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An FCPA Enforcement Action Involving A U.S. Government Aid Program (With A Few Ironies)

By on September 19, 2017 in 1998-2004 Enforcement Actions, DOJ Enforcement Action, FCPA Enforcement Actions & Gov’t Assistance Or Aid Programs, FCPA Sentences, Individual Enforcement Action, Non-Profits, Restitution, Richard Pitchford, Turkmenistan, United Kingdom
CAAEF

[This post is part of a periodic series regarding “old” FCPA enforcement actions]

Yesterday’s post highlighted a number of Foreign Corrupt Practices Act enforcement actions in connection with U.S. government aid or assistance programs.

This post goes into more detail regarding the DOJ’s 2002 FCPA enforcement action against Richard Pitchford (the Vice President and Country Manager in Turkmenistan for the Central Asia American Enterprise Fund (CAAEF), an entity wholly funded by a $150 million appropriation from Congress pursuant to the Support for Eastern European Democracy Act of 1989 and the Freedom for Russia and Emerging Eurasian Democracies and Open Market Support Act of 1992).

One of the ironies with this enforcement action (there is another highlighted at the end of the post) is that prior to the enforcement action Pitchford was quoted as saying: “The potential in Central Asia is tremendous, especially in Turkmenistan because of its proximity to Turkey and the Persian Gulf. What’s missing is government political will to do the job. There’s no doubt this is a dictatorship and from top to bottom, it’s corrupt.” A short time later, Pitchford himself would be prosecuted for corruption.

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All About Panalpina

By on December 30, 2010 in 2010 Enforcement Actions, Aid and Abet, Angola, Azerbaijan, Brazil, CustomsGate, Deferred Prosecution Agreements, DOJ Enforcement Action, Facilitating Payments, Foreign Non-Issuer Company, Foreign Official, Jurisdiction, Kazakhstan, Nigeria, Oil and Gas Industry, Panalpina, Permits / Licenses / Customs / Tax, Russia, SEC Enforcement Action, Shipping Industry, Turkmenistan

Last but certainly not least in the analysis of CustomsGate enforcement actions is Panalpina.

See here for the prior post on the Pride International enforcement action, here for the prior post on the Shell enforcement action, here for the prior post on the Transocean enforcement action, here for the prior post on the Tidewater enforcement action here for the prior post on the Noble enforcement action and here for the prior post on the GlobalSantaFe enforcement action.

The Panalpina enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $81.9 million ($70.6 million criminal fine via a DOJ plea agreement and deferred prosecution agreement; $11.3 million in disgorgement via a SEC settled complaint).

This is a long post, but the enforcement action takes up 230 pages.

What you will find in these pages is that Panalpina paid millions of dollars of alleged bribes on behalf of certain of its customers (and in some instances for its own benefit as well), that a majority of the improper payments relate to Nigeria, and that a majority of Nigerian payments relate to temporary importation permits in connection with importing rigs and other vessels into Nigerian waters.

As to a U.S. nexus of these payments (a nexus necessary to find Panalpina, a foreign based non-issuer company, liable under the FCPA) you will find that the information alleges one e-mail and one conference call in which a certain Nigerian payment was discussed.

You will find that Panalpina also engaged in alleged improper conduct in numerous other countries besides Nigeria, but because of how the deferred prosecution agreement is structured, Panalpina ended up paying $0 for this non-Nigeria improper conduct.

You will find how Panalpina, despite an alleged corporate culture of bribery, including at the most senior levels of the company, was offered a deferred prosecution agreement even though it did not disclose the conduct at issue, even though it did not cooperate at all times in the DOJ’s investigation, and even though certain improper payments continued while the company was engaged in discussions with the DOJ.

You will also find how the SEC asserted a rather unique jurisdictional basis against Panalpina. That is Panalpina acted as an agent for certain of its issuer-customers and violated the FCPA by masking the true nature of bribe payments in invoices submitted to its issuer customers that allowed the customers to then violate the FCPA.

DOJ

The DOJ enforcement action involved a criminal information against Panalpina World Transport (Holdings) Ltd. (“PWT”) resolved through a deferred prosecution agreement and a criminal information against Panalpina Inc. resolved through a plea agreement.

PWT Criminal Information

Basel, Switzerland based PWT (here) “is one of the world’s leading suppliers of forwarding and logistics services, specializing in global supply chain management solutions and intercontinental air freight and ocean freight shipments and associated supply chain management solutions.” It operates “a close-knit network with some 500 branches in over 80 countries,” does business in a further 80 countries with partner companies, and employs approximately 15,000 individuals.

The criminal information (here) focuses on a “network of local subsidiaries … each of which was responsible for providing the freight forwarding and logistics services to customers and for coordinating with other Panalpina-affiliated companies with respect to the transportation and shipment of cargo from abroad.” In addition, PWT and its subsidiaries “provided customers with importation, customs clearance and ground shipment services once the shipped goods reached their destination jurisdiction.”

The subsidiaries are:

Panalpina Inc. (“Panalpina U.S”), a wholly-owned subsidiary and agent of PWT located in New Jersey with 38 branches in the U.S. ,including Houston – the office that had the “primary relationship for [Panalpina’s] oil and gas industry customers”;

Panalpina World Transports (Nigeria) Limited (“Panalpina Nigeria), a majority-owned subsidiary and agent of PWT until 2008 located in Lagos, Nigeria that was an “affiliate of Panalpina U.S. and provided a wide variety of services for Panalpina U.S.’s customers”;

Panalpina Transportes Mundiasis, Navegacao e Transitos, SARL (“Panalpina Angola”), a wholly-owned subsidiary and agent of PWT located in Luanda, Angola;

Panalpina Limitada (“Panalpina Brazil”), a wholly-owned subsidiary and agent of PWT located in Sao Paulo, Brazil;

Panalpina Azerbaijan LLC (“Panalpina Azerbaijan”), a wholly-owned subsidiary and agent of PWT located in Baku, Azerbaijan;

Panalpina Kazakhstan LLP (“Panalpina Kazakhstan”), a wholly-owned subsidiary and agent of PWT located in Almaty, Kazakhstan;

Panalpina World Transport Limited (Russia) (“Panalpina Russia”), a wholly-owned subsidiary and agent of PWT located in Moscow, Russia; and

Panalpina World Transport Limited (Turkmenistan) (“Panalpina Turkmenistan”), a wholly-owned subsidiary and agent of PWT located in Turkmenbashi, Turkmenistan.

The information refers to PWT and the above subsidiaries collectively as “Panalpina.”

The criminal information begins with a heading titled “Panalpina’s Culture of Corruption.” This section states as follows.

“Prior to 2007, dozens of employees throughout the Panalpina organization were involved in paying bribes to foreign offcials. Panalpina generally made payments on behalf of customers in order to circumvent the customs process for imports and exports of goods and items. Panalpina paid these bribes for various reasons, such as to cause officials to overlook insufficient, incorrect, or false documentation and to circumvent the local laws and inspections so as to allow the shipment of contraband (mainly unauthorized food and clothing). Panalpina also on occasion paid bribes to secure foreign government contracts for itself or to obtain favorable tax treatment by foreign governments.”

According to the information, “the highest levels of PWT’s leadership, including a former member of PWT’s Board of Directors (“Board Member A”), knew of and tolerated Panalpina’s payments of bribes.”

The information states as follows:

“Panalpina’s longstanding practice of making bribe payments in violation of the FCPA resulted from a variety of factors, including: (1) pressure from Panalpina’s customers to have services performed as quickly as possible, or to receive preferential treatment in obtaining services; (2) an inadequate compliance structure; (3) a corporate culture that tolerated and/or encouraged bribery prior to 2007 as customary and necessary in various markets; (4) the involvement of management in PWT’s Swiss headquarters that tolerated the improper payments prior to 2007; and (5) the involvement of Panalpina management in the U.S. and in other countries that encouraged the improper payments prior to 2007.”

According to the information, between 2002 and 2007 “Panalpina paid bribes to foreign officials valued at approximately $49 million” and “payments paid on behalf of Panalpina’s U.S. customers and their foreign subsidiaries accounted for approximately $27 million of these bribes payments.”

The criminal information (here) alleges bribery schemes in Nigeria, Angola, Brazil, Azerbaijan, Russia, Kazakhstan, and Turkenistan.

Nigeria

According to the information:

“Panalpina had a substantial number of oil and gas customers that shipped items into Nigeria, including customers in the United States. The goods shipped by Panalpina into Nigeria could only be imported into the jurisdiction if they satisfied the local statutory and regulatory requirements, which required product inspection, submission of satisfactory paperwork, and payment of customs duties and other taxes. Furthermore, once the items had been imported, they remained subject to local laws or regulations. Some of Panalpina’s customers, including its U.S. customers, sought to avoid local customs and import laws and processes by seeking to import goods without sufficient documentation, without being inspected, or without paying the required taxes, duties or fees. Panalpina used a portion of the revenue earned from its customers to make bribe payments to local customs officials in exchange for their cooperation in assisting Panalpina in circumventing these local legal or regulatory requirements on behalf of Panalpina’s customers. Panalpina sought reimbursement for these bribe payments through invoices that used false terms to characterize the bribe payments.”

According to the information, Panalpina used “approximately 160 different terms [internally and externally to invoice customers] to falsely describe the bribes it paid in Nigeria relating to the customs process.”

The information alleges that “the bribes paid by Panalpina relating to the customs process were paid to officials in the Nigerian Customer Service (“NCS”), a Nigerian government agency” responsible for “assessing and collecting duties and tariffs on goods imported into Nigeria.”

According to the information, between 2002 and 2007, “Panalpina paid over $30 million in bribes to Nigerian government officials” and “payments made on behalf of Panalpina’s U.S. customers and their foreign subsidiaries accounted for at least $19 million of these bribe payments.”

