrote trips to Disneyland, Universal Studios, the Grand Canyon as well as Los Angeles, San Francisco, New York City, Las Vegas, and Washington, D.C.

Typically the trips lasted 14 days each, and cost between $25,000 and $55,000 per trip, according to federal investigators.

As part of the agreement with the Justice Department, Lucent is required to adopt new, or modify existing, internal controls, policies and procedures to make sure that it keeps accurate records and follows an anti-corruption compliance code.

The Justice Department agreed not to prosecute Lucent if it complies with all of the requirements over the next two years.

by Elizabeth Olson