Off-Target, On-Target
Off-Target
Ever have one of those situations when you read something multiple times and it still does not make sense?
Earlier this week, CtW Investment Group (here) called on Siemens to end its relationship with the U.S. Chamber of Commerce because the Chamber “has engaged in an expensive campaign to undermine” the FCPA. William Patterson, Executive Director of the CtW Investment Group stated that Siemens “association with the Chamber and its efforts to rollback the FCPA […] undermines the considerable sums Siemens has invested in compliance.” In a letter (here) to Siemens’ President and Chairman of the Supervisory Board, Patterson stated as follows. “The significant investments [Siemens] has undertaken to overhaul its compliance mechanisms and restore its reputation, however, are undermined by Siemens’ continued membership and support of the U.S. Chamber of Commerce, which for the past year has waged an expensive lobbying campaign to weaken the FCPA.”
I have no idea if Siemens, as an organization, is in favor of FCPA reform and/or whether it has specifically contributed to the Chamber’s FCPA reform efforts.
However, let’s assume that Siemens is in favor of an FCPA compliance defense (one of the FCPA reform proposals being considered). How is this position “undermined” by the considerable sums Siemens has invested in compliance? As I note in my forthcoming scholarship “Revisiting an Foreign Corrupt Practices Act Compliance Defense” (see here), even the DOJ recognizes that Siemens has “set a high standard for multi-national companies to follow” and that the company has 600 full-time compliance personnel, its Anti-Corruption Toolkit was designed by industry leaders, and its has 100-plus compliance systems controls in high-risk jurisdictions.
It is precisely because of these above factors that Siemens (and other companies that make similar compliance investments) should be in favor of a FCPA compliance defense!
As Patterson’s letter states, “[T]here is likely no other company in the world today that has recently devoted as many corporate resources to anticorruption compliance than Siemens. […] On the flip side, there is likely no other company in the world that facts as many negative reputational consequences should its compliance efforts fail …”. [Attribution in the letter would have been appropriate, here is what I said in an October 10, 2011 post titled “Siemens and an FCPA Compliance” – “[T]here is likely no other company in the world today that has devoted as many corporate resources, with the assistance of industry experts, to compliance than Siemens. On the flip side, there is likely no other company in the world today that faces as many negative consequences should its compliance efforts fail than Siemens.”]
The letter also states as follows. “In October 2010, ironically the same month the Organization for Economic Cooperation and Development (OECD) published a report praising enforcement of the FCPA, the Chamber released ‘Restoring Balance” a brief criticizing ‘an active FCPA enforcement environment.” As noted in this prior post, while the OECD loudly praised the U.S. for its “high level” of enforcement, the OECD actually criticized and questioned many of the policies and enforcement theories which yield the “high level” of enforcement.
On-Target
The FCPA Blog (here) recently highlighted a 2008 transcript from the Albert Stanley case. In it, Judge Keith Ellison (S.D. Tex.) stated as follows in an exchange with a DOJ attorney: “I know it’s a growth industry, isn’t it, the Foreign Corrupt Practices Act? It’s keeping a lot of white collar lawyers busy; is that fair?”
Also on the FCPA Blog, Jan Handzlik (counsel to Lindsey Manufacturing and Keith Lindsey – see here for the prior post discussing Judge Matz’s order vacating the convictions and dismissing the indictment due to prosecutorial misconduct ) commented (here) on the O’Shea acquittal this week and stated as follows. “It’s much more challenging for the government when defendants persist in asserting their innocence.”
Nathan Vardi writes for Forbes. Among his prior works is “The Bribery Racket” (here) a piece that certainly got people talking. In this new piece titled “The FCPA Fiasco: Pressure Tactics In Corruption Cases Backfiring,” Vardi states as follows. “[T]he last decade the federal government has greatly increased its FCPA enforcement, threatening to bring an indictment against any company that does not cooperate and act harshly if companies don’t voluntarily report any potential sins. This game has been cheered on by lawyers and accountants, even journalists, who benefitted immensely from the expensive internal investigations companies initiate to deal with this new reality.” […] But you can’t have 150 FCPA investigations and dozens of companies essentially admitting to corrupting behavior, resulting in billions of dollars of fines, penalties, and legal and accounting fees, without eventually holding individuals accountable for the alleged violation of U.S. law. And those individuals have much stronger incentives to fight those charges in court, especially now with evidence mounting that the government’s legal argument in many FCPA cases is weak and flawed.”