The information describes four types of “bribery payments” in Nigeria – (1) Pancourier; (2) Temporary Import Permits payments; (3) “special” and other bribe payments; and (4) “recurring payments to government officials.” According to the DPA statement of facts “the overall largest category of payments, accounting for the largest amount of bribes, related to securing Temporary Importation Permits on behalf of its customers” and “those bribes ranged in value from $5,000 to over $75,000 per transaction.”

Pancourier

“Pancourier” was Panalpina’s “express courier service” that certain Panalpina customers used instead of “the normal shipping process” to “import goods or contraband into Nigeria without complying with Nigerian customs law.” According to the information, “Panalpina charged its customers a premium for this service and explained that no government receipt or paperwork would be available from NCS for the goods that were imported.” The information alleges that “Panalpina typically billed its customers for two separate charges” (1) a charge based on the weight of the shipment; and (2) a “special fee” that was a “bribe paid to the NCS officials for the purpose of securing an improper advantage for the customer.”

According to the information, between 2002 and 2007 “Panalpina, through Panalpina Nigeria, paid hundreds of bribes to NCS officials in relation to the Pancourier service.”

Special and Other Improper Payments

The information states as follows:

“In addition to the Pancourier service, Panalpina also offered standard freight forwarding and shipping services. For standard Panalpina freight forwarding and shipping, once the goods arrived at their destination, a Panalpina Nigeria employee would ensure that the goods cleared customs. The clearance process typically required the submission of documents, an inspection of the product being shipped, and the payment of any customs and other fees associated with the importation of that product. The goods shipped by Panalpina frequently encountered delays in clearng customs for various reasons, including insufficient or missing documentation or delays due to the legally-required inspection process. Panalpina customers often sought to avoid local customs and import laws and processes to expedite their shipments into Nigeria. Panalpina made cash bribe payments, through Panalpina Nigeria, to local government officials, including NCS employees, to expedite customs clearance, avoid the required cargo inspections, avoid fines, duty payments, and tax payments, and to circumvent permit requirements and other legal requirements.”

According to the information, between 2002 and 2007, “Panalpina, through Panalpina, Nigeria, paid thousands of bribes on behalf of its customers to Nigerian government officials to resolve these types of customs and immigration matters.”

Temporary Import Permits Payments

The information states as follows:

“Another service offered by Panalpina involved obtaining Temporary Import Permits (“TIPs”) required under Nigerian law to import high-value special equipment, such as rigs and other large vessels, into Nigerian water. A TIP could be extended through two six-month extensions (known as “TIP extensions”). Vessels imported under a TIP (and TIP extensions) could not remain in Nigeria longer than the period allowed for by the TIP and/or TIP extensions. Upon expiration, the vessel was required to be exported from Nigeria and, if appropriate, the customer could re-apply for a new TIP. Panalpina, through Panalpina Nigeria, made improper payments to Nigerian government officials to assist some of its customers to circumvent TIP regulations. Specifically, Panalpina Nigeria made payments to NCS officials, on behalf of customers, to extend TIPs without complying with Nigerian TIP regulations. As a result, the customers avoided the time and cost of removing vessels upon the expiration of the TIP, as was otherwise required by Nigerian law.”

According to the information, between 2002 and 2007, “Panalpina, through Panalpina Nigeria, paid over a hundred bribes to Nigerian government officials on behalf of Panalpina’s customers to improperly secure TIPs and TIP extensions.”

Payment of Bribes to Secure a Contract

The information alleges that between November 2003 and August 2005, “Panalpina promised to pay $50,000 to a National Petroleum Investment Management Services official (the “NAPIMS Official) in exchange for the official’s assistance in securing the award by NAPIMS of a logistics contract to Panalpina.” According to the information, “Panalpina was awarded a global framework logistics contract in or around November 2003” and “in or around November 2005, PWT directed the $50,000 bribe payment to be made to the NAPIMS Official in cash.”

The information states that NAPIMS supervised and managed Nigeria’s investment in the oil and gas industry and NAPIMS officials had the authority to approve or disapprove logistics contracts awarded for certain projects.

Recurring Payments to Government Officials

Although referenced in the information, the information does not contain any detail about such payments.

However, the DPA’s statement of facts states as follows.

“Panalpina Nigeria made improper payments to a wide variety of Nigerian officials, including, but not limited to, NCS offcials, Port Authority offcials, Maritime Authority officials, Police officials, Deparment of Petroleum officials, Immigration Authority officials, and National Authority for Food and Drug Control officials. Most of these improper payments were tied to specific transactions, however, Panalpina Nigeria also provided certain officials weekly or monthly allowances to ensure the officials would provide preferential treatment to Panalpina and its customers. Between in or around 2002 and in or around 2007, Panalpina made hundreds of improper weekly and monthly payments to Nigerian government officials.”

Angola

The information charges that between 2002 and 2008 “Panalpina Angola paid approximately $4.5 million in bribes to Angolan government officials.” Two types of payments are described: “Customs and Immigration Payments” and “Payments to Secure Contracts.”

Customs and Immigration Payments

According to the information, the payments were made to “Angolan government officials responsible for customs and immigration matters” and the purpose of the payments was to “cause such officials to: overlook incomplete or inaccurate documentation; avoid levying proper customs duties; or avoid imposition of fines relating to the failure of Panalpina Angola, or its customer, to comply with legal requirements.” According to the information, Panalpina Angola paid “hundreds of bribes” ranging from “de minimus amounts to $25,000 per transaction.”

Payments to Secure Contracts

The information charges that between December 2006 and March 2008, “Panalpina Angola paid over $300,000 to two Angolan government officials responsible for Angolan oil and gas operations to secure two separate logistics contracts.” According to the information, the officials “had the authority to approve or disapprove the retention of logistics companies to provide services for projects that Panalpina sought to secure.” According to the information, in connection with certain of these payments, Panalpina Angola “invoiced an Angolan government-controlled entity for a non-existent employee (referred to as the ‘ghost employee’) who was allegedly dedicated to the Angolan entity to work on the logistics for the particular project.”

Azerbaijan

The information states as follows.

“Between in or around 2002 and in or around 2007, Panalpina Azerbaijan paid approximately $900,000 in bribes to Azeri government officials responsible for assessing and collecting duties and tariffs on imported goods. […] The purpose of many of the bribes paid to the Azeri government officials was to cause these officials to overlook incomplete or inaccurate documentation; avoid levying proper customs duties; or avoid imposition of fines relating to the failure of Panalpina, or its customer, to comply with legal requirements. In addition, Panalpina also made bribe payments to Azeri tax officials to secure preferential treatment for Panalpina Azerbaijan.”

Brazil

The information states as follows.

“Between in or around 2002 and in or around 2007, Panalpina Brazil paid over $1 millon in bribes to Brazilian govermnent officials responsible for assessing and collecting duties and tariffs on imported goods on behalf of its customers. […] The purpose of many of these bribes was to expedite the customs clearance process; to avoid the imposition of fines and penalties; to circumvent Brazilian law requirements for customs declaration of courier shipments; to permit shipments to be imported in Brazil without an import license; and to allow exports from Brazil of goods originally imported without accurate and complete documentation. Many of the bribe payments made by Panalpina Brazil on behalf of its customers were in connection with shipments to Brazil originating with Panalpina U.S. from the United States.”

Kazakhstan

The information states as follows.

“Between in or around 2002 and in or around 2007, Panalpina Kazakhstan paid over $4 milion in bribes to Kazakh governent officials, including, for example, payments to Kazakh government officials responsible for assessing and collecting duties and tariffs on imported goods and officials responsible for administering and enforcing Kazakhstan tax policy. […] The purpose of many of the bribes paid to the Kazakh government officials was to cause officials to overlook incomplete or inaccurate documentation; avoid levying proper customs duties; and avoid imposition of fines relating to the failure of Panalpina, or its customer, to comply with legal requirements.”

According to the information, the payments “ranged from several hundred dollars to $50,000 per transaction.”

The information further states that “Panalpina Kazakhstan paid bribes to Kazakhstan officials responsible for administering Kazkhstan tax policy in conjunction with its annual tax audits to minimize the duration and depth of the audits as well as to reduce proposed fines.”

Russia

The information states as follows.

“Between in or around 2002 and in or around 2007, Panalpina Russia paid over $7 milion in bribes to Russian government officials responsible for assessing and collecting duties on imported goods. […] The purpose of many of the bribes paid to the Russian government officials was to avoid delays, administrative fines, and other legal action as a result of missing, incomplete or erroneous documentation; to avoid problems arising out of the improper use of a TIP; and to bypass the customs process in total.”

Turkmenistan

The information states as follows.

“Between in or around 2002 and in or around 2009, Panalpina Turkmenistan paid over $500,000 in cash bribes to: (i) Turkmen government officials responsible for assessing and collecting duties and tariffs on imported goods in order to expedite the release of shipments and undocumented shipments and to circumvent the official Turkmen customs and immigration regulations; (ii) Turkmen government officials responsible for auditing, assessing, and collecting taxes on economic activity in Turkmenistan to minimize the duration of audits and investigations and to reduce proposed fines; and (iii) Turkmen govermnent officials responsible for enforcing Turkmenistan labor, health, and safcty laws, including through the use of audits and inspections, to minimize the duration of audits and investigations and to reduce the proposed fines.”

Based on all of the above conduct, the information charges conspiracy to violate the FCPA’s anti-bribery provisions. In addition, as to the Nigeria conduct, the information charges FCPA anti-bribery violations.

As to a U.S. nexus (a requirement for an entity such as PWT to be in violation of the FCPA’s anti-bribery provisions under 78dd-3), the information merely alleges that in November 2003 “a Panalpina U.S. employee located in Houston, Texas, sent an e-mail to a Panalpina employee based in Switzerland advising that the NAPIMS Official would award a logistics contract with the Nigerian government to Panalpina in exchange for a bribe of $50,000” and that in November 2003 “Panalpina employees based in Switzerland, Panalpina U.S. employees located in Houston, Texas, and others participated in a conference call to discuss the $50,000 payment to the NAPIMS Official.”

PWT DPA

The DOJ’s charges against PWT were resolved via a deferred prosecution agreement (see here).

