The case was full of bad facts. For nearly ten years until late 2004, some $1.8 million in bribes went to foreign officials and private parties in South Korea and China. Officers and employees of Schnitzer Steel Industries Inc. and its Korean subsidiary, SSI International Far East Ltd., approved the bribes, then used elaborate means to fund and conceal them.
Cash, gift certificates, a Cartier watch, pens, perfume, entertainment, a golf club membership, even a condo timeshare – all these changed hands. Off-the-books bank accounts in Korea held slush funds. The bribes were falsely accounted for as “refund to customer” or “rebate to customer,” or “quality claims,” “discounts,” “credits” or “freight savings.” They were disguised as “gratuities” or “congratulations money." Some bribes were even masked as “condolence money.” The corruption was so habitual that even after it was discovered and ordered stopped, an executive approved two more bribes.
There were still more bad facts. Schnitzer had no Foreign Corrupt Practices Act compliance program of any kind – no education for employees, no training, no due diligence, no audits. In ignorance of the FCPA, senior managers emailed each other about arranging “kickbacks” and protecting the crooked recipients from legal trouble in their home countries. Schnitzer, a public company and one of America's largest recyclers of scrap metal, lacked even the basic financial controls needed to prevent or detect secret bank accounts, corrupt payments and false accounting.
Did prosecutors, as expected, seek the corporate death penalty? Not at all. In the end, Schnitzer was never charged with a crime. Its subsidiary, SSI Korea, pleaded guilty in October 2006 to violating the FCPA's anti-bribery and books and records provisions, as well as conspiracy and wire fraud. It paid a $7.5 million criminal fine. Schnitzer itself, however, escaped with a $7.7 million civil penalty and a deferred prosecution agreement, whereby it promised to keep its nose clean and take remedial actions. Thereafter, Schnitzer survived and has since flourished in the robust global steel market.
What accounts for this surprising result? For a start, Schnitzer accepted all responsibility. On first learning about the corrupt payments, the board's audit committee commissioned an aggressive internal investigation. At each stage of the investigation, Schnitzer voluntarily disclosed what it was learning to the Department of Justice and the Securities and Exchange Commission. Then, looking forward, Schnitzer set out to transform its culture. To make sure everyone inside the company and outside got the point, it replaced the chairman of the board, hired a new CEO, and brought in a fresh team of senior management.
The Department of Justice was satisfied, even impressed. “When companies voluntarily disclose FCPA violations and cooperate with Justice Department investigations, they will get a real, tangible benefit. In fact," the DOJ said, "Schnitzer Steel’s cooperation in this case was excellent and . . . the disposition announced today reflects that fact.”
The outcome was never inevitable. Like other companies facing a corruption scandal, Schnitzer had a crucial choice -- to retreat behind the corporate parapet and wait for prosecutors and public opinion to storm the gates, or to cooperate up to a point but try to keep defense options open, or to surrender peacefully, make a full confession, show a repentant spirit and seek forgiveness. By choosing the last option, the company was able to enjoy a quick rehabilitation and full restoration to corporate citizenship. Schnitzer's victory was no accident, but a product of its own decisions.
View the DOJ’s Press Release Here.