Friday Roundup
Siemens delists, former Siemens execs fail to show up, quotable, to FCPA Inc. and for the reading stack. It’s all here in the Friday roundup.
Siemens to Delist ADRs
The record-setting 2008 FCPA enforcement action against Siemens A.G. was primarily based on the fact that the company had its shares listed on a U.S. exchange and was thus subject to the FCPA’s books and records and internal controls provisions. (Note: Siemens AG itself was not charged with FCPA anti-bribery violations).
I doubt – six years after the fact – that there is a cause and effect relationship here, but it is interesting nevertheless to note that last week Siemens announced that “it is planning to delist its American Depositary Receipts (ADR) from the New York Stock Exchange (NYSE).” The company further announced that “Siemens intends to terminate its reporting obligations (deregistration) to the American Securities and Exchange Commission (SEC).” As stated in the release:
“The goal of the delisting and deregistration is to address the change in the behavior of its investors. As a consequence processes of financial reporting are simplified and efficiency is improved. The trading of Siemens shares is nowadays conducted predominantly in Germany and via electronic trading platforms (‘over-the-counter’). Trading volume of Siemens shares in the USA is low, amounting to significantly less than 5% of its global trading volume in the year 2013.”
A delisting of course does not remove Siemens from the reach of the FCPA. There still is the 78dd-3 prong of the FCPA, but the jurisdictional reach of it is the most restrictive found in the FCPA.
For a moment, let’s just pretend that Siemens delisting was related, in some way, to the FCPA. If so, is this a good thing or a negative impact of the DOJ and SEC’s expansive jurisdictional theories of FCPA liability against foreign actors?
For instance, as noted in this 2010 post, approximately one month after Daimler resolved its FCPA enforcement action it decided – after 17 years on being on the NYSE to delist from the exchange. (See here for more).
Former Siemens Execs
One way for the SEC to win its FCPA cases is when the defendants do not show up.
As highlighted here, in December 2011 the SEC filed a civil lawsuit against former Siemens executives Uriel Sharef, Herbert Steffen, Andres Truppel, Ulrich Bock, Stephan Signer, Carlos Sergi, and Bernd Regendantz. The complaint was based on conduct concerning the Argentine prong of the 2008 Siemens enforcement action.
On the same day the enforcement action was announced, Regendatz agreed to resolve the enforcement action. As noted in the SEC release, Regendatz “paid a €30,000 administrative fine ordered by the Munich prosecutor (equivalent to $40,000 in U.S. dollars).”
As highlighted in this prior post, when put to its burden by Steffen, Judge Shira Scheindlin dismissed the SEC’s complaint in February 2013 for lack of personal jurisdiction (an initial threshold issue not unique to the FCPA).
As noted in this prior post, in April 2013 Uriel Sharef agreed to resolve the enforcement action by paying a $275,000 civil penalty. (See here).
The SEC voluntarily dismissed its claims against Carlos Sergi in October 2013.
Earlier this week, on February 3rd, Truppel consented to a final judgment in which he agreed to pay a $80,000 civil penalty.
Also earlier this week, on February 4th, Judge Scheindlin entered a default judgment as to Bock and Signer. As part of the order, Bock was ordered to pay $937,957 (a $524,000 civil penalty, $316,452 in disgorgement, plus prejudgment interest of $97,505) and Signer was ordered to pay a $524,000 civil penalty. The Bock and Signer settlement amounts rank first and third in terms of individual SEC FCPA settlements amounts with Ousama Naaman (approximately $877,000) ranking second.
The burning question of course is whether the SEC would have prevailed against Truppel, Bock and Signer if put to its burden of proof. Like in Steffen, there would no doubt have been an initial threshold issue of personal jurisdiction before turning to FCPA specific jurisdictional issues.
The relevant jurisdictional allegations against Truppel were as follows.
“Truppel participated in meetings in Miami, Florida, and New York, NY, in which bribes to Argentine officials were negotiated and promised. He caused Siemens to pay, and promise to pay, millions of dollars in bribes in an effort to retain the DNI Contract. Some ofthe bribes were paid via bank accounts in the United States.”