Pursuant to the DPA, PWT admitted, accepted and acknowledged that it was responsible for the acts of its directors, officers, employees, subsidiaries, agents and consultants as set forth above.

The DPA’s statement of facts contains a separate section titled “Panalpina U.S.’s Assistance to its Issuer-Customers in Circumventing Books and Records Controls.” This section states that between 2002 and 2007 “Panalpina U.S. provided services to over 40 customers that were issuers” and that “in total, Panalpina paid approximately $27 million in bribes to foreign officials on behalf of these issuer-customers.”

In pertinent part, the statement of facts state as follows.

“Many of Panalpina U.S.’s issuer-customers knew, or were aware of facts indicating a high probability, that Panalpina was paying bribes on their behalf. Further, those issuer-customers with knowledge of the bribe payments failed to properly record the payments in their books and records.”

“Many of Panalpina’s issuer-customers were aware of the bribes paid by Panalpina. Importantly, those issuer-customers with strong compliance programs or rigorous audit standards were either not offered services such as Pancourier, which included improper payments to governent officials, or Panalpina paid bribes on the issuer-customer’s behalf but would not invoice the issuer-customer for the payment.”

“Panalpina US., through the local Panalpina affiiates, knowingly and substantially assisted the issuer-customers in violating the FCPA’s books and records provisions by masking the true nature of the bribe payments in the invoices submitted to the issuer-customers. By providing an invoice to the issuer-customer for what appeared to be a legitimate payment, the customer could use that invoice as support for recording a particular charge as a legitimate service in its corporate books and records when, in fact, the invoice was for a bribe.”

The statement of facts then describe how Panalpina Nigeria specifically assisted Customer A (Shell) and Customer B (Tidwater) in making bribe payments for Pancourier services and TIP payments.

The DPA’s statement of facts provides further information about “Panalpina’s Corporate Culture and Senior Management Knowledge.” According to the statement of facts: “Prior to 2007 a culture of corruption within Panalpina emanated from senior level management in Switzerland who tolerated bribery as business as usual in various markets. This trickled down to other Panalpina employees who accepted bribery as a part of Panalpina’s standard business practice.” According to the statement of facts: “Many employees openly used the terms ‘apples,’ ‘interventions,’ ‘special handling,’ and ‘evacuations’ on a daily basis in conversations, written correspondence, and e-mail exchanges” even though “most employees understood that these terms referred to cash payments provided to government officials in exchange for preferential treatment.”

The term of the DPA is three years and seven months and it states that the DOJ entered into the agreement “based on the individual facts and circumstances” of the case and PWT. Among the factors stated are the following.

(a) PWT conducted comprehensive anti-bribery compliance investigations of operations of PWT’s subsidiaries in seven countries, as well as separate investigations related to U.S. and Swiss operations;

(b) PWT conducted a review of certain transactions and operations conducted by its subsidiaries or agents in another 36 countries;

(c) PWT promptly and voluntarily reported its findings from all investigations to the Department, including arranging to provide information from foreign jurisdictions which significantly facilitated the Department’s access to such information;

(d) PWT mandated employee cooperation from the top down and ensured the availabilty of more than 300 employees and former employees for interviews during and following the investigations;

(e) PWT instituted a limited employee amnesty program to encourage employee cooperation with the investigations;

(f) PWT expanded the scope of the investigations where necessary to ensure thorough and effective review of potentially improper practices, and promptly and voluntarily reported any improper payments identified after internal and Department investigations had begun;

(g) After initially not cooperating with the investigation for several months, PWT fully cooperated with the Department’s investigation of this matter, as well as the SEC’s investigation, and on the whole exhibited exemplary
cooperation with the Departent’s investigation;

(h) PWT provided substantial assistance to the Department and the SEC in its investigation of its directors, officers, employees, agents, lawyers, consultants, contractors, subcontractors, subsidiaries and customers relating to violations of the FCPA;

(i) PWT undertook substantial remedial measures [the DPA then lists 10 such measures including “of its own initiative and at a substantial cost, PWT closed down its operations and withdrew from Nigeria to avoid potential ongoing improper conduct”]; and

(j) PWT agreed to continue to cooperate with the Department in any ongoing investigation of the conduct of PWT and its directors, officers, employees, agents, lawyers, consultants, subcontractors, subsidiaries, and customers relating to violations of the FCPA.

As stated in the DPA, the fine range for the above described conduct under the U.S. Sentencing Guidelines was $72.8 million to $145.6. Pursuant to the DPA, PWT agreed to pay a monetary penalty of $70.56 million. However, the DOJ and PWT agreed “that any criminal penalty that is imposed by the Court and paid by Panalpina U.S., in connection with its guilty plea and plea agreement entered into simultaneously herewith will be deducted from the $70,560,000 criminal penalty required by this Agreement.” Because the Panalpina Inc. plea agreement (which relates only to Nigeria conduct) contemplates a payment of $70,560,000, the effect of the above clause is that PWT will end up paying $0 for the non-Nigeria conduct described in the DPA.

Also of note, even though the DPA states that PWT did not initially cooperate with the DOJ’s investigation for several months, PWT nevertheless received sentencing credit for “fully cooperating” in the DOJ’s investigation.

Pursuant to the DPA, PWT agreed to a host of compliance undertakings and to report to the DOJ (during the term of the DPA) “on its progress and experience in implementing and, as appropriate, enhancing its compliance policies and procedures.”

The DPA references three tolling agreements agreed to between January 2008 and October 2010.

As is standard in FCPA DPAs, PWT agreed not to make any public statement “contradicting the acceptance of responsibility by PWT as set forth” in the DPA and PWT further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.

Panalpina U.S. Criminal Information

The criminal information (here) describes “Panalpina U.S.’s Actions to Conceal Bribes on Behalf of Its Issuer-Customers in Nigeria.” Separate sections concern “Pancourier Express Courier Payments” and “Temporary Importation Payments.”

Count One of the information charges Panalpina U.S., a non-issuer, with conspiring and agreeing with Customer A [Shell] and Customer B [Tidewater] “to knowingly falsify and cause to be falsified books, records, and accounts which were required, in reasonable detail, to accurately and fairly reflect the transactions and dispositions of the assets of Customer A, Customer B, and other issuers” in violation of the FCPA’s books and records provisions.

Count Two of the information charges Panalpina U.S. with aiding and abetting FCPA books and records violations by aiding, abetting, and assisting Customer A [Shell] “in mischaracterizing payments for freight forwarding costs as ‘administration/transport charges’ in Customer A’s books and records when, in truth and in fact, Customer A knew that these payments were bribes, paid through Panalpina Nigeria, intended to be transferred to NCS officials.”

Panalpina U.S. Plea Agreement

The above criminal charges against Panalpina U.S. were resolved via a plea agreement (see here).

As stated in the plea agreement, the fine range for Panalpina U.S.’s conduct under the U.S. Sentencing Guidelines was $72.8 million to $145.6. Pursuant to the plea agreement, Panalpina U.S. agreed to pay a monetary penalty of $70.56 million.

In an “Agreed Motion to Waive the Presentence Report” (here) the DOJ states as follows.

“…Panalpina’s cooperation and remediation in this matter has been exemplary. Panalpina provided substantial assistance to the Deparment in its investigations relating to these matters. In addition, where Panalpina encountered evidence of new violations in the course of its internal investigation, it expanded the scope of the investigation accordingly and reported the new findings to the Department. Panalpina acknowledged and accepted responsibility for misconduct, investigated and identified the nature and extent of the misconduct, and undertook comprehensive global remediation and training during the course of the investigation. Panalpina’s remediation was global and included a dramatic change in its busincss model, paricularly in higher risk countries.”

As to how the DOJ’s investigation of PWT and its related entities began, the Report states as follows. “In approximately 2006, the Department opened an investigation into Panalpina’s business practices based on evidence obtained through several Panalpina customers indicating Panalpina had paid bribes to foreign government officials on behalf of its customers.”

The Report continues as follows. “In total, between in or around 2002 and in or around 2007, Panalpina paid bribes to offcials in at least seven countries, including Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia, and Turkmenistan. Approximately $27,000,000 of that total related directly to, and was paid on behalf of, customers that were US. issuers or “domestic concerns” within the meaning of the FCPA.

The Report contains a footnote that states “a small number of improper payments continued into 2008 and 2009.” As to these payments, the Report notes elsewhere as follows. “Despite PWT’s and Panalpina U.S.’s extensive efforts to transform its compliance program, during the course of the investigation, PWT uncovered a few instances in which employees were continuing to pay bribes to foreign officials. This improper conduct, although limited, continued to occur into 2008 and early 2009. Upon discovery, PWT took swift action to stop the payments, to disclose the conduct to the Department, to terminate and/or reprimand the employees implicated in the conduct, and to retrain employees in the relevant countries regarding the importance of adhering to PWT’s compliance rules and regulations.”

As to Panalpina’s “Cooperation and Assistance” the Report states as follows.

“The Department initiated its investigation of Panalpina in or around mid-2006 based on conduct disclosed by Panalpina customers. Panalpina learned of the
investigation in or around late-2006 from its customers. Despite knowledge of the investigation, Panalpina did not voluntarily disclose the conduct to the Department and did not stop the illegal payment of bribes that was occurring on multiple continents. In or about early-2007, the Department requested documents and information from Panalpina; however, at that time, Panalpina exhibited a reluctance to cooperate with the investigation. Thereafter, Panalpina engaged and instructed its legal counsel (“Counsel”) to conduct a comprehensive internal investigation, and ultimately authorized Counsel to report the findings to the Department and SEC. Thereafter, Panalpina exhibited exemplary cooperation with the Department and SEC, and conducted a comprehensive internal investigation that fully supported and paralleled the Department’s investigation. Specifically, Panalpina engaged Counsel to lead investigations encompassing 46 jurisdictions and hired an outside audit firm to perform forensic analysis and other support tasks. Panalpina’s internal investigation included a comprehensive review of operations in nine countries – the United States, Switzerland, Nigeria, Brazil, Angola, Russia, Kazakhstan, Turkmenistan, and Azerbaijan – and a detailed review of 102 additional issues in another 36 countries. Panalpina expanded the scope of its internal investigation where necessary, and promptly and voluntarly reported its findings from all investigations to the Department and SEC in over 60 meetings and calls. When potential issues were identified in countries not subject to a full investigation, Panalpina thoroughly investigated and remediated those issues. Panalpina voluntarily supplied to the Department and the SEC information from interviews and documentary evidence regarding potential violations by Panalpina customers and third parties used as conduits for improper payments and for facilitating improper transactions. Panalpina provided substantial assistance to the Department and SEC in the investigation of its own directors, officers, and employees, mandated employee cooperation from the top down, and made over 300 current and former employees available for interviews to Counsel, the Department, and the SEC during and after the internal investigation. Panalpina also adopted a limited employee amnesty program to encourage employee cooperation with the internal investigation.”

