U.S. Charges Eight Former Siemens Execs

Three years after Germany's Siemens AG settled the biggest FCPA case in history, eight of its former executives and agents have been indicted for a criminal conspiracy to violate the FCPA, launder money, and commit wire fraud.

The defendants also face civil charges brought by the SEC for bribing government officials in Argentina.

A ninth man, Bernd Regendantz, has already settled the SEC's charges by agreeing to pay a civil penalty of $40,000. The penalty was 'deemed satisfied by Regendantz' payment of a €30,000 administrative fine ordered by the Public Prosecutor General in Munich, Germany.' He was not charged in the U.S. criminal indictment. That may indicate he's already cooperating with the DOJ's prosecutors.

The defendants named in the DOJ's indictment were:

•     Uriel Sharef, a former member of the central executive committee of Siemens AG

•     Herbert Steffen, a former chief executive officer of Siemens Argentina

•     Andres Truppel, a former chief financial officer of Siemens Argentina

•     Ulrich Bock, Stephan Signer, and Eberhard Reichert, former senior executives of Siemens Business Services, and

•     Carlos Sergi and Miguel Czysch, who served as intermediaries and agents of Siemens in the alleged bribe scheme.

The defendants allegedly bribed a series of Argentine government officials beginning in 1994 for ten years to win a billion dollar contract to produce national identity cards. After the contract was terminated, they paid bribes to reinstate it. They also paid further bribes to suppress evidence when the termination of the contract was being arbitrated.

The defendants live in Germany, Switzerland, or Argentina. They have not yet been arrested or extradited. 

'Over the course of the bribery scheme,' the SEC said, 'over $100 million in bribes were paid, approximately $31.3 million of which were made after March 12, 2001, when Siemens became a U.S. issuer subject to U.S. securities laws. As a result of the bribe payments it made, Siemens received an arbitration award in 2007 against the government of Argentina of over $217 million plus interest for the [contract]. In August 2009, after settling bribery charges with the U.S. and Germany, Siemens waived the arbitration award.'

Siemens AG's settlement in December 2008 with the DOJ and SEC for $800 million is still the biggest FCPA case of all time. It paid a criminal fine of $450 million in the DOJ settlement and $350 million in disgorgement of profits under its agreement with the SEC. Siemens' Argentina subsidiary was named in the 2008 enforcement action. In Germany, Siemens also paid €596 million in 2007 and 2008 to settle actions brought by the Munich Public Prosecutor.

The DOJ's Lanny Breuer said today: 'This indictment reflects our commitment to holding individuals, as well as companies, accountable for violations of the FCPA.'

The DOJ had faced criticism in the media and in Congress for not prosecuting individuals from 'issuers' that resolve FCPA cases.

The indictment charged the defendants with conspiracy to violate the anti-bribery, books and records, and internal control provisions of the FCPA; conspiracy to commit wire fraud; conspiracy to commit money laundering; and substantive wire fraud.

The most senior defendant, the SEC said, was Uriel Sharef, a former Siemens Managing Board member. It said all of the defendants allegedly 'falsified documents, including invoices and sham consulting contracts, participated in meetings in the United States to negotiate the terms of bribe payments, and made use of U.S. bank accounts to pay bribes.'

The DOJ's Breuer said, 'This is the first time we’ve charged a board member of a Fortune global 50 company with FCPA violations.'

Robert Khuzami, head of the SEC’s enforcement division, said it is the largest civil enforcement action ever brought by the SEC against defendants accused of bribing foreign officials.

The DOJ praised Siemens' 'laudable actions . . . in disclosing potential FCPA violations.' It said,

Siemens AG disclosed these violations after initiating an internal FCPA investigation of unprecedented scope; shared the results of that investigation; cooperated extensively and authentically with the department in its ongoing investigation; and took remedial action, including the complete restructuring of Siemens AG and the implementation of a sophisticated compliance program and organization.

Siemens AG's American Depositary Receipts trade on the NYSE under the symbol SI.

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The criminal case is U.S. v. Sharef, 11-01056, U.S. District Court, Southern District of New York (Manhattan).

View the DOJ's December 13, 2011 release here.