Finally, in this piece, Miller & Chevalier attorneys Kathryn Atkinson, James Tillen, and Marc Bohn had this to say after noting several recent DOJ FCPA setbacks. “We are also optimistic that the events of 2011 may lead to a healthier level of engagement on substantive issues in the context of settlement-heavy FCPA enforcement. In recent years, not only have most matters been settled, but some have settled with little debate over (or public discussion of) the application of the statutory elements to the facts. In an adversarial system, however, these debates are essential. Each side must be prepared to challenge the other’s view of the facts, and their relevance under the law, and to have its own view challenged as well. When this system breaks down, the substantive dialogue is lost. It is likely the shortage of this substantive dialogue, more than actual ambiguity in the statute itself, that has given rise to recent discussions at conferences, in the media and online, and in Congress expressing frustrations about a lack of clarity in FCPA enforcement. A vigorous exploration of substantive issues in the context of our adversarial system should provide some relief from these frustrations and lead us to more effective and efficient prevention and deterrence.”
I wrote about many of the same issues in 2010 in “The Facade of FCPA Enforcement” (see here).
*****
A good weekend to all.
The Siemens Argentina Individual Enforcement Actions Are A Step Forward, But Issues Remain
Last week (see here for the prior post) the DOJ and SEC brought FCPA enforcement actions against several former executives and agents of Siemens. As noted in this initial post, the enforcement action comes nearly three years after the Siemens corporate enforcement action, a portion of which concerned improper conduct in Argentina and allegations that Siemens S.A. (Argentina), and those acting on its behalf, engaged in a bribery scheme in connection with an Argentine government contract to produce national identity cards.
The Siemens Argentina individual enforcement actions were brought after the DOJ faced scrutiny for not bringing any individual enforcement action in connection with a bribery scheme “unprecedented in scale and geographic reach” in which there existed at Siemens a “corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company.”
Thus, the Siemens Argentina individual enforcement actions with allegations (and that is all they are at this point) of individual improper conduct are a welcome development and the DOJ ought to be recognized for bringing what will likely be a difficult case to prosecute. Among other things, extradition issues loom, and many of the defendants are likely to aggressively mount a defense.
While a welcome development, two facts remain unchanged by last week’s development.
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. The reason is that FCPA anti-bribery charges would have hurt Siemens too much. In its sentencing memorandum (here), the DOJ in explaining its charging decisions specifically stated as follows. “The Department’s analysis of collateral consequences included the consideration of the risk of debarment and exclusion from government contracts.” As noted last week in a Wall Street Journal article by Vanessa Fuhrmans “Shrugging Off Bribery Case, Siemens Gains Favor in the U.S.” (here), “three years after Siemens AG reached a record foreign-bribery settlement with U.S. authorities, the German industrial conglomerate is capitalizing on business from an unexpected place—the U.S. government.” Among things, the article notes that “Siemens today isn’t just benefitting from its ongoing business with the government. It’s made capturing more business and influence in Washington a central part of its U.S. strategy.”
In short, the notion that certain companies selling certain products to certain customers are essentially immune from FCPA anti-bribery scrutiny remains a troubling issue, notwithstanding last week’s development.
[Incidentally, under the FCPA’s former so-called Eckhardt amendment, the lack of FCPA anti-bribery charges against Siemens would have precluded the FCPA anti-bribery charges the individuals now face. See U.S. v. McLean, 738 F.2d 655 (5th Cir. 1984) (“[B]oth the language of the Act and its legislative history reveal a clear intent to impose criminal sanctions against the employee who acts at the behest of and for the benefit of his employer only where his employer has been convicted of similar FCPA violations. […] We hold that in order to convict an employee under the FCPA for acts committed for the benefit of his employer, the government must first convict the employer.”]
Second, even with last week’s development, the fact remains that 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. As alleged (see here) “among the transactions on which Siemens paid bribes were those to design and build metro transit lines in Venezuela; metro trains and signaling devices in China; power plants in Israel; high voltage transmission lines in China; mobile telephone networks in Bangladesh; telecommunications projects in Nigeria; national identity cards in Argentina; medical devices in Vietnam, China, and Russia; traffic control systems in Russia; refineries in Mexico; and mobile communications networks in Vietnam.”