The Report further notes as follows. “On September 30, 2010, in an unelated matter, PWT was charged in a three-count criminal information with fixing prices on surcharges added to air cargo shipments in certain trade lanes, in violation of Title 15, United States Code, Section 1. See United States v. Panalpina World Transport (Holding) Ltd., 10270-RJ (D.D.C.). The Company has agreed to plead guilty and to pay a fine of $11,947,845. No date has yet been set for entry of
the plea or sentencing.”

SEC

The SEC’s civil complaint (here) alleges, in summary, as follows.

“Between 2002 and continuing until 2007, Panalpina, Inc. engaged in a series of transactions whereby it directed business to affiliated companies within the Panalpina Group, which then used part of the revenues generated from this business to pay a significant number of bribes to government officials in countries including Nigeria, Angola, Brazil, Russia, and Kazakhstan. These bribes were paid by the Panalpina Group companies in order to assist Panalpina, Inc.’ s issuer customers in obtaining preferential customs, duties, and import treatment in connection with international freight shipments. The practice of Panalpina Group companies making these payments was known to certain Panalpina, Inc. employees, including some
members of Panalpina, Inc.’s management. Although the reasons for the bribes, and the payment schemes themselves, differed from jurisdiction to jurisdiction and transaction by transaction, most shared several similarities. The issuer customers often used Panalpina, Inc. or other Panalpina Group companies to ship goods from the United States, or elsewhere, to another jurisdiction or sought Panalpina, Inc.’s assistance in obtaining customs or logistics services in the country to which the goods were shipped. However, for various reasons including delayed departures, insufficient or incorrect documentation, the nature of the goods being shipped and imported, or the refusal of local government officials to provide services without unofficial payments, Panalpina, Inc.’ s issuer customers sometimes faced delays in importing the goods. In other cases, Panalpina, Inc.’s issuer customers sought to avoid local customs duties or inspection requirements or otherwise sought to import goods in circumvention of local law. In order to secure the importation of goods under these circumstances, Panalpina, Inc.’ s issuer customers often authorized Panalpina, Inc. and the local affiliated Panalpina Group companies (e.g., Panalpina Nigeria) to bribe local government offcials. These cash payments to government officials were typically made by employees of the local affiliated Panalpina Group companies. The affiliated Panalpina Group companies generally invoiced the issuer customers for the bribes, along with other legitimate fees, either directly or through an affiliated billing entity (“Affiliated Billing Entity”). These invoices, which contained both legitimate and illegitimate costs incurred by the Panalpina Group companies, inaccurately referred to the payments as ‘local processing,’ ‘special intervention,’ ‘special handling,’ and other seemingly legitimate fees. In reality, these payments were bribes to local government officials in order to secure improper benefits for the issuer customers.”

By engaging in this conduct, the SEC alleged that Panalpina, “while acting as an agent of its issuer customers” violated the FCPA’s anti-bribery provisions and aided and abetted its issuer customers’ violations of the FCPA’s anti-bribery provisions and books and records and internal control provisions. The SEC complaint specifically states that “neither Panalpina, Inc. nor PWT is an issuer for purposes of the FCPA.”

As to Pancourier payments, the complaint alleges that in order to assist its issuer customers avoid certain Nigerian legal requirements, “Panalpina Inc. would ship the product to Nigeria wrapped in a distinctive manner so that customs officials would recognize it as a Pancourier shipment and not inspect it, require a Form M, or otherwise subject it to normal customs procedures. In order to secure its preferential treatement, Panalpina Nigeria made regular improper cash payments to Nigerian customs officials.”

The SEC complaint also describes “additional bribes paid on behalf of issuer customers in Nigeria, Angola, and Brazil” including temporary importation payments described as “the largest category of customs-related payments made by Panalpina Nigeria on behalf of the issuer customers.” The complaint also describes “pre-release, intervention, evacuation, and special payments” made by Panalpina Nigeria to “Nigerian government officials on behalf of the issuer customers to secure the release of goods from customs prior to the completion of the inspection process” and to “secure improper benefits for the issuer customers.”

The Angola payments related to immigration matters “in order to obtain visas for the issuer customers on an emergency basis, often requesting that the visa be issued same-day, in contravention of Angolan law;” and customs matters “in order to assist the issuer customers to import goods into Angola without complying with Angolan law.” The complaint also describes “other payments” in Angola including “unofficial payments to Angolan military officials on behalf of the issuer customers in order to permit them to use military cargo aircraft to transport their commercial goods.”

The Brazil payments related to “improper payments to Brazilian government officials on behalf of its issuer customers in order to expedite the customs clearance process, and where necessary, to resolve customs and import-related issues.”

The complaint also alleges that between 2002 and 2007 “Panalpina Kazakhstan and Panalpina Russia made or authorized the making of several types of improper payments on behalf of issuer customers to government officials in Russia, Kazakhstan, and other parts of Central Asia, in order to assist the issuer customers improperly import goods into these jurisdictions or to obtain other types of improper benefits.”

According to the SEC, “Panalpina Inc. obtained improper benefits totatling at least $11,329,369 from the illegal conduct” described in the complaint.

Without admitting or denying the SEC’s allegations, Panalpina agreed to an injunction prohibiting future FCPA violations and agreed to pay disgorgement of $11,329,369.

In a press release (here), Panalpina CEO, Monika Ribar stated as follows. “The settlement of these claims marks the closing of an extremely burdensome chapter in Panalpina’s history and the end of a very demanding three-year effort to address and eliminate serious concerns. Now it is time for us to look to the future and to build on the strong and sustainable compliance culture we have put in place. We are also looking forward to strengthened relationships with our customers who have ceased or reduced business activities with Panalpina due to the investigation. Based on new leadership and significant enhancements of our compliance systems we are a much stronger company today.”

Richard Dean (here) and Douglas Tween (here) both of Baker & McKenzie represented the Panalpina entities.

Dissecting Daimler

By on March 29, 2010 in 2010 Enforcement Actions, Auto Industry, China, Croatia, Daimler, Debarment, Deferred Prosecution Agreements, DOJ Enforcement Action, Egypt, Foreign Issuers, Foreign Official, Greece, Hungary, Indonesia, Iraq, Ivory Coast, Latvia, Monitor, Nigeria, Oil for Food Enforcement Action, Russia, Serbia, Thailand, Turkey, Turkmenistan, Uzbekistan, Vietnam

April Fool’s Day is a day traditionally full of practical jokes and pranks.

Thus, it is only fitting that on April 1st U.S. District Court Richard Leon will hold a hearing on the Daimler FCPA enforcement action during which he is expected to approve a DOJ – Daimler brokered deferred prosecution agreement and other various aspects of the settlement discussed below.

If so, one pillar which contributes to the “facade of FCPA enforcement” (more on that in a future post) – bribery, yet no bribery – will have a new poster-child in addition to the Siemens and BAE bribery, yet no bribery FCPA enforcement actions (see here for prior Siemens posts and here for prior BAE posts).

At least, Siemens and BAE pleaded guilty to something – even if that something was not an FCPA antibribery charge.

The Daimler enforcement action appears to take the “facade” one step further in that Daimler will not have to plead guilty to anything … zero … zilch.

Rather, Daimler will agree to a deferred prosecution agreement despite clear evidence (per the DOJ’s own allegations as set forth below) of FCPA antibribery violations.

One can legitimately ask, what did Innospec Inc. and Control Components, Inc. (two companies that recently pleaded guilty to FCPA antibribery violations) do that Daimler also didn’t do?

Sure, two insignificant entities in Daimler’s massive corporate hierarchy, Daimler Export and Trade Finance GmbH (“ETF”) and DaimlerChrysler Automotive Russia SAO (“DCAR”), are expected to plead guilty to FCPA antibribery charges. EFT is a finance arm far down on Daimler’s corporate hierarchy and DCAR sells spare parts for Daimler in Russia.

In other words, it sure looks and feels like two junior, indirect subsidiaries are being offered up as “sacrificial corporate lambs” to take the fall for the more significant, powerful parent.

The end result is that the DOJ can boast it secured two FCPA antibribery pleas while allowing Daimler to say that it never violated the FCPA’s antibribery provisions, thus allowing Daimler to escape debarment in Europe – a factor clearly at issue in this enforcement action as highlighted below.

Yet another instance of bribery, yet no bribery is not the only reason why the Daimler enforcement action contributes to the facade of FCPA enforcement.

In addition, wrapped into allegations which clearly establish all the elements of an FCPA antibribery violation, are numerous dubious and untested theories of FCPA liability.

Most notably, the entire criminal information against DaimlerChrysler China Ltd. (“DCCL”) is premised, as so many recent FCPA enforcement actions are, on employees of alleged Chinese state-owned entities (companies doing business all over the world and companies with publicly traded stock) being “foreign officials” under the FCPA. As in other FCPA enforcement actions, the allegations as to these entities are bare-bones, uninformative, and replete with legal conclusions as to why these entities are “instrumentalities” of a foreign government.

Because these dubious and untested theories of FCPA liability are embedded into the much larger bribery, yet no bribery charges against Daimler which are being resolved through a deferred prosecution agreement, these dubious and untested theories will once again escape judicial scrutiny.

