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Siemens … The Year After

One year ago this week, Siemens agreed to pay $800 million in combined U.S. fines and penalties to settle FCPA charges for a pattern of bribery the Department of Justice (“DOJ”) termed “unprecedented in scale and geographic scope.” (see here).

The charged conduct involved improper payments to obtain or retain (among other business) transportation, telecommunication, energy and health sector contracts in (among other places) Argentina, China, Mexico, Nigeria, Russia, and Venezuela.

According to the DOJ, for much of Siemens’ operations around the world, “bribery was nothing less than standard operating procedure.” Because Siemens (a German-based company) has shares listed on a U.S. stock exchange and because certain of the improper conduct had a U.S. nexus, the company was subject to the FCPA.

The Siemens matter easily remains the largest and most high-profile FCPA matter since the law was enacted in 1977.

Yet, on the same day Siemens agreed to resolve the FCPA matter, the company also announced that a U.S. government agency issued a formal determination declaring Siemens a “responsible contractor.” This designation assisted Siemens in continuing to do business with the U.S. government even though an entity found in violation of the FCPA may be barred from doing business with the federal government under Office of Management and Budget guidelines. (see here).

In the year since resolution of the Siemens FCPA matter, the U.S. government continues to do substantial business with the company it recently charged with engaging in a pattern of bribery “unprecedented in scale and geographic scope.”

This U.S. government business has helped Siemens outperform its competitors in a difficult recessionary environment and much of the company’s recent success is the direct result of government stimulus programs around the world.

Reacting to these government stimulus programs, Siemens executives stated that the company was in “an excellent position to generate additional business.” In June 2009, Siemens issued a press release noting that “the shares of the stimulus program that Siemens can address are the largest in the U.S.” (see here). Siemens’ executives proclaimed that the government stimulus programs should have a “stabilizing effect on our business.”

On such “stabilizing effect” on Siemens’ business has been the American Recovery and Reinvestment Act, the $787 billion stimulus bill passed by Congress and signed by President Obama in February 2009 to stimulate the American economy.

According to Recovery.gov (see here) (a U.S. government website designed “to allow taxpayers to see precisely what entities receive Recovery money ..”), Siemens’ business units have already been awarded several dozen contracts funded by U.S. taxpayer stimulus dollars. These contracts have been awarded by the following government agencies: Department of Defense, Department of the Air Force, Department of the Army, Department of Transportation, Department of Health and Human Services, Department of Energy, Department of Commerce, Department of Housing and Urban Development, and the General Services Administration.

According to Recovery.gov, even the DOJ (i.e. the same government agency that prosecuted Siemens less than 365 days ago for a pattern of bribery the agency termed “unprecedented in scale and geographic scope”) awarded a Siemens business unit a contract funded with stimulus dollars.

It is not just the federal government that continues to do business with Siemens in the immediate aftermath of its unprecedented bribery scandal. Since December 2008, Siemens’ business units have also been awarded: a $135 million service contract with the University of Pennsylvania Health System (see here); a $205 million order for light rail vehicles from the San Diego Metropolitan Transit System (see here); and a $140 million energy contract from the Northern California Power Agency (see here).

Siemens business with the U.S. government (and other units of government) in the immediate aftermath of its unprecedented bribery scandal raises several questions.

Does it even matter, aside from the fines/penalties and associated costs of getting caught, if a company violates the FCPA?

The above information suggests that the answer is no, so the question becomes should it matter? Should U.S. taxpayer dollars be awarded to a company which less than 365 days ago settled a bribery scandal “unprecedented in scale and geographic scope”?

The DOJ frequently speaks about deterrence as being a primary function of FCPA enforcement. But what deterrence is there when an FCPA violator (let alone the most egregious violator in the history of the FCPA) can immediately get U.S. government business, including from the same government agency that prosecuted it for violating the FCPA? Can FCPA enforcement ever be effective if Siemens is the template for future enforcement?

Siemens post-scandal business with the U.S. government also raises the question of whether Siemens secured the contracts at issue in the FCPA enforcement action, not because of the payments, but simply because Siemens offered the best products for the best prices?

Is this the reason the U.S. government continues to do business with Siemens in the immediate aftermath of its unprecedented bribery scandal? If so, what does this say about the rhetoric that accompanies a typical FCPA enforcement action (i.e. the company bribed to get business)?

U.S. Congressman Alleges Bribery at Airbus

U.S. Representative Todd Tiahrt (R-Kan) (see here) has alleged that Airbus and its parent company European Aeronautic Defence and Space Company (“EADS”) pay bribes in order to get business.

In a recent article in Human Events Online (see here, scroll down a bit), Tiahrt states that “agents for the Airbus company have openly said that yes we do use bribery, in fact we budget for it.”

Tiahrt’s accusation follows an October 2009 letter (see here) he sent to the Deputy Secretary of Defense in which he stated that “[i]t is well documented that EADS has bribed foreign officials in buying products instead of American products.” Tiahrt states that “EADS has been subject to bribe-related scandals in Belgium, Canada, India, Kuwait, Switzerland and Syria.” He further notes that the “[t]he US intelligence community has characterized EADS as the most corrupt corporation in the world” and urges the Deputy Secretary of Defense to read the CIA briefing on EADS.