Some individual or individuals presumably paid or authorized these numerous non-Argentina bribes. If last week’s development is the only individual enforcement actions resulting from the 2008 Siemens enforcement action, continued scrutiny and asking of the why questions is warranted.
What other egregious corporate FCPA enforcement action might yield future individual enforcement actions? Based on the DOJ’s allegations, Daimler would seem like a good bet. See here for the prior post.
In Depth On The Siemens Argentina Enforcement Action
Yesterday’s post (here) covered the DOJ indictment and SEC civil complaint against former Siemens’ executives and agents. This post provides a more in-depth analysis of the allegations. Every enforcement action needs a name, so let’s call this large case the Siemens Argentina Enforcement Action, recognizing that Siemens itself resolved its exposure for the conduct described below in 2008 and is not a part of the current matter.
DOJ Indictment
As noted in the previous post, the DOJ indictment (here) charges the following individuals. Uriel Sharef, Herbert Steffen, Andres Truppel, Ulrich Bock, Stephan Signer, Eberhard Reichert, Carlos Sergi and Miguel Czysch.
The below defendants are described as “officers, directors, employees and agents” of an “issuer” (Siemens AG).
According to the indictment, Sharef (a dual citizen of Israel and Germany) was employed by Siemens from 1978 to December 31, 2007. The indictment alleges that from 2000 until his departure from Siemens, Sharef was a member of Siemens AG’s Managing Board and Corporate Executive Committee (“CEC”), with oversight responsibilities for Siemens AG’s power operations group, including Siemens Power Transmission and Distribution (“Siemens PTD”), and Siemens AG’s operations in the Americas region, including Siemens Argentina.
According to the indictment, Steffen (a German citizen) was a long-time Siemens employee who left the company in 2003. The indictment alleges that Steffen, at various times, was: group president of Siemens AG’s transportation systems operating division; group president of Siemens PTD; CEO of Siemens Argentina; and chairman of the Supervisory Board of Siemens Argentina.
According to the indictment, Truppel (a dual citizen of Germany and Argentina) was employed by Siemens until 2002 when he then became a consultant to Siemens until 2004. The indictment alleges that until his “shift to consultant status” Truppel was CFO of Siemens Argentina.
According to the indictment, Bock (a German citizen) was a long-time employee of Siemens until 2001 when he then became a paid consultant to Siemens until 2007. While a Siemens employee, Bock was commercial head of Siemens Business Services (“SBS” – a wholly-owned subsidiary of Siemens AG and a unit in Siemens information and communications operating group).
According to the indictment, Reichert (a German citizen) was a long-time Siemens employee until 2001. He was the technical head of SBS’s Major Projects subdivision.
According to the indictment, Signer (a German citizen) was a long-time Siemens employee until 2011. The indictment alleges that from 2000 to 2007, Signer worked for SBS as a commercial director in various capacities.
The below defendants are described as “agents” of Siemens AG who served as “intermediaries between Siemens and officials of the Government of Argentina” – the so-called “Intermediary Defendants.”
According to the indictment, Sergi (a citizen of Argentina) “was a prominent businessman in Latin America with extensive high-level government contacts in Argentina.” The indictment states that Sergi was for a 15 year period ending in 2003 a member of the Supervisory Board of Siemens Argentina along with Sharef.
According to the indictment, Czysch (a German citizen and resident of Switzerland) was a business associate of Sergi.
For both set of defendants, the indictment invokes 78dd-1 of the FCPA. The jurisdictional hook under 78dd-1 for non-U.S. “issuers” is “use of the mails or any means or instrumentality of interstate commerce” in furtherance of a bribery scheme. As described below, the indictment alleges certain conduct in the U.S. as well as wire transfers of money through U.S. bank accounts in furtherance of the bribery scheme.
The indictment also refers to six unindicted co-conspirators (two individuals described an attorneys in Argentina and former senior officials in the Argentine Ministry of Justice; a former CEO of Siemens Argentina; a former deputy general counsel in the Legal Services office at Siemens AG headquarters; a business partner of Sergi; and a business partner of Czysch).