View the SEC's Litigation Release No. 22190 and Accounting and Auditing Enforcement No. 3342 (both dated December 13, 2011) in Securities and Exchange Commission v. Uriel Sharef, Ulrich Bock, Carlos Sergi, Stephan Signer, Herbert Steffen, Andres Truppel and Bernd Regendantz, Civil Action No. 11 civ 9073 (Judge Scheidlin/Pitman) (S.D.N.Y.) here.

Download the SEC's civil complaint here.

One Of The Great Ones

By Michael Volkov

Former federal judge Stanley Sporkin (left) is one of my heroes. Yes, I am biased. As an Assistant U.S. Attorney at the Justice Department in Washington, D.C., I tried several cases before him, and in private practice, I have collaborated with him on many projects.

My admiration, however, extends back to events surrounding the enactment of the FCPA. Judge Sporkin has told the story many times but it is a story worth retelling. Of course, he is too modest to remind everyone of his critical role in the creation of the FCPA. His role is not laid out in any legislative history -- which is all too often inaccurate and omits key behind the scenes conversations and contacts.

In the midst of the Watergate scandal hearings before the Senate Select Committee in the early 1970s, corporate executives testified about slush funds which were being used to fill the coffers of President Nixon’s re-election campaign, which prophetically had the acronym of CREEP (Committee to Re-Elect the President). Judge Sporkin -- who was then serving as the Director of Enforcement at the SEC -- wondered how companies were recording these transactions on their books.

He opened investigations and discovered that the companies were not accurately recording these transactions. He was shocked that public companies were not required to do so by any law or regulation. As his investigations proceeded, Judge Sporkin opened the government’s eyes to a vast network of corporate bribery and unrecorded funds used to pay foreign governments and conduct other improper activities.

In response to these discoveries, Judge Sporkin came up with the idea that publicly-traded companies should be required to keep accurate books and records. As he testified before Congress,

Most of all, I was amazed that there was no requirement that publicly traded corporations maintain honest books and records. My research of the various laws did reveal that such a “books and records” requirement was included in the laws governing this nation’s financial institutions. It occurred to me that if such a requirement was good enough for this nation’s brokerage and banking institutions, why not for its industrial concerns?

I became convinced that what was necessary was a simple law that would require corporations to keep accurate books and records. In my view, a corporation would think twice before it recorded a bribe for what it was. Since bribery is generally considered a crime, it would be virtually untenable for someone to admit in writing that the corporation is engaging in such activities on an ongoing basis. Bribery needs secrecy in order to flourish. Thus, I theorized that requiring the disclosure of all bribes paid would, in effect, foreclose that activity.

Judge Sporkin worked behind the scenes within the SEC and with Senator William Proxmire to design the FCPA, which was ultimately enacted in 1977. Interestingly, Judge Sporkin did not advocate for the foreign bribery prohibition because he thought it would be too difficult to detect and prove. But he viewed the accurate books and records requirement as an easier tool to deter companies from engaging in such behavior. Senator Proxmire ultimately insisted on putting a foreign bribery prohibition in the law and the rest is history, as the saying goes.

Judge Sporkin continues today to help companies navigate the FCPA to ensure compliance. He stands as one of the great ones and will forever hold a unique place in history.

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Michael Volkov is the primary contributor to Corruption, Crime & Compliance. He's a former federal prosecutor and now a partner at Mayer Brown LLP in Washington, D.C. He regularly counsels and represents clients on FCPA and UK Anti-Bribery Act issues. He can be contacted here.

 A version of this post recently appeared on Corruption, Crime & Compliance.

Former Olympus CEO Turns Whistleblower

The fired British CEO of Tokyo-based Olympus Corporation has turned over evidence of potentially corrupt payments to the U.K.'s Serious Fraud Office.

Michael Woodford, a thirty-year veteran at the company, served as CEO for just six months before being fired a week ago. He told the Financial Times his downfall reflects 'a deeper refusal by the Japanese group to accept questioning of payments relating to past deals.'

After his firing, he gave the SFO evidence from an internal investigation. The SFO hasn't commented on the case.

Olympus makes cameras and precision imaging equipment used in the medical industry.

The company is an 'issuer' subject to the U.S. Foreign Corrupt Practices Act. Its American Depositary Receipts trade over the counter in the pink sheets under the symbol OCPNY.PK. Prices of its ADRs dropped more than 40% after the scandal broke earlier this month.