Tiahrt’s main concern appears to be that “[f]oreign companies, such as EADS, do not have to comply with the [FCPA].”

For the record, I am not so sure that Tiahrt is correct. For instance, EADS (the corporate parent of Airbus) has ADRs registered with the SEC. (see here). Further, Airbus has several business locations in the U.S. (see here).

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Staying on the topic of foreign companies, a German court recently ordered two subsidiaries of MAN SE (see here) to pay $221 million in fines in connection with a wide-ranging investigation concerning bribes paid to secure sales of trucks and buses. MAN’s shares traded in the U.S. “over the counter” on the “pink sheets.” (see here).

Coming Soon … Panalpina

No, it’s not another Hollywood FCPA movie like Syriana (see here), although it sort of sounds like it.

Rather it is the Panalpina enforcement action. And its coming soon. According to Panalpina, a Swiss company and one of the world’s leading suppliers of forwarding and logistics services, “last week” it “commenced settlement discussions” with the DOJ concerning its FCPA exposure and the matter is “coming to a close.” (see here).

Not familar with the Panalpina matter?

In February 2007, DOJ announced (see here) the guilty pleas of three Vetco International Ltd. subsidiaries for violating the FCPA. In the plea documents, the Vetco entities acknowledged making improper payments to employees of the Nigerian Customs Services “through a major international freight fowarding and customs clearance company.”

In July 2007, Panalpina announced (see here) that the above guilty plea triggered a number of events. First, Panalpina’s U.S. subsidiary was requested to produce documents relating to the services it provided to the Vetco entities in Nigeria. Second, and more broadly, Panalpina announced that “several other customers have announced to U.S. authorities the review of their practices related to Nigerian importation procedures.” Further, the company noted that “U.S. authorities have extended the scope of their review to Panalpina’s documents related to services into Nigeria, Kazakhstan and Saudi Arabia for a limited number of customers.”

Soon thereafter, Panalpina “suspended part of its service offering in Nigeria including its temporary importation services for oil and gas customers.” (see here). Later, Panalpina stopped all domestic services in Nigeria. (see here).

When announced, the Panalpina FCPA enforcement action is likely to be broad in scope and potentially entangle other companies as well.

Some Data to Chew On

It’s been a while (see here) since I passed along what seems like a constant stream of FCPA survey results.

This morning in my inbox were the results of the Dow Jones State of Anti-Corruption Compliance Survey which I pass along (here).

The survey included responses from 182 company executives worldwide and among the more interesting survey results is that “51% of companies delayed key business plans such as new business partnerships and entry into new or developing markets and another 14% abandoned them completely because of legal questions arising from unclear anti-corruption regulations.”

The managing director of Risk & Compliance at Dow Jones & Company noted that the “findings appear to indicate improvements should be made” including that “regulators must provide clearer guidance to help companies better understand and comply with current laws.”

Today is U.N. International Anti-Corruption Day.

In observance of this day, the U.S. government agencies which enforce the FCPA (the Department of Justice and the Securities and Exchange Commission) should commit to providing those subject to the FCPA clear guidance, reasoned rationale and legal support for certain of their FCPA prosecution theories. As reflected by the Dow Jones survey results, such clarity and transparency is greatly needed.

Indicting a “Foreign Official”

Yesterday, the DOJ announced (see here) the unsealing of an indictment (see here) against Joel Esquenazi, Carlos Rodriguez, and Marguerite Grandison which charges (among other things) conspiracy to violate the FCPA and substantive FCPA violations for an alleged scheme to bribe two former employees of Haiti Teleco, the alleged “state-owned national telecommunications company.”

Esquenazi and Rodriguez are former executives of a privately owned, Florida-based telecommunications company and Grandison was the President of Telecom Consulting Services Corp., a Florida based company which served as an intermediary.

The unsealed indictment is the latest chapter in this matter; in May 2009, the DOJ announced (see here) the guilty pleas of Juan Diaz and Antonio Perez in connection with the same scheme.

This matter is also yet another example of an FCPA enforcement action in which the “foreign official” is an employee of an alleged state-owned or state-controlled entity.

That, however, is not why this enforcement action is noteworthy.

It is noteworthy because DOJ also indicted Robert Antoine and Jean Rene Duperval – the alleged “foreign officials.” According to the indictment, Antoine and Duperval both served as the “Director of International Relations of Haiti Teleco” and were responsible for negotiating contracts with international telecommunications companies on behalf of Haiti Teleco.

Of course, the charges were not FCPA charges, because the FCPA only covers “bribe-payers” not “bribe-takers” (see here, here, for prior posts on this subject).

Rather the charges against Antoine and Duperval were money laundering conspiracy and/or substantive money laundering charges.

According to the DOJ release, Antoine is from “Miami and Haiti” and Duperval is from “Miramar, Fla. and Haiti.” Further, according to the indictment, both individuals had bank accounts in the U.S. and these accounts were used in connection with the bribery scheme. (I wonder if Washington Mutual, Wachovia, or Miami Federal Credit Union were aware that Haitian “foreign officials” were among its customers!)

To my knowledge this is the first time “foreign officials” have been specifically charged as defendants in connection with an FCPA enforcement action. This indictment of “foreign officials” comes on the heels of AG Holder’s recent speech (see here) in which he stated that the U.S. government was committed to recovering funds obtained by “foreign officials” through bribery.

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