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The Difficulties Of Compliance


In the minds of some, compliance with the Foreign Corrupt Practices Act or other similar laws is simple:  you just don’t bribe.

As highlighted in this prior post such a simplistic position is entirely off-target. Indeed what I find ironic about certain commentators who have articulated this position is that they devote their professional lives to selling compliance services and products.

Contrary to the simplistic rhetoric of some, a recent report regarding Siemens once again highlights the difficulties of compliance in a multinational business organization with tens of thousands of employees.

First, a bit of background.

In resolving the record-setting FCPA enforcement action against Siemens in 2008, the DOJ praised Siemens for its substantial compliance transformation.

Specifically in its sentencing memorandum, the DOJ acknowledged that Siemens had “already implemented substantial compliance changes” and a settlement term required the company to further implement “rigorous compliance enhancements.”

The “Remediation Efforts” section of the DOJ’s sentencing memorandum stated, in pertinent part, as follows:

“Siemens also overhauled and greatly expanded its compliance organization, which now totals more than 500 full time compliance personnel worldwide. Control and accountability for all compliance matters is vested in a Chief Compliance Officer, who, in turn, reports directly to the General Counsel and the Chief Executive Officer. Siemens has also reorganized its Audit Department, which is headed by a newly appointed Chief Audit Officer who reports directly to Siemens’ Audit Committee. To ensure that auditing personnel throughout the company are competent, the Chief Audit Officer required that every member of his 450 person staff reapply for their jobs. Siemens also has enacted a series of new anti-corruption compliance policies, including a new anti-corruption handbook, sophisticated web-based tools for due diligence and compliance matters, a confidential communications channel for employees to report irregular business practices, and a corporate disciplinary committee to impose appropriate disciplinary measures for substantiated misconduct. Siemens has organized a working group devoted to fully implementing the new compliance initiatives, which consists of employees from Siemens’ Corporate Finance and Corporate Compliance departments, and professionals from PricewaterhouseCoopers (“PwC”). This working group developed a step-by-step guide on the new compliance program and improved financial controls known as the “AntiCorruption Toolkit.” The Anti-Corruption Toolkit and its accompanying guide contain clear steps and timelier required of local management in the various Siemens entities to ensure full implementation of the global anti-corruption program and enhanced controls. Over 150 people, including 75 PwC professionals, provided support in implementing the AntiCorruption Toolkit at 162 Siemens entities, and dedicated support teams spent six weeks on the ground at 56 of those entities deemed to be “higher risk,” assisting management in those locations with all aspects of the implementation. The total external cost to Siemens for the PwC remediation efforts has exceeded $150 million.

Elsewhere, the DOJ sentencing memorandum stated:

“Siemens also significantly enhanced its review and approval procedures for business consultants, in light of the past problems. The new state-of-the-art system requires any employee who wishes to engage a business consultant to enter detailed information into an interactive computer system, which assesses the risk of the engagement and directs the request to the appropriate supervisors for review and approval. Siemens has also increased corporate-level control over company funds and has centralized and reduced the number of company bank accounts and outgoing payments to third parties.”

In summary, the DOJ recognized that “[t]he reorganization and remediation efforts of Siemens have been extraordinary and have set a high standard for multi-national companies to follow.”

Since the 2008 settlement, Siemens compliance reports as follows:

(1) approximately 600 employees work full time in a single compliance organization managed by a Chief Compliance Officer (of this number approximately eighty work at Siemen’s corporate headquarters with the rest deployed evenly around various sectors/divisions and regional companies); (2) 300,000 employees worldwide have received compliance training, including 100,000 employees who received face-to-face multi-hour courses; (3) all new compliance officers worldwide are required to take an intensive four-day course; (4) approximately 5,500 top managers worldwide have compliance metrics as an aspect of their compensation; and (5) approximately fifty-five high-risk entities and approximately 105 business units were required to implement over 100 compliance systems controls.

(See The Siemens Compliance System: Prevent, Detect, Respond and Continuous Improvement (2011).

In short, there are few companies in the world today that have devoted as many corporate resources towards compliance as Siemens over the past five years.

Despite the above improvements and investment in pro-active compliance that the DOJ labeled as setting “a high standard for multi-national companies to follow,” since 2008 Siemens been involved in numerous allegations of corruption.

This recent report from 100Reporters titled “Siemens Confidential: Reports of Wrongdoing Up, Penalties Down” suggests that since the 2008 FCPA settlement Siemens “received more than 3,000 new internal complaints of wrongdoing … including reports of corruption, bribery, fraud, anti-trust violations, embezzlement and conflict of interest.”  According to the article, the internal company statistics were disclosed by Siemens at industry conferences and obtained by 100Reporters.

To some, the above report and statistics are evidence that Siemens has an ineffective compliance program.

To others, the above report and statistics are evidence of the difficulties of ensuring compliance in a multinational company with tens of thousands employees doing business all over the world.

But remember, in the minds of some it is easy.  Just don’t bribe.

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