The Financial Times said Woodford launched an independent investigation in July by PwC 'into extremely generous payments made to advisers when Olympus bought Gyrus, a U.K.-listed medical equipment company, for $2.2 billion in 2008.'

He later told the paper: 'I went to the SFO and gave them all the correspondence and the PriceWaterhouse report, because if you make payments which are just so huge ... there’s no answer, and when you try to seek an answer, that’s when concerns arise of more sinister issues.'

Olympus has threatened legal action against Woodford for disclosing confidential information, the Financial Times said.

Bloomberg: Suit Alleges Koch Industries Routinely Paid Bribes Overseas

An article in today's Bloomberg Markets Magazine said there were detailed allegations of systematic overseas bribery in a French lawsuit against one of the world's biggest privately owned companies, Koch Industries.

The lawsuit was filed by a former compliance officer, Ludmila Egorova-Farines. She was hired in May 2008 to investigate the management of a subsidiary in Arles, France.

Bloomberg said she discovered widespread bribery to win contracts in Africa, India, and the Middle East. She also found evidence that Koch subsidiaries had often done business with Iran, despite various government sanctions prohibiting the trade.

She was fired about a year later. She sued Koch in France for wrongful termination.

Bloomberg's article by reporters Asjylyn Loder and David Evans runs 7,000 words. It's the first report anywhere about the allegations contained in documents on file in the French lawsuit, Bloomberg said.

Kansas-based Koch Industries is owned by Charles Koch, 75, and his brother David, 71, 'each worth about $20 billion,' according to Bloomberg. They are controversial for their political activism, sometimes characterized as anti-government.

Their company manufactures petrochemicals, water processing and pollution control equipment, and paper products, among others. It doesn't release financial reports. Bloomberg estimates its revenue last year at around $100 billion.

The DOJ had no comment about the report, Bloomberg said. The SEC is not involved because privately owned Koch Industries isn't an 'issuer' under the FCPA.

The Coming Chaos In Global Enforcement

Anti-corruption laws are breaking out all over.

In a few days, the U.K. Bribery Act will be a reality. Other countries, prodded by the OECD and U.S., are criminalizing overseas public bribery. Spain, the Netherlands, and the Czech Republic are among them. Russia has a new law, so do India and China. Indonesia wants one. In South America, Brazil joins the club, and others are talking about it.

It's good news.

But what happens to a company and its executives if they're prosecuted in three, four, or five jurisdictions for the same bribes? Will the companies pay multiple fines? Will individuals be handed off from one prison to the next?

No one knows how it will work. There's no international superstructure in place to sort it out. And with big money up for grabs, there's sure to be enforcement competition.

Earlier this year, we asked Richard Alderman, head of the U.K.'s Serious Fraud Office, about it. Here's the exchange:

FCPA Blog: When the Bribery Act becomes effective, should global companies fear the prospect of duplicate enforcement actions in both the U.S. and U.K.?

Richard Alderman: The SFO works closely with the DOJ and the SEC. We shall discuss how best to proceed. I do not want to see duplicate actions in each jurisdiction. I want the SFO to be able to agree with our U.S. counterparts on a resolution that we can pursue jointly with the corporate.

FCPA Blog: Isn't the prospect of multiple prosecutions even more disturbing if other countries join the U.S. and U.K. in aggressively pursuing global corruption? Do we need some kind of supra-national enforcement body?

Richard Alderman: It is important that the enforcement authorities liaise closely together so that there can be an overall resolution subject to the decisions of the courts in each jurisdiction. These issues are best left to the authorities in each jurisdiction and the courts.

Good intentions. But as more overseas antibribery laws come on line, will enforcement agencies always cooperate? Or will they sometimes compete?

For starters, the coming uncertainty will make self reporting less attractive. After a voluntary disclosure in Washington, what will happen when prosecutors get a whiff of it in London, Madrid, Prague, Moscow, Beijing, and ten other places?

Yet, with SOX obligations and the new SEC whistleblower rules, can any issuer really make a case against self reporting, even for one-off compliance problems? There are no easy answers.

So, let the chaos begin.