Because of the general lack of substantive FCPA case law, the entire Daimler enforcement action (including theories of liability premised on the dubious and untested legal theories) will once again be viewed as de facto FCPA case law.

The Daimler bribery, yet no bribery enforcement action is wide in scope and allegations of improper conduct go all the way up to senior levels of the company. The “things of value” are numerous, the “foreign officials” include bona fide government officials (as well as the dubious “foreign officials” referenced above) and the amount of business allegedly obtained or retained through bribery and corruption is in the hundreds of millions.

The countries in which the payments were allegedly made are numerous (in fact, the label function at the bottom of this post only allows so many characters and I was unable to separately label each country in which the alleged improper payments occurred).

The alleged improper payments involved dozens and dozens of third parties, including several located in the U.S., which were allegedly utilized by Daimler and its affiliates to bribe foreign officials. Given Daimler’s use of numerous U.S. based entities, it will be interesting to see if any of these U.S. entities and/or entity employees will be prosecuted for their role in the respective bribery schemes.

The Daimler bribery, yet no bribery case involves involves ineffective internal controls, lack of effective third-party due diligence, and intentional misrecording of bribe payments on Daimler’s books and records (and those of its affiliates).

Yet in another interesting twist, Daimler also escapes criminal charges for knowingly failing to implement effective internal controls, even though the DOJ’s own allegations would seem to support such a charge. (Even Siemens plead guilty to both criminal books and records and internal controls charges).

This a long post.

However, the more that is known about the Daimler FCPA enforcement action and the more that is understood about the facade of FCPA enforcement, the greater the chance the facade of FCPA enforcement will be exposed and addressed.

It all starts with the person standing between the DOJ and Daimler and that is Judge Richard Leon and he would be doing a great public service by rejecting the proposed settlement and injecting the “rule of law” into the current facade of FCPA enforcement.

This post details the Daimler criminal information, the Daimler deferred prosecution agreement, the three separate criminal informations against Daimler subsidiaries, and the DOJ omnibus sentencing memorandum.

The Daimler AG Bribery, Yet No Bribery Allegations

According to the criminal information (see here) filed against Daimler AG (and the Statement of Facts in the below described deferred prosecution agreement), the company “engaged in a long-standing practice of paying bribes to ‘foreign officials’ as that term is defined in the FCPA … through a variety of mechanisms, including the use of corporate accounts [such as cash desks], offshore bank accounts, deceptive pricing arrangements, and third-party intermediaries.”

In summary fashion, the information charges that “between 1998 and January 2008, Daimler made hundreds of improper payments worth tens of millions of dollars to foreign officials in at least 22 countries – including China, Croatia, Egypt, Greece, Hungary, Indonesia, Iraq, Ivory Coast, Latvia, Nigeria, Russia, Serbia and Montenegro, Thailand, Turkey, Turkmenistan, Uzbekistan, Vietnam, and others – to assist in securing contracts with government customers for the purchase of Daimler vehicles valued at hundreds of millions of dollars.”

According to the information, “in some cases, Daimler wired these improper payments to U.S. bank accounts or to the foreign bank accounts of U.S. shell companies in order to transmit the bribe.” The information alleges that “in at least one instance, a U.S. shell company was incorporated for the specific purpose of entering into a sham consulting agreement with Daimler in order to conceal improper payments routed through the shell company to foreign government officials.” According to the information “certain improper payments even continued as late as January 2008.” The information charges that “in all cases, Daimler improperly recorded these payments in its corporate books and records.”

Despite being a German company, the information charges that “as a result of Daimler’s filing of periodic reports with the SEC, and Daimler’s use of U.S. bank accounts and U.S. companies in transacting certain business with foreign governments and officials, the company is subject to the FCPA.”

According to the information, “Daimler’s longstanding violations of the FCPA resulted from a variety of factors, including: (1) an inadequate compliance structure; (2) a highly decentralized system of selling vehicles through a myriad of foreign sales forces, subsidiaries, and affiliates, with no central oversight; (3) a corporate culture that tolerated and/or encouraged bribery; and (4) the involvement of certain key executives, such as the then head of its overseas sales division (“DCOS”), the then head of internal audit, and the then CEO’s of several subsidiaries and affiliates.”

According to the information, “in total, the corrupt transactions with a territorial connection to the United States resulted in over $50,000,000 in pre-tax profits for Daimler.”

The information alleges improper conduct at the highest levels of the country. For instance, in 1999 during a Daimler “Board of Management meeting, Daimler’s then head of internal audit proposed that the company adopt an integrity code that included anti-bribery provisions …” However, the information charges that “participants in the meeting discussed that adopting such policies (and stopping the practice of making ‘useful payments’) would result in Daimler losing business in certain countries.” Even though the company did adopt “an integrity code with anti-bribery provisions” at the meeting, the information charges that Daimler, among other things, “failed to make sufficient efforts to enforce the code, train employees on compliance with the FCPA or other applicable anti-bribery statutes” or “otherwise attempt to ensure that the company was not continuing to make improper payments in order to obtain or retain government business overseas.”

Elsewhere, the information charges that “in or about 2000 or 2001” “Daimler’s internal audit department was aware that Daimler employees had made and could make bribe payments” and that the department drafted a document identifying 14 separate improper payment mechanisms. According to the information, the same document noted that “payment of ‘useful expenditures’ through these methods was subject to criminal prosecution in countries such as the United States.” However, the document also noted the “level of difficulty” law enforcement authories would have in “proving corruption carried out through the various methods.”

The Daimler information, as to conduct in Russia, China, and Croatia, contains the same substantive allegations as set forth in the separate criminal informations against DCAR, ETF, and DCCL (described more fully below).

Vietnam

As to Vietnam, the information charges that “Daimler employees working at Mercedes Benz Vietnam (“MBV”) made improper payments and provided gifts and other things of value to Vietnamese government officials in exchange for business from Vietnamese government owned and controlled customers.” According to the information, “these improper payments were routinely paid to government officials through broker commissions” and the payments were “improperly categorized as broker commissions, cost of goods sold, and/or gifts” in MBV’s books and records.

The information states that between “2000 and 2005, MBV was majority owned (70%) and controlled by Daimler through its subsidiary Daimler Benz Vietnam Investments Singapore Pte. Ltd., which Daimler wholly owned from June 30, 2003 through 2006.” The information further states that “although a Vietnamese government entity, Saigon Auto Corp., was a minority owner (30%) of MBV” and that “MBV was managed primarily by German Daimler employees.”

According to the information, the “foreign official” recipients of the improper payments included employees of Saigon Passenger Transport Company (“Saigon Bus”) (see here), an alleged “instrumentality” of the Vietnamese government and “Vietnamese government officials in the Ministry of Public Security.”

The information alleges that “MBV agreed to make the improper payments to the Saigon Bus official through” an account of Trading & Investment Houston, a U.S. based entity. The information also alleges that during negotiations of the Saigon Bus deal, “a Vietnamese government official with the government-owned Saigon High Tech Park suggested that MBV make a contribution [approximately $22 million over a five yeard period] to the high tech park as a condition of Daimler and MBV winning the business contract.”

The information also alleges that in connection with the 2004 Asia Europe Meeting (“ASEM 5”), “Vietnamese government officials sought to obtain 78 Mercedes Benz passenger cars in order to transport officials attending the conference.” According to the information, MBV “agreed to lend the vehicles to the Vietnamese government free of charge” and that in exchange “the Vietnamese government allowed MBV to import these 78 completely assembled passenger cars into Vietnam at a tariff rate of only 25%, when the standard tariff rate for completely assembled vehicles was 100%.” According to the information, following the conference, when MBV sold the vehicles, it was thus able to make a “much higher profit, approximately €1.65 million, because of the lower tariff costs.”

According to the information, “the making of [these] improper payments was known about and encouraged at the highest levels of the former MBV management.”

Turkmenistan

As to Turkmenistan, the information alleges that Daimler, and its Vienna based distributor (IPC) delivered to high-level Turkmen government officials various gifts, including “an armored Mercedes Benz S-class passenger car, valued at more than €300,000 for his birthday.” According to the information, “neither the Turkmen Government Official nor the Turkmen government paid for the vehicle” but that Daimler affiliate employees “agreed to provide this birthday gift to the Turkmen Government Official with the expectation that [Daimler] would receive large contracts for the purchase of vehicles by the Turkmenistan government in the coming year.”

Nigeria

As to Nigeria, the information focuses on the conduct of Anambra Motor Manufacturing Company (“Anammco”), “a joint venture between Daimler and the Nigerian government” that Daimler utilized to sell vehicles into Nigeria. According to the information, “Daimler owned 40% of Anammco and controlled Anammco, inter alia, through Anammco’s then managing director, who was a German expatriate and dual employee of both Daimler and Anammco.”

According to the information, “Daimler entered into a contract to sell vehicles to the Nigerian State House, which was also known as the Nigerian Presidential Complex, and was the office and residence of the Nigerian President (the ‘State House Contract’) and that pursuant to this contract, Daimler charged “the State House approximately 21% over the wholesale price for the vehicles, parts, and services.” According to the information, “in connection with these sales to the State House, Daimler made €1,427,242 in improper commission payments … with the understanding that these funds would be passed on, in whole or in part, to Nigerian officials to secure the State House Contract.”

The information also charges that Daimler made improper payments to high-level executive branch officials in Nigeria in connection with the State House Contract; that Anammco entered into contracts worth $4.6 million with Savannah Sugar Company Ltd. (an alleged instrumentality of the Nigerian government) to supply Daimler vehicles, spare parts, and tools on which approximately €554,396 in “consultant” payments were made; and that “Daimler entered into a contract with the Nigerian Police Force” in which Anammco requested that Daimler make payment to a member of the Nigerian Police Force in his German bank account.