The relevant jurisdiction allegations against Bock were as follows.
“Bock participated in a meeting in Miami, Florida, at which bribes to Argentine officials were negotiated and promised. Bock also provided false testimony in two arbitration proceedings, one of which was filed in Washington, D.C., in an effort to conceal Siemens’ corrupt payments and recover its expected profits from the DNI Contract.”
The relevant jurisdictional allegations against Signer were as follows.
“Signer authorized the payment of bribes to government officials in Argentina. Some of the bribes were paid to bank accounts in the United States.”
Quotable
As noted here OECD Secretary General Angel Gurria warned that the bribery of foreign public officials by businesses was contributing to an “erosion of public trust.” True, but “enforcing” bribery and corruption laws through resolution vehicles not subjected to judicial scrutiny and otherwise inconsistent with rule of law principles (see here for my recent article) also contribute to an “erosion of public trust.”
Gurria also reportedly stated: “corporations need to stop bribing public officials, and that is going to help recover public trust and legitimacy, that is going to help markets work.”
In all due respect, this is just such a naive way to view the problem of bribery and corruption.
I like what Alexandra Wrage (President of Trace International) said here:
“Whether they’re stating it expressly or acting on it quietly, governments are using corporations as their primary tool to reduce international bribery. They alarm companies with vast fines and terrify individuals with substantial prison sentences with the hope of ending the payment of bribes because they cannot, in most cases, do much of anything about those demanding them. This is not inappropriate. Companies are regulated, subject to laws and answerable to shareholders. The worst offenders demanding bribes, on the other hand, do so with impunity, hiding behind sovereign immunity and, often, their own, complicit local law enforcement. Abacha. Suharto. Marcos. Duvalier. It’s a longstanding tradition, still thriving in many countries today. U.S. and some European law enforcement agencies have been extraordinarily successful, with fines in the United States now counted in the billions of dollars and other jurisdictions promising to catch up soon. While these efforts have done more than anything else to reduce bribery, they have yet to convince us that companies are both the sole source and solution of all international corruption — and that’s insupportable. […] The simple reality is that there are just some things that companies can’t do about corruption.”
See here and here for further reasons why Gurria’s statement is off-base.
To FCPA Inc.
Weil Gotshal announced that Adam Safwat, most recently the Deputy Chief in the DOJ’s Fraud Section where he worked on – among other things – FCPA enforcement actions – has joined the firm. According to the release, “with several years of senior level experience in the DOJ, as well as experience as a former federal prosecutor, [Safwat] brings a deep understanding of criminal and regulatory enforcement to the Firm, including with regard to corporate securities fraud and Foreign Corrupt Practices Act investigations.”
Reading Stack
A handy-dandy “Master List of Third Party Corruption Red Flags” courtesy of the FCPAmericas Blog.
For your viewing enjoyment, the recent program at Fordham Law School “China and the Foreign Corrupt Practices Act: Challenges for the 21st Century.”
For your viewing enjoyment, Senator Elizabeth Warren talking about an issue discussed in last week’s Friday roundup regarding JPMorgan.
I’ve written before about “offensive use” of the FCPA, but I am still trying to figure out the purpose of this press release.
*****
A good weekend to all.
The Odd Dynamic Persists
When Congress passes a law with various provisions which apply generically to any securities law violations without thinking through, on a micro level, the intersection of such provisions, odd dynamics can result.
That was my observation in this 2012 post concerning Khaled Asadi v. GE Energy, a whistleblower case brought under Dodd-Frank’s Anti-Retaliation Provision alleging underlying conduct that could implicate the Foreign Corrupt Practices Act. The trial court held (subsequently affirmed on appeal – see 720 F.3d 620) that a foreign national could not avail themselves of protection under the Anti-Retaliation Provision because the provision does not apply extraterritorially. I noted it was an odd result, because that same foreign national could be awarded a whistleblower bounty under Dodd-Frank.
As highlighted in this previous post, a similar case was brought in early 2013 by Meng-Lin Liu, a former compliance officer for Siemens AG in China.