Under the heading “Overview of the Conspiracy” the indictment alleges as follows. “In or about August 1994, the Government of Argentina issued a tender for bids to replace an existing system of manually created national identity booklets with state-of-the-art national identity cards” – the so-called DNI (Documento Nacional de Identidad) project. According to the indictment, the “total estimated value of the DNI project was approximately $1 billion.” In 1998, the President of Argentina issued a decree awarding the DNI project to Siemens IT Services S.A. (“SITS”), a special-purpose subsidiary created by SBS for the purpose of bidding on the DNI project. According to the indictment, from 1996 to 2009, the defendants and others “engaged in a conspiracy on behalf of Siemens to obtain the lucrative proceeds of the DNI project, and to foster future business, by means of bribery, fraud, and other forms of corruption.”
The indictment specifically alleges as follows. “Members of the conspiracy won the DNI project for Siemens by bribing Argentine government officials. They paid more bribes in the hope of reviving the project when, in or about 2001, the DNI project was stalled. Ultimately […] the DNI project was terminated altogether. Even after this point, members of the conspiracy continued to pursue the profits that Siemens had expected to gain from the project. They did so through additional bribes and corrupt conduct, including the pursuit of a fraudulent arbitration in Washington, D.C. against the Argentine government, demanding nearly $500 million while actively hiding the corruption from the tribunal.”
According to the indictment, “some of conspirators were employed by Siemens as executives, lawyers, and managers working on DNI project matters; others served as agents and conduits for the payment of bribes to Argentine government officials who were in a position to influence the direction of the DNI project.” The indictment alleges as follows. “Integral to the conspiracy, and to the concealment of the illegal objects of the conspiracy, was the conspirators’ use of at least 17 conduit entities (collectively, the ‘Conduit Entities’) controlled or otherwise affiliated with the Intermediary Defendants and with various Argentine government officials and candidates for office who were the recipients or intended recipients of bribe payments (the ‘Argentine Officials’).
The conduct alleged in the indictment starts with “initial bribe commitments and payments.” The indictment alleges that various co-conspirators “committed Siemens to paying nearly $100 million in bribes to sitting officials of the Argentine government, members of the opposition party, and candidates for office who were likely to come to power during the performance of the project.” According to the indictment, many of these payments were made pursuant to “black contracts, that is unwritten contracts” with third-parties who later sought reimbursement from Siemens.
Argentine officials described in the indictment are “Argentine Official A” (a senior official in the Office of the President and thereafter a candidate for office and member of the Argentine Congress), “Argentine Official B” (a senior official in the Ministry of Interior and thereafter a member of the Argentine Congress); and “Argentine Official C” (a senior official in the Ministry of Migration and the Office of Internal Security and thereafter a member of the Argentine Congress). The indictment alleges that certain defendants “caused SBS to transfer two wires in the aggregate amount of approximately $7.4 million to a bank account in Manhattan, New York” in furtherance of the bribe scheme.
The indictment next alleges that in 1999 “with work on the DNI project underway, the Government of Argentina suspended the project, as the country faced a mounting economic crisis and a presidential election” and that a “new administration, which came to power […] maintained the suspended status of the DNI project.” The indictment alleges that Sharef and Steffen “led a campaign on Siemens’s part to restart the DNI project” and that “renegotiation of the contract governing the DNI project was a part of the campaign.” The indictment charges that various defendants “lobbied Argentine government officials” and that Sharef met with a “Argentine Official D” (a senior official in the office of the Argentine President). According to the indictment, “the meeting engendered optimism at Siemens that the President of Argentina would soon issue a decree authorizing the resumption of the DNI project” and that “continuing the payment of bribes was part of the conspirators’ effort to revive the DNI project.”
According to the indictment, the conspirators committed to pay additional bribes to Argentine Officials A, B, C, D, as well as “Argentine Official E” (a senior official in the Ministry of the Interior and thereafter a member of Congress), “Argentine Official F” (a senior official in the Ministry of the Interior and thereafter a candidate for office in the Argentine Congress), and “Argentine Official G” (a senior official in the Ministry of Interior). According to the indictment, conspirators “agreed to funnel payments on all existing and new bribe obligations through the Intermediary Defendants” and “also agreed to conceal the bribe payments under a ‘white contract’ – that is, a contract that appeared legitimate on its face, but which did not reflect an actual transaction of business.”
The indictment next alleges that in 2001 “the anticipated decree authorizing the resumption of the DNI project still was not issued.” According to the indictment, “the Argentine government was instead conducting an assessment of the merits of continuing the DNI project through a body” called the General Accounting Agency of the Nation (“SIGEN”) and that “in a further effort to prevent termination of the DNI project, members of the conspiracy determined to influence SIGEN’s assessment in Siemens’s favor by bribing a SIGEN board member (“Argentine Official H”).