The information also alleges that Daimler made various payments to Nigerian government officials in connection with selling “54 buses to the Nigerian Ministry of Industry” to provide transport for the World Youth Championship games held in Nigeria. The informatin further alleges that Anammco agreed to provide $500,000 in support of the “All-Africa Games” and that Anammco supplied numerous vehicles for the games, but that the Nigeria organizing committee for the games did not pay for the vehicles.

Finally, the information charges that Daimler’s wholly-owned subsidiary in Brazil utilized the services of an entity owned by a senior Nigerian diplomat in Brazil and his wife to help facilitate the sale of buses to a Nigerian state and that approximately $60,000 in commission payments were paid to the Nigerian diplomat.

Ivory Coast / West Africa

As to the Ivory Coast and West Africa, the information states that “from at least 1992 to 2007, Daimler sold passenger cars in the Ivory Coast and other West African countries through its majority owned (89%) and controlled subsidiary, Star Auto S.A. (“Star Auto”)” and that Star Auto made direct sales of Daimler passenger cars to various government customers in West Africa, including government ministries, the military, and government agencies, including for use by diplomats and heads of state.” In connection with these sales, Daimler employees “authorized and made improper payments to government officials at its customers in the Ivory Coast and elsewhere in West Afria…”

Among other conduct, the information alleges that commission payments were made to an entity that would pass on, in whole or in part, the payments to Ghanaian Army officials in connection with a contract to sell trucks to the Army of Ghana, and that Daimler, to assist in securing a contract to provide trucks to an Indonesian firm operating a logging project in Liberia, “gave a then senior executive branch official of Liberia a gift of an armored Mercedes passenger car worth approximately €267,000.”

Latvia

As to Latvia, the information charges that EvoBus GmbH (“EvoBus”), a wholly-owned subsidiary of Daimler and part of a Daimler business unit called Daimler Buses, paid approximately €1,800,000 in ‘commision’ payments to third parties with the understanding that such improper payments would be passed on, in whole or in part, to Latvian government officials to influnce the award of contracts to EvoBus.” According to the information, the contracts were awarded by the Riga City Council Traffic Department and EvoBus paid bribes to members of the Riga City Council. To make these “commission payments and to disguise their true nature and purpose” the information charges that “EvoBus entered into sham consulting contracts with, among others, two U.S. based entities: Oldenburgh Financial Corporation, incorporated in Delaware, and United Petrol Group LLP, incorporated in Oregon.”

Austria / Hungary

As to Austria and Hungary, the information charges that, to help facilitate the sale of 32 used buses to a state-owned regional public transport company in Hungary, EvoBus Austria GmbH agreed to pay a “commission of €333,370 to a U.S. based corporation called USCON Ltd. with the understanding that the payment would be passed on, in whole or in part, to Hungarian government officials.”

Turkey

As to Turkey, the information charges that Daimler’s Corporate Audit Department “discovered three binders located in a safe at MB Turk’s [a Daimler subsidiary in Turkey] offices in Istabul” that, along with other evidence, demonstrated that “MB Turk made approximately €6.05 million in payments to third parties in connection with vehicle export transactions that involved the sale of vehicles to non-Turkish government customers in North Korea, Latvia, Bulgaria, Libya, Romania, Russia, Saudi Arabia, Yemen, and other countries in deals with revenues of approximately €95 million.” According to the information, at least €3.88 million of the €6.05 million comprised of “improper payments and gifts […] paid to foreign government officials or to third parties with the understanding that the payments and gifts would be passed on, in whole or in part, to foreign government officials to assist in securing the sale of Daimler vehicles to government customers.”

Indonesia

As to Indonesia, the information charges that “Daimler’s local affiliates provides gifts, travel and entertainment to government officials associated with Perum Damri in order to secure business.” According to the information, Perum Damri (see here) is a “state-owned bus company” and an “instrumenality of the Indonesian government” thus making its employees “foreign officials” under the FCPA. The information alleges that between 1998 and 2005, “Daimler’s local affiliates spent approximately $41,000 on such gifts, including golf clubs, wedding gifts for the children of a senior offical at Perum Damri, golf outings for Perum Damri officials, and gifts that were raffled off to low-level employees on the occasion of Perum Damri’s anniversary. According to the information, Perum Damri purchased approximately $8.36 million worth of buses from Daimler’s Indonesian affiliates. The information also alleges that “Daimler’s local affiliates also made several large cash payments to tax officials in Indonesia for the purpose of reducing their tax obligations.”

Iraq

As to Iraq, the information charges, what has become, standard Iraqi Oil for Food Program allegations in that Daimler “agreed to pay a 10% commission to the government of Iraq in connection with sales of its vehicles under the [Oil for Food Program].” Yet in a twist, the information states certain sales between “Daimler and the Iraqi government were prepared, negotiated and finalized by employees at Daimler’s headquarters in Germany” and that “Daimler negotiated its [Oil for Food Contracts] directly with the government of Iraq.” (In many of the prior Oil for Food cases, the Iraqi government contracts were prepared, negotiated, and finalized primarily by third-party agents retained by the offending company). When third party agents were used by Daimler to make sales to the Iraqi government, the information charges that Daimler executives “understood that Daimler’s contract partners would pay illegal kickbacks to Iraqi ministries.”

After this laundry list of bribes in several differnt countries, the information then alleges that “prior to 2005, Daimler’s anti-bribery compliance program was inadequate.” Among other things, the information alleges that Daimler had “inadequate guidelines and controls concerning the disbursement of cash from cash desks;” inadequate controls over other corporate accounts; “inadequate controls over the opening and maintaining of bank accounts;” “inadequate controls over the selection, use, and making of payments to agents and intermediaries;” and “inadequate training of Daimler employees on FCPA or other anti-bribery compliance.”

Against this backdrop, one might assume that Daimler was charged with FCPA antibribery violations – which generally prohibit the payment of money or anything of value, to a foreign official, in order to obtain or retain business.

However, in this current facade era of FCPA enforcement, nothing can be taken for granted and the Daimler enforcement action is yet another instance of bribery, yet no bribery, as Daimler was merely charged with two counts: (i) conspiracy to violate the FCPA’s books and records provisions; and (ii) knowingly falsifying books, records, and accounts – a criminal charge under 78m(b)(5).

Even more troubling, Daimler will not even by pleading guilty to these charges, because the charges are being resolved through a deferred prosecution agreement (“DPA”).

Daimler AG’s Deferred Prosecution Agreement

The DPA (see here) is a fairly standard FCPA DPA in that in return for the DOJ deferring prosecution of the criminal charges against Daimler, Daimler “admits, accepts, and acknowledges that is is responsible for the acts of its employees, subsidiaries, and agents” as set forth above. As is common, Daimler also agrees to a host of compliance undertakings, including hiring an independent monitor for a three year period (an issue discussed in this prior post).

The term of the DPA is an unusual two years and seven months after the guilty pleas of ETF and DCAR (most FCPA NPAs or DPAs are for whole year terms). Also unusual is that the DPA states that if the DOJ finds “in its sole discretion, that there exists a change in circustances sufficient to eliminate the need for the corporate compliance monitor … and that other provisions of [the DPA] have been satisfied, the Term of the Agreement may be terminated early.”

Like other NPAs and DPAs, the Daimler DPA essentially muzzles Daimler, its directors, its employees, and agents, from making “any public statement … contradicting the acceptance of responsibility by Daimler” for the facts set forth in the charging documents. In this way, DOJ is able to insulate itself from criticism from the only other party besides DOJ (i.e. Daimler) that actually knows the precise facts and issues relevant to the charged conduct. Specifically, if Daimler wants to issue a press release relevant to this case, it must first get DOJ’s approval.

The DPA also states: “with respect to Daimler’s present reliability and responsibility as a government contractor, the Department agrees to cooperate with Daimler, in a form and manner to be agreed, in bringing facts relating to the nature of the conduct underlying this Agreement and to Daimler’s cooperation and remediation to the attention of governmental and other debarment authorities, including Multinational Development Banks, as requested.”

Thus, as in the BAE and Siemens bribery, yet no bribery enforcement actions, debarment seems to have been a key factor in selecting the actual charges against Daimler – a fact confirmed by the DOJ’s sentencing memorandum described below.

Daimler Export and Trade Finance GmbH and the Croatian Firetrucks

DOJ also filed a two count criminal information against Daimler Export and Trade Finance GmbH (“ETF”) which is described as wholly-owned subsidiary of Daimler Financial Services AG (“DFS”), which in turn is described as a wholly-owned subsidiary of Daimler AG. According to the information, “ETF specialized in the structuring and arranging of customized financing solutions for exports by Daimler and external customers to countries without a local DFS company.” “In addition,” the information charges that “ETF participated in business ventures outside of Daimler’s core businesses of the manufacture and sale of passenger cars and vehicles.”

The charged conduct involves selling fire trucks to the Croatian Ministry of the Interior (“MOI”) as well as the conduct of IM Metal (“IMM”) an alleged “Croatian government controlled and partially owned former weapons manufacturer.” The information charges that “IMM was an ‘instrumentality’ of the Croatian government, and executives employed by IMM, or their designess were ‘foreign officials’ as those terms are used in the FCPA …” The charged conduct also involves Biotop Group, Inc. (“Biotop”), a Delaware corporation and Marketing Research and Consultants LLC (“MRC”), a Wyoming corporation.

Count one of the information charges conspiracy and alleges that “from in or about 2002, through in or about January 2008” ETF, and others were engaged in a conspiracy to “make improper payments to Croatian government officials to induce them to cause the Croatian government agencies and instrumentalities to purchase Daimler vehicles.”

Among other things, the information charges that:

prior to be awarded a €85 million fire truck contract, “ETF understood that improper payments to Croatian government officials would be required in order to secure the Fire Truck Contract from the Croatian MOI;”

“ETF made improper payments directly to Croatian government officials and to third parties with the understanding that the payments would be passed on, in whole or in part, to Croatian government officials to assist in the Fire Truck Contract;”

“between 2002 and January 2008, ETF made approximately €3.02 million in payments to IMM and/or its principles in connection with the contract to sell fire trucks to the Croatian MOI with the understanding that all or a portion of the funds were paid to IMM’s employees, themselves foreign government officials, and that another portion of the funds were paid to Croatian government officials outside IMM in exchange for assistance in securing for the ETF-led consortium the Fire Truck Contract;” and

“in total, between 2002 and January 2008, ETF made approximately €1,673,349 in improper payments to Biotop and MRC in connection with the Fire Truck Contract with the understanding that those payments would be passed on, in whole or in part, to Croatian government officials” and that “neither Biotop nor MRC performed legitimate services for ETF sufficient to warrant payments in those amounts.”