Yesterday, Judge William Pauley (S.D.N.Y.) dimissed the complaint brought under the Anti-Retaliation Provision of Dodd-Frank. Adopting the reasoning in the Asadi case, Judge Pauley concluded that “there is simply no indication that Congress intended the Anti-Retaliation Provision to apply extraterritorially.” Judge Pauley noted that Liu’s complaint (brought by a Taiwanese resident against a German corporation for acts concerning its Chinese subsidiary relating to alleged corruption in China and North Korea), “must be dismissed” “because the Anti-Retaliation Provision does not apply overseas.”
For more on the decision, see here from Reuters, here from Wall Street Journal Risk and Compliance.
As to the odd dynamic framed above, Judge Pauley stated:
“The issue is not whether persons located abroad can be ‘whistleblowers’ and thus eligible for whistleblower awards, but whether the Anti-Retailiation Provision’s protections extend to overseas whistleblowers. The fact that a person outside the United States may be a “whistleblower” under Dodd-Frank does not compel the conclusion that he is protected by the Anti-Retaliation Provision.”
In short, the odd dynamic persists.
Assuming the truth of Liu’s factual allegations, the DOJ and/or SEC could bring an FCPA action (at least books and records and internal controls charges) against Siemens regardless of whether the payment scheme had a U.S. neuxs, Liu could qualify for a Dodd-Frank whistleblower bounty if an SEC enforcement action was brought, but Liu can not qualify for protection under the Anti-Retaliation Provision for blowing the whistle on the allegations.
Like Siemens, SNC-Lavalin Creates Employee Amnesty Program
SNC-Lavalin (a leading engineering and construction company based in Canada) is mired in a bribery and corruption scandal concerning projects in Bangladesh and certain countries in Africa. Earlier this week, the company announced (here) “a company-wide Amnesty Program to encourage current employees to report potential corruption and anti-competition matters in which they may have direct or indirect knowledge.” For more on SNC-Lavalin’s scrutiny, including its alleged use of secret internal accounting codes, see this recent article from CBC News.
SNC-Lavalin’s release further states as follows.
“The Amnesty Program is intended to assist SNC-Lavalin in its efforts to fully gather and assess the facts associated with corporate ethics matters in order to resolve them.”
“To be eligible for amnesty, an employee must file a request with SNC-Lavalin’s Chief Compliance Officer within the 90-day period between June 3 and August 31, 2013. The Company guarantees that it will not make claims for damages or unilaterally terminate employees who voluntarily, truthfully and fully report violations of its Code of Ethics and Business Conduct during this period. The offer does not extend to executives in the Company’s Office of the President or Management Committee groups, or anyone who directly profited from an ethical violation.”
“To SNC-Lavalin’s knowledge, this is the first time that a Canadian company has initiated an amnesty program. Such programs are strongly encouraged by the international ethics community in situations like the one SNC-Lavalin is facing.”
In the release, the company’s Chief Compliance Officer stated as follows.
“Amnesty programs are known to be highly effective means of getting to the bottom of ethics and compliance issues in large organizations. While the vast majority of SNC-Lavalin’s employees will have nothing to report, this offer of amnesty will allow us to uncover and quickly deal with any remaining issues. Our goal is to turn the page on a challenging chapter in the Company’s history, so we can focus all of our attention on creating value for our stakeholders.”
SNC-Lavalin’s employee amnesty program is similar to the one Siemens created in 2007 during its bribery and corruption scrutiny.
The DOJ’s sentencing memorandum in the December 2008 FCPA enforcement action (the largest in FCPA history in terms of fine and penalty amount – $800 million) cited Siemens creation of the “innovative and effective amnesty and leniency program” as evidence of the company’s “exceptional” and “wide-ranging cooperation efforts.”
Under the heading “Amnesty and Leniency Programs,” the DOJ stated as follows.