According to the indictment, “despite Siemens’s efforts and bribe payments intended for various foreign officials, the Government of Argentina officially terminated the DNI project” in 2001. Nevertheless, the indictment alleges that certain defendants and conspirators assembled a Crisis Management Team (“CMT”) continued a bribe scheme to “(i) ensure that Siemens recognized the economic benefits of the contract for the DNI project, notwithstanding its termination and the corrupt manner by which it had been procured, (ii) prevent public disclosure of the bribery associated with the DNI project, and (iii) ensure Siemens’s ability to secure future government contracts in Argentina and elsewhere in the region.” According to the indictment “the conspirators sought to achieve these related goals by paying down outstanding bribe obligations to Argentine Officials through a complex series of transactions, paying down bribe obligations through a sham arbitration in Switzerland, and seeking to recoup the anticipated financial benefits of the DNI project through a fraudulent arbitration in Washington D.C.”
Specifically, the indictment charges that certain defendants met with Sergi and Czysch in Miami, Florida to “re-negotiate the amount of outstanding bribe commitments to the Argentine Officials.” The indictment further alleges certain “wire transfer instructions for payment through a bank account in Manhattan, New York” and payments through a New York-based account. The indictment further alleges that one of the Conduit Entities had Miami, Florida addresses. The indictment further alleges that certain defendants also met in Manhattan, New York “to discuss the outstanding bribe obligations.”
Thereafter, the indictment alleges that Sergi (the prominent businessman in Latin America with extensive high-level government contracts in Argentina who served as an agent of Siemens AG) filed a formal claim against SBS in a Swiss arbitral tribunal in 2005 to recover under a sham contract used to make certain bribe payments. The indictment states that “although the members of the conspiracy knew that none of the services described in the contract were performed and were not expected to be performed, and that the contract was a sham used to disguise illegal bribe obligations, none of the conspirators acknowledged as much before the Swiss tribunal.” According to the indictment, SBS settled the claim for approximately $8.8 million, but that the “settlement was actually a mechanism to disguise a partial payment of bribe obligations to the Argentine Officials.” According to the indictment, certain of the settlement money passed through bank accounts in Manhattan, New York.
As to the Washington D.C. arbitration, the indictment alleges that certain of the defendants and co-conspirators “orchestrated the filing of a fraudulent arbitration claim in Washington D.C. in 2002 to cause the Argentine government to pay Siemens AG damages in an amount equivalent to incurred expenses and the total profits the company would have earned from the DNI project had it not been terminated.” According to the indictment, “exposure of the bribery associated with the DNI project would have likely rendered the arbitration claim futile because the contract would have been procured through illegal corruption.” The indictment alleges that certain defendants and co-conspirators “successfully kept evidence of bribery out of the arbitration in Washington D.C.” by filing witness statements containing “material misrepresentations and omissions relating to the DNI’s project origins, among other matters.” According to the indictment, despite later claims by Argentina that the DNI project bidding was corrupted – claims Siemens denied, the arbitral tribunal sided with Siemens AG and on February 2007 it awarded Siemens AG approximately $218 million in loss of investment, plus interest. However, the factual portion of the indictment ends with the following statement – in August 2009 “Siemens AG personnel who were not members of the conspiracy caused the company to waive its right to the award.”
Based on the above conduct, the indictment charges the defendants with conspiracy to violate the FCPA’s anti-bribery, books and records and internal control provisions; conspiracy to commit wire fraud; conspiracy to commit money laundering; and substantive wire fraud.
SEC Complaint
The SEC’s complaint (here) is based on the same core conduct alleged above. Reichert and Czysch are not named as defendants in the SEC action, but the SEC complaint includes as a defendant Bernd Regendantz (the CFO of SBS who allegedly authorized certain bribe payments). Each of the SEC defendants are charged with violating the FCPA’s anti-bribery provisions; aiding and abetting Siemens’ FCPA violations – both anti-bribery violations and books and records and internal controls; and violating other securities laws by falsifying documents, including invoices and sham consulting contracts in furtherance of the bribery scheme.
According to the SEC, “over the course of the bribery scheme, Siemens paid an estimated total of over $100 million in bribes, approximately $31.3 million of which were made after […] Siemens became subject to the U.S. securities laws.”