The information alleges that “ETF entered into a sham consulting contract with Biotop in order to conceal the nature of improper payments ETF made to Biotop, and with the understanding that these funds would be passed on, in whole or in part, to Croatian government officials to assist in securing the Fire Trucks Contract with the Croatian MOI.” As to MRC, the information alleges that “six days after MRC’s incorporation, ETF executed a written consulting contract with MRC in order to conceal the nature of improper payments being made to MRC, with the understanding that the payments to MRC would be passed on, in whole or in part, to Croatian government officials.”

Count two of the information charges an FCPA antibribery violation. Because ETF is a foreign entity, the applicable section of the statute is 78dd-3 which requries a U.S. nexus. The information charges “ETF entered into sham consulting contracts with shell companies incorporated in Delaware and Wyoming for the purpose of making improper payments to Croatian government officials, and made payments to those companies’ accounts outside the United States with the understanding that such payments would be passed on, in whole or in part, to Croatian government officials.”

Because the information charges that ETF’s payments to Biotop and MRC were to the companies’ accounts “outside the United States” it appears that the sole U.S. nexus DOJ is using to charge ETF with an FCPA antibribery is the act of entering into a contract with a U.S. company.

DaimlerChrysler China Ltd. and the Chinese “Foreign Officials”

DOJ also filed a two count criminal information against DaimlerChrysler China Ltd. (“DCCL”), a “Beijing-based, wholly-owned Daimler subsidiary and cost center that managed Daimler’s business relationships in [China], assisted Daimler in selecting and managing joint ventures in China, and helped manage Daimler’s expatriate employees in China.” According to the information, “although DCCL did not itself sell any vehicles directly into China, certain DCCL employees assisted with the sale of vehicles by various Daimler divisions in Germany to government customers in China.”

The charged conduct focuses solely on three Chinese state-owned entities the DOJ alleges are “instrumentalities” of the Chinese government.

First, the DOJ alleges that “The Bureau of Geophysical Prospecting (“BGP”) was a division of the China National Petroleum Corporation (“CNPC”), a Chinese state-owned oil company” and that “among other things, BGP was involved in searching for oil in various regions of China” and that “BGP was an ‘instrumentality’ of the Chinese government, and individuals employed by BGP were ‘foreign officials'” under the FCPA. According to its website (see here), BGP is a limited liability company and it has “forty overseas branches and offices have been established in Asia, America, Africa and the Middle East” (see here). According to its website (here), CNPC ” is China’s largest oil and gas producer and supplier, as well as one of the world’s major oilfield service providers and a globally reputed contractor in engineering construction” and it has “a presence in almost 70 countries.” CNPC’s corporate hierachy (here) looks similar to other commercial enterprises and one of CNPC’s largest holdings is PetroChina, an entity with shares traded on the New York Stock Exchange as well as other exchanges (see here).

Second, the DOJ alleges that “Sinopec Corp. (“Sinopec”) was a Chinese state-owned energy company involved in, among other things, exploration and production of petroleum and natural gas, as well as the refining and sale of petroleum products” and that “Sinopec was an ‘instrumenality’ of the Chinese government, and individuals employed by Sinopec were ‘foreign officials'” under the FCPA. According to its website (here) Sinopec is “a listed company on domestic and international stock exchanges” and it has shares traded in Shanghai, Hong Kong, New York and London.

Third, the DOJ alleges that “Changqing Petroleum Exploration Bureau (“Changqing”) was a Chinese state-owned oil and natural gas extracting company” and that “Changqing was an ‘instrumentality’ of the Chinese government and individuals employed by Changqing were ‘foreign official'” under the FCPA. Changqing is an entity within CNPC’s extensive organization.

According to the information, “between 2000 and 2005, DCCL employees and/or Daimler employees through DCCL made at least €4,173,944 in improper payments in the form of ‘commissions,’ delegation travel, and gifts for the benefit of Chinese government officials and their designees, in connection with over €112,357,719 in sales” of vehicles to Chinese government customers. The information alleges that “these sales to Chinese government customers were made directly from Daimler’s [divisions] in Germany through various intermediaries with the assistance of DCCL employees in the commercial vehicles division.”

According to the information, “to make improper payments to Chinese government officials, Daimler and DCCL typically inflated the sales price of vehicles sold to Chinese government customers and then maintained the overpayments in debtor accounts on Daimler’s books and records, including one debtor account called the ‘special commissions’ account.” The information alleges that “DCCL employees, including its then head of sales and marketing disbursed payments” from the account and “at the time, no checks or policies were in place to ensure the legitimacy or appropriateness of such payments.”

According to the information, “DCCL and Daimler also employed agents to assist in securing” vehicles from Chinese government customers, but that “neither DCCL nor Daimler performed due diligence on these agents, and there were inadequate controls in place to ensure that payments made to these agents were not passed on to Chinese government officials and their designees.” The information states that “the agency agreements were often not in writing” and that “DCCL and Daimler lacked adequate oversight into the appropriateness or purpose of payments from debtor accounts that ultimately went to government officials in China and their designees.” The information charges that “finance and controls oversight was so lacking with respect to Daimler’s sale of commercial vehicles in China that DCCL’s Sales and Marketing Head was able to remove at least approximately €230,000 from a company debtor account without detection, and then direct those funds to the offshore bank account of his wife.”

Count one of the information charges conspiracy and alleges that DCCL, and others, were engaged in a conspiracy to “make improper payments to Chinese government officials to induce them to cause Chinese government agencies and instrumenalties to purchase Daimler vehicles.”

Among other things, the information charges that:

“in total, Daimler and DCCL made approximately €2,599,694 in improper payments to Chinese government officials associated with these entities to assist in obtaining sales worth approximately €71,562,882;”

“between 2001 and 2004, DCCL and Daimler at the direction of Chinese government officials made improper payments totaling at least €188,840 into U.S. bank accounts belonging to third parties to obtain contracts valued at €5,533,381 for the sale of vehicles to Chinese government customers “even though no part of the transaction involved the U.S., nor were the entities that nominally controlled the bank accounts parties to any of these transactions;” that “DCCL and Daimler did not perform any due diligence to discern who the recipients were” and the “corporate entities that received the payments from Daimler for the benefit of the Chinese government officials performed no legitimate services for DCCL or Daimler and did nothing to earn those payments;”

“between 1998 and 2005, DCCL and Daimler also provided at least €268,568 worth of delegation trips to employees of its government customers in China for the purpose of assisting in securing business from those customers;” according to the information “agents working as intermediaries between DCCL and Daimler, on the one hand, and its Chinese government customers, on the other hand, typically requested the delegation trips up front during the contract negotiation process on behalf of the customer involved” that “DCCL and Daimler then estimated the cost of the trip and increased the purchase price of vehicles accordingly” and that “some contracts characterized these trips as ‘factory inspection trips’ even though the trips were primarily visits to tourist locations.”

In furtherance of this conspiracy, the information identifies several agents used to make the improper payments including: M.F. Mechanical & Electrical; Shores International (a Texas corporation); Lily Energy Services, Inc. (a Texas corporation); King Jack, Inc. (a California corporation); and Chinese Agent A.

Additional payments charged in the information include: “€155,905 for the purpose of entertaining executives at” BGP and Sinopec; “payments totaling approximately €56,400 into accounts at multiple banks to an individual associated with an official at BGP in charge of operations in another country;” “a payment of approximately €14,800 to a relative of a Chinese government official associated with BGP in connection with the sale of commercial vehicles to BGP; “payments totaling approximately €30,000 in commissions for ‘market research’ to the Stuttgart bank account of the son of an official of BGP;” and “a payment of approximately €57,000 to the wife of a Chinese government official employed at Sinopec” disguised as a payment pursuant to a “phony consulting agreement with the wife of the Chinese government official.”

The information further charges a laundry list of “things of value” provided “to the son of a Chinese government official who made purchasing decisions for BGP in order to assist in securing business from BGP” including: interships at Daimler for his girlfriend; “letters from a former Daimler employee to German immigration officials to assist him and his girlfriend with their efforts to obtain student visas;” “€2,224 in expenses to attend a truck race;” “use of a Mercedes passenger car for a period of time;” and “employment at Daimler” for a five month period “with a monthly salary of €600.”

Count two of the information charges an FCPA antibribery violation. Because DCCL is a foreign entity, the applicable section of the statute is 78dd-3 which requires a U.S. nexus. As relevant to this issue, the information charges that “DCCL caused wire transfers to be sent from Daimler accounts in Germany to financial institutions in the United States.”

DaimlerChrysler Automotive Russia SAO and Russian Sales

DOJ also filed a two count criminal information against DaimlerChrysler Automotive Russia SAO (“DCAR”), a “Moscow-based, wholly-owned subsidiary of Daimler” that “sold Daimler spare parts, assisted with the sale of vehicles from various Daimler divisions in Germany, including in particular its overseas sales division (“DCOS”), to government customers in [Russia], and also imported Daimler passenger and commercial vehicles into Russia for sale to customers and distributors.”

The charged conduct focuses on Daimler’s, DCAR’s and DCOS’s relationships with: “the Russian Ministry of Internal Affairs (“MVD”) a department and agency of the Russian government principally responsible for police, militia, immigration and other functions” including supervising the “Russian traffic police; “the Special Purpose Garage (“SPG”) an ‘instrumenality’ of the Russian government” whose employees were “foreign officials” under the FCPA; “Machinoimport a Russian government-owned and controlled purchasing agent for the City of Moscow,” an “instrumentality of the Russian government” whose employees were “foreign officials” under the FCPA; and “Dorinvest a Russian government-owned and controlled purchasing agent for the City of Moscow,” an “instrumentality of the Russian government” whose employees were “foreign officials” under the FCPA.