“In consultation with the Department, Siemens designed and implemented a company wide amnesty program to facilitate the internal investigation. This amnesty program was implemented on October 31, 2007 and continued until approximately February 29, 2008. The program provided that all but the most senior employees who voluntarily disclosed to Debevoise [the firm that conducted the internal investigation on behalf of Siemens’s audit committee] truthful and complete information about possible violations of relevant anti-corruption laws would be protected from unilateral employment termination and company claims for damages. The policy that implemented the amnesty program made clear that it was in no way binding on any prosecutors or regulators, including the Department and the SEC, but that Siemens would bring an employee’s cooperation to the attention of such authorities if he or she were the subject of a government investigation.”
“For employees too senior to qualify for the amnesty program, as well as those employees who did not come forward during the amnesty program period, Siemens established a similar leniency program on April 4, 2008. The leniency program provided for individualized leniency determinations for cooperating employees. The creation of these two programs was a unique and effective way to further the investigation and it yielded impressive results. Over 100 employees provided information in connection with the programs, including numerous employees who previously provided incomplete or less than truthful information and employees who had not come forward previously.”
“Shortly after the amnesty program began, the Department and the SEC identified various individuals and projects for more extensive debriefings by Siemens, referred to by the parties as ‘deep dives.’ The amnesty and leniency programs were vital to obtaining the types of detailed information needed for the deep dives. These deep dive sessions greatly enhanced the Department’s ability to evaluate the overall case, properly target its limited resources, and develop the evidence necessary to bring the charges here.”
The Work Of A Monitor And Checking In On Siemens
The 2008 Foreign Corrupt Practices Act enforcement action against Siemens remains the largest in FCPA history in terms of resolution amount – $800 million ($450 million DOJ, $350 million SEC). The DOJ stated in this release that “for much of its operations across the globe, bribery was nothing less than standard operating procedure for Siemens.” The SEC stated in the release that the “pattern of bribery by Siemens was unprecedented in scale and geographic reach” and the “corruption involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East and the Americas.”
Not surprisingly, given the nature and extent of the conduct at issue, as part of its plea agreement (here), Siemens was required to engage a corporate monitor for a three year period.
Time passes quickly, and on December 18, 2012, the DOJ filed this “Notice Regarding Corporate Monitorship” notifying the court that Siemens has “satisfied its obligations under the plea agreement with respect to the corporate compliance monitor engaged by the company.”
This post details the monitor’s work and then highlights the difficulties of anti-corruption compliance in a large, multinational company.
The Work of a Monitor
The recent DOJ filing details the work of the monitor and states as follows.
“In accordance with the plea agreement, the Monitor conducted an initial review and three subsequent reviews of Siemens’s anti-corruption compliance program, and documented the Monitor’s findings and recommendations in four annual reports dated October 5, 2009, October 13, 2010, October 7, 2011, and October 12, 2012. Over the course of those four years, the Monitor conducted on-site or remote reviews of Siemens’ activities in 20 countries; conducted limited or issue-specific reviews in or relating to an additional 19 countries; reviewed over 51,000 documents totaling more than 973,000 pages in 11 languages; conducted interviews of or meetings with over 2,300 Siemens employees; observed over 180 regularly scheduled company events; and spent the equivalent of over 3,000 auditor days conducting financial studies and testing.
During that time, the Monitor made a total of 152 recommendations in over a dozen topic areas, such as third-party risks, financial controls, and compliance policies and training that, pursuant to the plea agreement, were “reasonably designed to improve the effectiveness of Siemens’ program for ensuring compliance with the anti-corruption laws.” Without objection, Siemens AG adopted and implemented all 152 recommendations. Thereafter, the Monitor confirmed that all of the recommendations had been fully implemented.
Those recommendations and the other remedial measures and internal control improvements undertaken by Siemens have included enhanced policies and a revised code of conduct directed at prohibiting corruption; additional and more frequent training for employees, agents, and business partners on the enhanced anti-corruption policies and procedures; additional staffing and resources dedicated to coordinating and overseeing the implementation and enforcement of the anti-corruption program; improved hotline for reporting potential violations of the code of conduct; improved accounting system controls designed to ensure the maintenance of accurate books and records; and improved due diligence and review processes for agreements with agents and business partners, including an express clause related to anti-corruption.
