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Siemens And An FCPA Compliance Defense

The title of this post may induce a Gary Coleman moment – as in  “whatcha talkin bout” (see here). No, I am not talking about that Siemens case – the 2008 FCPA enforcement action, the largest in FCPA history from a fine and penalty perspective, in which the DOJ and SEC alleged that Siemens engaged in a pattern of bribery “unprecedented in scale and geographic reach” and that for much of its operations around the world “bribery was nothing less than standard operating procedure.” 

Should the FCPA be amended to include a compliance defense, such a defense would clearly be inapplicable to the 2008 Siemens matter given allegations that Siemens had, at one time, a “corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company.”  As detailed in my responses (here) to Senator Specter’s questions at the November 2010 FCPA hearing, according to the DOJ, “compliance, legal, internal, audit, and corporate finance departments were a significant focus of the investigation and were discovered to be areas of the company that played a significant role in the violations”

Since the 2008 FCPA enforcement action (and indeed even before the ink was dry on the settlement documents), Siemens has undergone a substantial compliance transformation.  As noted in the DOJ’s sentencing memorandum (here), settlement of the matter contained, among other things, the following terms:  “implementation of rigorous compliance enhancements, including periodic testing of same, with a recognition that Siemens has already implemented substantial compliance changes over the course of the investigation; and retention of an independent monitor, who will, over a four-year term, conduct a review of the compliance code, Siemens’ internal controls and related issues, and will prepare periodic reports on his reviews.” 

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

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

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

More recently, as of May 2011, according to Siemens compliance: (i) approximately 600 employees work full time in a single compliance organization managed by a Chief Compliance Officer (of this number approximately 80 work at Siemens corporate headquarters with the rest deployed evenly around various sectors/divisions and regional companies); (ii) 300,000 employees world-wide have received compliance training, including 100,000 employees who received face-to-face multi-hour courses; (iii) all new compliance officers worldwide are required to take an intensive four-day course; (iv) approximately 5,500 top managers worldwide have compliance metrics as one aspect of their compensation; and (v) approximately 55 high-risk entities and approximately 105 business unit were required to implement over 100 compliance systems controls.

The 2008 judgement against Siemens (here) imposes a five year probation period during which Siemens shall not commit any further crimes and the additional probation term that Siemens is to comply with the compliance and ethics program set forth in its plea agreement.

In short, there is likely no other company in the world today that has devoted as many corporate resources, with the assistance of industry experts, to compliance than Siemens.  On the flip side, there is likely no other company in the world today that faces as many negative consequences should its compliance efforts fail than Siemens.

Against this backdrop, over the summer media reports suggested “alleged corruption by three company managers working in Kuwait” who allegedly “made payments to high-ranking individuals” in Kuwait’s Energy and Water Ministry.  (See here).  According to the reports, German authorities began investigating the conduct after receiving information from Siemens itself.

In other words,  notwithstanding 600 full time Siemens compliance personnel, an Anti-Corruption Toolkit designed by industry leaders, over 100 compliance systems controls in high-risk jurisdictions, someone in Siemens organization may have made payments in violation of its pre-existing compliance policies and procedures and in violation of the FCPA.

Presumably, Siemens – should it be prosecuted – would get credit for its committment to compliance and pre-existing policies and procedures pursuant to the DOJ’s Prosecution of Business Organizations. In addition, should Siemens be prosecuted it would presumably receive credit for the same under the advisory U.S. Sentencing Guidelines.  As the enforcement agencies have frequently stated in connection with FCPA reform – we already take compliance into account!

However, are these “baby carrots” a sufficient return on Siemens compliance investment?  Do these “baby carrots” sufficiently recognize Siemens committment to compliance?  Or should Siemens compliance efforts be recognized as a matter of law as would be the case if the FCPA was amended to include a compliance defense?

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