In addition, Regendantz is charged with violating Rule 13b2-2 by signing false internal certifications pursuant to SOX. As to Regendatz, the SEC complaint alleges that he “had no prior dealings with the DNI contract” when he became CFO of SBS in 2002 and that he had resisted other defendants pressure to authorize additional bribe payments. According to the complaint, “Regendantz sought guidance from Siemens’ Head of Compliance, Chief Financial Officer, Chief Executive Officer, and two members of the Managing Board.” The complaint alleges that “in each instance, Regendantz explained that the payment demands lacked any legitimate commercial basis and that he was reluctant to authorize them.” The complaint then states as follows. “In each instance, Regendantz explained that the payment demands lacked any legitimate commercial basis and that he was reluctant to authorize them. In each instance, Regendantz’s superiors gave every indication that they were familiar with the DNI Contract and with the nature of the payment demands. And in each instance, his superiors told Regendantz that it was his responsibility to find a solution to the problem. Regendantz understood these responses from his superiors to be an instruction that he authorize the bribe payments.”
The SEC’s release noted that Regendantz settled the SEC charges without admitting or denying the allegations and consented to entry of a final judgment that enjoins him from future violations. The release states that Regendantz previously paid a $40,000 administrative fine ordered by the Munich prosecutor.
Former Siemens Executives and Agents Charged
In December 2008, Siemens resolved the largest ever (in terms of fines and penalties) FCPA enforcement action. See here and here. A portion of the improper conduct focused on Argentina and allegations that Siemens S.A. (Argentina), and those acting on its behalf, engaged in a bribery scheme in connection with an Argentine government contract to produce national identity cards.
Since the 2008 enforcement action, U.S. enforcement authorities have been under pressure to charge culpable individuals. See here for a prior post and here for the transcript of the November 2010 Senate FCPA hearing during which former Senator Specter again called for individual accountability, an occurrence which prompted him to ask me several questions after the hearing about the “most egregious examples of individual conduct associated with the Siemens prosecution.” See here for my responses.
Today, the DOJ announced that “eight former executives and agents of Siemens AG and its subsidiaries have been charged for allegedly engaging in a decade-long scheme to bribe senior Argentine government officials to secure, implement and enforce a $1 billion contract with the Argentine government to produce national identity cards.”
The defendants charged in the indictment (here) are: Uriel Sharef (a former member of the central executive committee of Siemens AG); Herbert Steffen (a former chief executive officer of Siemens Argentina); Andres Truppel (a former chief financial officer of Siemens Argentina); Ulrich Bock, Stephan Signer and Eberhard Reichert (former senior executives of Siemens Business Services); and Carlos Sergi and Miguel Czysch (who allegedly served as intermediaries and agents of Siemens in the bribe scheme). None of the individuals are U.S. citizens and during a press conference today Assistant Attorney General Lanny Breuer indicated that none of the defendants are in U.S. custody.
The indictment, filed in the Southern District of New York, charges the defendants and their co-conspirators with conspiracy to violate the FCPA and the wire fraud statute, money laundering conspiracy and wire fraud.
In the DOJ release, Assistant Attorney General Lanny Breuer stated as follows. “Today’s indictment alleges a shocking level of deception and corruption. The indictment charges Siemens executives, along with agents and conduits for the company, with committing to pay more than $100 million in bribes to high-level Argentine officials to win a $1 billion contract. Business should be won or lost on the merits of a company’s products and services, not the amount of bribes paid to government officials. This indictment reflects our committment to holding individuals, as well as companies, accountable for violations of the FCPA.” During the press conference, Breuer stated that today’s action is the “first time a former Board member of a Fortune 50 company” has ever been charged with FCPA violations. Breuer also stated that “Siemens was a remarkably cooperative and helpful party throughout our investigation.”
In a parallel civil enforcement action also announced today (here), the SEC charged seven former Siemens executives with violating the FCPA for their involvement in the same bribery scheme. The following individuals are charged in the civil action: Sharef, Bock, Signer, Steffen, Truppel, Sergi and Bernd Regendantz (a former chief financial officer of Siemens Business Services). The civil complaint (here) alleges FCPA anti-bribery violations, aiding and abetting Siemens’ FCPA anti-bribery violations, as well as other charges. Robert Khuzami (Director of the SEC’s Division of Enforcement) stated as follows. “Business should flow to the company with the best product and the best price, not the best bribe. Corruption erodes public trust and the transparency of our commercial markets, and undermines corporate governance.” During today’s press conference, Khuzami called the action the “largest [SEC] action ever against individuals” in the FCPA’s history.