Pursuant to the terms of the plea agreement, the Monitor has met with representatives from the government and the SEC on an annual basis to review the findings and recommendations in the Monitor’s annual reports. In accordance with the terms of the plea agreement, the Monitor certified on October 13, 2010, October 7, 2011, and October 12, 2012, that “Siemens’ compliance program is reasonably designed and implemented to detect and prevent violations within Siemens of anti-corruption laws . . . .”
Based on the monitor’s work, the filing then states as follows.
“[T]he government concludes that Siemens AG has satisfied its obligations under the plea agreement with respect to the corporate compliance monitorship. The government has conferred with the staff of the SEC and the staff of the SEC concludes that Siemens AG has also complied with the terms of the Final Judgment in the civil action with respect to the corporate compliance monitorship.”
As highlighted in my article “Revisiting an FCPA Compliance Defense” (here), even before the Siemens monitor began its work, Siemens had – in the words of the DOJ – “already implemented substantial compliance changes” and was setting “a high standard for multi-nationals to follow.” According to the DOJ, Siemens’ total external costs for this pre-monitor remediation exceeded $150 million. Although Siemens has not, to my knowledge, disclosed its costs associated with its post-enforcement action monitor, one can safely assume that the monitor costs easily exceeded this $150 million figure and perhaps reached as high as the $800 million amount announced on enforcement action day.
I noted in my Compliance Defense article that “there is likely no other company in the world today … that has devoted as many corporate resources towards compliance” and that “likewise, there is likely no other company in the world today .. that faces as many negative consequences should its compliance efforts fail.”
Difficulties of Anti-Corruption Compliance
The discussion of Siemens in my article, and here, demonstrates that not even a company that has “set a high standard for multi-national companies to follow” (again, in the words of the DOJ) can insulate itself from FCPA and related exposure.
This fact (and a fact I submit makes a compelling case for an FCPA compliance defense as outlined in my article) is clear from a review of Siemens most recent annual report (here), filed with the SEC on Nov. 28, 2012. The filing contains a separate section titled “public corruption proceedings.” To be sure, the section lists various proceedings that pre-date 2008 and that may have been indicative of the corporate culture at Siemens that gave rise to the 2008 FCPA enforcement action in the first place. However, certain proceedings in listed in the filing are post 2008, including the following.
“As previously reported, in May 2011 Siemens AG voluntarily reported a case of attempted public corruption in connection with a project in Kuwait in calendar 2010 to the U.S. Department of Justice, the SEC, and the Munich public prosecutor. The Munich public prosecutor discontinued the investigations, which related to certain former employees, but imposed conditions on them. Siemens is cooperating with the U.S. authorities in their ongoing investigations.”
“As previously reported, in July 2011 the Munich public prosecutor notified Siemens AG of an investigation against an employee in connection with payments to a supplier related to the oil and gas business in Central Asia from calendar 2000 to 2009. Siemens is cooperating with the public prosecutor.”
Add to this list a Dodd-Frank whistleblower retaliation complaint (here) recently filed against Siemens in federal court by Meng-Lin Liu, a former compliance officer for Siemens AG in China. As highlighted by this Reuters report, Liu alleges that Siemens fired him after he tried to expose a kickback scheme involving medical equipment sales to hospitals in China.
In pertinent part, the complaint alleges as follows.
“Shortly after he started at [Siemens China Ltd. (SLC)] in March 2008, Liu began encountering and confronting a culture within Siemens’ Chinese healthcare business of evading and circumventing the anti-corruption due diligence systems and controls required by the FCPA and Siemens’ 2008 Plea Agreement.”
” … Liu consistently objected to and tried to remedy systemic evasion of Siemens’ due diligence systems in circumstances where there were major ‘red flags’ indicating extremely high risks of corruption. Ultimately, Liu uncovered incontrovertible evidence that Siemens was submitting inflated bids for many of the multi-million-dollar medical diagnostic and scanning equipment sales it made to public hospitals in China, and then selling the equipment at substantially lower prices to intermediaries designated by the hospital’s procurement officials. In other words, Liu discovered that Siemens itself was complicit in a scheme whereby the end-user hospitals paid amounts to third-party intermediaries that were between 20% and 130% higher than the price Siemens received for the equipment, which was resold by these intermediaries to the end-user hospital at the original Siemens’ inflated bid price. This had all the hallmarks of a classic bribery or ‘kickback’ scheme and there was no legitimate explanation for the huge price differential that existed between prices at which Siemens sold the equipment and the prices paid by the end-user hospitals.”