According to the information, “Daimler’s business in Russia was substantial.” The information states that “Daimler sold passenger cars and commercial vehicles directly from its headquarters in Stuttgart, Germany, to its Russian government clients with the assistance of DCAR and Daimler’s representative office in Moscow” and that “Daimler carried out such sales from DCOS and DCAR acting as an agent to assist with such direct sales.”

The information charges that “Daimler, through DCAR, made improper payments at the request of Russian government officials or their designess in order to secure business from Russian government customers.” According to the information, payments were “made with the knowledge and involvement of the former senior management of DCAR and DCOS.”

The information states that “DCAR and Daimler sometimes made improper payments to government officials in Russia to secure business by over-invoicing the customer and paying the excess amount back to the government officials, or to other designated third parties that provided no legitimate services to Daimler or DCAR, with the understanding that such payments would be passed on, in whole or in part, to Russian government officials.” The information further states that “when requested, Daimler employees wired and authorized the wiring of payments from Daimler’s bank accounts in Germany to, among other destinations, U.S. and Latvian bank accounts beneficially owned by shell companies with the understanding that the money, in whole or in part, was for the benefit of Russian government officials.”

Count one of the information charges conspiracy and that DCAR, and others, were engaged in a conspiracy to “make improper payments to Russian government officials to induce them to cause Russian government agencies and instrumentalties to purchase Daimler vehicles.”

Among other things, the information charges that:

“between 2000 and 2005” Daimler’s sale of vehicles to Russian government customers was approximately “€64,660,000” and that “in connection with these vehicle sales, DCAR and Daimler made over €3 million in improper payments to Russian government officials employed at their Russian governmental customers, their designess, or to third-party shell companies that provided no legitimate services to Daimler or DCAR with the understanding that the funds would be passed on, in whole or in part, to Russian government officials.”

According to the information, the payments were routed all over the world including: “to the Deutsche Bank acount in Stuttgart, Germany, of a Russian government official at the SPG;” to “Berwick Commercial LLC, a corporation registered in Delaware, with the understanding that the payment would be passed on, in whole or in part, to the SPG official;” “to Kongress Food Ltd., a corporation with an address in Dublin, Ireland, with the understanding that the payments would be passed on, in whole or in part, to the SPG official;” “to Delight Commercial Ltd., a corporation with an address in the Seychelles, with the understanding that the payments would be passed on, in whole or in part, to the SPG official;” “to Pyrmont Alliance Corp., a corporation with an address in the Bahamas, with the understanding that the payments would be passed on, in whole or in part, to the SPG official;” “to Loretti LLP, a corporation with an address in the United Kingdom, with the understanding that the payment would be passed on, in whole or in part, to the SPG official;” “to a Bank of America account in San Diego, California, for Sittard Investments, a California corporation, to secure passenger car sales to the Moscow tarffic police;” “to a bank account in Latvia for Novitta Ltd., a Delaware corporation, in connection with passenger car sales to the MVD;” “to a bank account in Latvia for Tower Block Ventures, a U.K. corporation, for the benefit of a consultant to the MVD in connection with passenger car sales to the MVD;” “to a bank account in Latvia for Silvarado Ltd., a corporation that provided no legitimate services for Daimler or DCAR, in connection with passenger car sales to the MVD;” “to a bank account in Latvia for Capital Alliance Corp., a Florida corporation, in connection with passenger car sales to the MVD and to the Russian military;” “to Technoforex, a Delaware corporation, to secure the sale of one commercial vehicle to the SPG;” “to Contrex, a Cyprus corporation established for the benefit of the wife” of an official;” “to the Latvian bank account of Fidelity Finance Corporation, a Delaware corporation, in connection with the sale [of vehicles] to Gormost, a department within the city of Moscow responsible for bridges and tunnels, with the understanding that such payments would be passed on, in whole or in part, to Russian government officials in order to secure this sale;” “to Fidelity Finance Corporation’s Latvian bank account with the understanding that such payment would be passed on, in whole or in part, to Russian government officials;” “to the Latvian bank account of Forfun Co., a Delaware corporation, in connection with the sale [of vehicles] with the understanding that such payment would be passed on, in whole or in part, to Russian military officials;” “to the Swiss bank account of Northcote Holdings, a Costa Rican corporation, with the understanding that such payment would be passed on, in whole or in part, to Russian military officials;” and “to the bank account of Crofton Allianz, a Delaware corporation” “with the understanding that such payment would be passed on, in whole or in part, to a Russian government official.”

Count two of the information charges an FCPA antibribery violation. Because DCAR is a foreign entity, the applicable section of the statute is 78dd-3 which requires a U.S. nexus. As relevant to this issue, the information charges that “DCAR caused wire transfers to be sent from Daimler accounts in Germany to financial institutions in the United States and elsewhere, via international and interstate wires, in furtherance of corrupt payments to Russian government officials” and that “DCAR made payments to third party agents, including shell companies established in the United States, knowing that such payments would be passed on, in whole or in part, to Russian government officials on behalf of DCAR and Daimler.”

DOJ’s Sentencing Memorandum

In the sentencing memo (here) DOJ “respectfully requests that the Court” approve the disposition of the matter against Daimler and all of the above referenced entities and “accept the guilty pleas of DaimlerChrysler Automotive Russia SAO and Daimler Export and Trade Finance GmbH.” The memo notes, in a footnote, that “the court will not actually be sentencing Daimler AG and DaimlerChrysler China Ltd., as those entities have entered into deferred prosecution agreements.”

The DOJ provides this summary of the overall disposition of the matter:

“The Department and Daimler agree that the appropriate resolution of this matter consists of (1) a DPA with Daimler AG, the parent company; (2) a DPA with DCCL, the Chinese subsidiary; (3) guilty pleas pursuant to plea agreements with DCAR, the Russian subsidiary, and ETF, the Daimler Finance subsidiary; (4) overall payment of a $93.6 million criminal penalty, which is apportioned, based on a Guidelines analysis, among the subsidiaries and the parent company; (5) continued obligations to provide full, complete, and truthful cooperation to the Department and any other law enforcement agency, domestic or foreign; (6) implementation of rigorous compliance enhancements, including periodic testing of same, with a recognition that the Company has already implemented substantial changes due to the investigation; and (7) the imposition of a corporate compliance monitor who will, over a three-year term, conduct a review of the compliance code, the Company’s internal controls and related issues, and will prepare periodic reports on his reviews.”

DOJ specifically notes that its “analysis of collateral consequences included the consideration of the risk of debarment and exclusion from government contracts, and in particular European Union Directive 2004/18/EC, which provides that companies convicted of corruption offenses shall be mandatorily excluded from government contracts in all EU countries.”

As the Daimler, the BAE and Siemens enforcement actions all make clear, the simple way to avoid application of the European Union Directive is not to charge the company with a corruption offense, notwithstanding the existence of facts to support such a conviction.

This “let’s not call a spade a spade” silliness occurs notwithstanding the fact that the U.S. is a member of the OECD. As relevant, OECD guidance specifically states that “Member countries should be vigilant in ensuring that investigations and prosecutions of the bribery of foreign public officials in international business transactions are not influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved, in compliance with Article 5 of the OECD Anti Bribery Convention.”

The DOJ’s sentencing guidelines calculations contains a bit of irony in that Daimler received a sentencing credit (a credit which reduces the overall fine amount) because the “organization fully cooperated in the investigation and clearly demonstated recognition and affirmative acceptance of responsiblity for its criminal conduct” despite the fact that elsewhere in the sentencing memo the DOJ notes that the entire investigation started in March 2004 when a “former Daimler employee filed a whistleblower complaint with the U.S. Department of Labor Occupational Safety & Health Administration … allege[ing] that he was terminated for voicing concerns about Daimler’s practice of maintaining secret accounts, including accounts in its own books and records, for the purpose of bribing foreign government officials.”

In other words, even if an investigation is hatched by an internal whistleblower, a company may still be able to receive a sentencing credit for cooperating in the eventual investigation.

The sentencing range set forth in the DOJ memo is $116 – $232 million. Thus, the $93.6 million penalty is 20% below the bottom fine range of $116 million.

DOJ seeks to justify this reduction by stating that such a “reduction is appropriate given the nature and extent of Daimler’s cooperation in this matter, including sharing information with the Department regarding evidence obtained as a result of Daimler’s extensive investigation of corrupt payments around the world.”

The DOJ further states, “indeed, because Daimler did not voluntarily disclose its conduct prior to the filing of the whistleblower lawsuit, it only receives a two-point reduction in its culpability.” However, in a rather odd statement, DOJ then said that it “respectfully submits that such reduction is incongruent with the level of cooperation and assistance provided by the company in the Department’s investigation.” In other words, the DOJ seems to be saying something like “who cares what the guidelines say, we will do what we feel like.”

In conclusion, the DOJ notes that the disposition “promotes respect for the law, provides just punishment, and affords adequate deterrence to criminal conduct for Daimler and the marketplace generally.”

This would seem to be the biggest April Fools joke of all. How does another bribery, yet no bribery enforcement action “promote respect for the law?”

Finally, the DOJ states that Daimler’s cooperation in the investigation has been “excellent.” The DOJ notes that Daimler “conducted a worldwide internal investigation;” “regularly presented it findings” to the DOJ; “made certain witnesses available to the Department;” “voluntarily complied with requests for the production of documents from overseas;” and took disciplinary actions against over “60 company employees, with approximately 45 employees being terminated or separated under termination agreements.” “Finally, and perhaps most significantly,” in the words of the DOJ, “Daimler began to reform its anti-bribery compliance program while the investigation was still ongoing, without waiting until the finalization of a disposition with the Department.” The sentencing memo then sets forth a list of changes Daimler made to its compliance program. Such measures, no doubt, will now come to be viewed as “best practices.”

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