Additional analysis of the DOJ and SEC enforcement actions will follow.
Siemens And An FCPA Compliance Defense
The title of this post may induce a Gary Coleman moment – as in “whatcha talkin bout” (see here). No, I am not talking about that Siemens case – the 2008 FCPA enforcement action, the largest in FCPA history from a fine and penalty perspective, in which the DOJ and SEC alleged that Siemens engaged in a pattern of bribery “unprecedented in scale and geographic reach” and that for much of its operations around the world “bribery was nothing less than standard operating procedure.”
Should the FCPA be amended to include a compliance defense, such a defense would clearly be inapplicable to the 2008 Siemens matter given allegations that Siemens had, at one time, a “corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company.” As detailed in my responses (here) to Senator Specter’s questions at the November 2010 FCPA hearing, according to the DOJ, “compliance, legal, internal, audit, and corporate finance departments were a significant focus of the investigation and were discovered to be areas of the company that played a significant role in the violations”
Since the 2008 FCPA enforcement action (and indeed even before the ink was dry on the settlement documents), Siemens has undergone a substantial compliance transformation. As noted in the DOJ’s sentencing memorandum (here), settlement of the matter contained, among other things, the following terms: “implementation of rigorous compliance enhancements, including periodic testing of same, with a recognition that Siemens has already implemented substantial compliance changes over the course of the investigation; and retention of an independent monitor, who will, over a four-year term, conduct a review of the compliance code, Siemens’ internal controls and related issues, and will prepare periodic reports on his reviews.”
A specific section of DOJ’s sentencing memorandum is titled “Remediation Efforts” and 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 “Anti-Corruption Toolkit.” The Anti-Corruption Toolkit and its accompanying guide contain clear steps and timelier requirements 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 Anti-Corruption 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, as to third parties, stated as follows. “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 stated that “the reorganization and remediation efforts of Siemens have been extraordinary and have set a high standard for multi-national companies to follow.”
More recently, as of May 2011, according to Siemens compliance: (i) approximately 600 employees work full time in a single compliance organization managed by a Chief Compliance Officer (of this number approximately 80 work at Siemens corporate headquarters with the rest deployed evenly around various sectors/divisions and regional companies); (ii) 300,000 employees world-wide have received compliance training, including 100,000 employees who received face-to-face multi-hour courses; (iii) all new compliance officers worldwide are required to take an intensive four-day course; (iv) approximately 5,500 top managers worldwide have compliance metrics as one aspect of their compensation; and (v) approximately 55 high-risk entities and approximately 105 business unit were required to implement over 100 compliance systems controls.
The 2008 judgement against Siemens (here) imposes a five year probation period during which Siemens shall not commit any further crimes and the additional probation term that Siemens is to comply with the compliance and ethics program set forth in its plea agreement.
In short, there is likely no other company in the world today that has devoted as many corporate resources, with the assistance of industry experts, to compliance than Siemens. On the flip side, there is likely no other company in the world today that faces as many negative consequences should its compliance efforts fail than Siemens.
Against this backdrop, over the summer media reports suggested “alleged corruption by three company managers working in Kuwait” who allegedly “made payments to high-ranking individuals” in Kuwait’s Energy and Water Ministry. (See here). According to the reports, German authorities began investigating the conduct after receiving information from Siemens itself.
In other words, notwithstanding 600 full time Siemens compliance personnel, an Anti-Corruption Toolkit designed by industry leaders, over 100 compliance systems controls in high-risk jurisdictions, someone in Siemens organization may have made payments in violation of its pre-existing compliance policies and procedures and in violation of the FCPA.
Presumably, Siemens – should it be prosecuted – would get credit for its committment to compliance and pre-existing policies and procedures pursuant to the DOJ’s Prosecution of Business Organizations. In addition, should Siemens be prosecuted it would presumably receive credit for the same under the advisory U.S. Sentencing Guidelines. As the enforcement agencies have frequently stated in connection with FCPA reform – we already take compliance into account!
However, are these “baby carrots” a sufficient return on Siemens compliance investment? Do these “baby carrots” sufficiently recognize Siemens committment to compliance? Or should Siemens compliance efforts be recognized as a matter of law as would be the case if the FCPA was amended to include a compliance defense?