“Within a week of presenting this evidence to SLC’s CFO for Healthcare, Liu was summarily removed from his position as Compliance Officer, instructed not to report to the office for the remaining four months of his employment contract and given ‘early notice’ that his contract would not be renewed upon its expiration. Four months later his employment was terminated.”
Remembering Senator Arlen Specter
Yesterday, former Senator Arlen Specter passed away.
In November 2010, Senator Specter chaired a Senate Judiciary subcommittee hearing titled “Examining Enforcement of the Foreign Corrupt Practices Act.” (See here for the hearing transcript, here for the video). I had the privilege to testify at the hearing (see here) and to work with Senator Specter’s office after the hearing on several issues of his concern (see here).
Much of the focus of Senator Specter’s comments and concerns centered on the 2008 record-setting FCPA enforcement action against Siemens and the fact that, then, there had not yet been any related enforcement actions against individuals.
In an exchange with Greg Andres (the DOJ representative who testified at the hearing), Specter stated as follows.
SPECTER: Mr. Andres, you talk about collecting more in criminal fines than anyone else, prosecuted more cases than other countries who are parties to the [OECD] convention, and you say you do not hesitate to go after individuals. But whom have you sent to jail? Did anybody go to jail in the Siemens case?”
ANDRES: Senator, as we have said before, in the Siemens case, that investigation is ongoing. There are a number of prosecutions ongoing in Germany.
SPECTER: Are there individuals who are being prosecuted?
ANDRES: That investigation is ongoing, Senator.
SPECTER: Are there any individuals being prosecuted? When you see all the publicity on Siemens, a big fine and $100 billion in revenues, $8 billion in profits, and no jail sentence, what effect does that have? Is this not really a signal that you can violate the act and pay a fine?”
Also during the hearing, Senator Specter stated as follows regarding FCPA reform testimony by Andrew Weissman who testified at the hearing on behalf of the Chamber of Commerce. “I think you [Weissman] make some good points when you talk about a compliance defense, talk about rogue employees.”
Even after the hearing, indeed, even after he left the Senate, Specter continued to question why no individuals were prosecuted in connection with the record-setting Siemens action. At the Dow Jones Global Compliance Symposium in March 2011 he stated as follows. “If you don’t have a jail sentence in a case like Siemens, when are you going to have one?” (See here for the Wall Street Journal Corruption Currents post).
Approximately one year after the Senate FCPA hearing, the DOJ brought criminal charges against several former Siemens executives relating to conduct in Argentina. (See here and here for prior posts). As this Wall Street Journal Law Blog post stated, “Justice Department and SEC officials either got the message that day [the Senate 2010 FCPA hearing] or were biting their tongues, knowing that an ongoing investigation would eventually produce charges.” As noted in this previous post, while the Siemens individual enforcement actions (which have largely been dormant for the past year) were a step forward, several issues remain. First, Siemens itself was never charged with FCPA anti-bribery violations for the same conduct its former employees and agents are now facing FCPA anti-bribery charges. Second, the DOJ and SEC have addressed – through individual enforcement actions – only a sliver of the conduct at issue in the 2008 enforcement action. As alleged by the enforcement agencies, the corruption at Siemens involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe and the Americas.
Back to Senator Specter.
The timing of the November 2010 Senate hearing and Senator Specter’s motivations in calling it (at the time he was a so-called lame duck) have always been a mystery. Perhaps he was motivated to shine a light on the lack of Siemens individual prosecutions; perhaps he wanted to provide a public and high-profile forum for FCPA reform discussion in that the Chamber’s FCPA reform whitepaper was released a month earlier; perhaps he was motivated by both.
Whatever his motivations, the hearing helped usher in a new era of critical analysis and examination of the FCPA and FCPA enforcement. Thank you Senator Specter for helping to shine light on important FCPA topics.