Declination for 3M

In its annual report filed with the SEC on February 14, Minnesota-based 3M Company said the DOJ and SEC won't bring an FCPA enforcement action following an internal investigation into allegations of bid rigging and bribery by a subsidiary in Turkey.

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Police reveal global soccer match-fixing scheme

At least 680 soccer games around the world were fixed between 2008 and 2011, about half by a syndicate allegedly operating from Singapore, an international police coalition said Monday.

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Tyco in $26 million settlement with DOJ and SEC

Tyco International Ltd. agreed on Monday to pay criminal and civil penalties totaling more than $26 million to resolve Foreign Corrupt Practices Act violations.

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Does Graft Predict Debt Woes?

This may be cheap science. But take a look at the seventeen Eurozone countries according to their rank on the 2010 corruption perception index.

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3M's Flare Up

Another company joins our list of those with ongoing FCPA investigations.

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ABB Reaches $58 Million Settlement (Updated)

Electrical technology giant ABB Ltd. of Switzerland reached a settlement with the DOJ today of criminal FCPA charges and will pay a fine $30,420,000. And in resolving civil charges with the SEC, the company will disgorge $22,804,262 and pay a $16,510,000 civil penalty.

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Daimler Charged For Bribery [Updated]

Germany's Daimler AG has been charged in a criminal information with Foreign Corrupt Practices Act-related violations involving "at least 22 countries over almost a decade." China, Croatia, Egypt, Greece, Hungary, Indonesia, Iraq, Ivory Coast, Latvia, Nigeria, Russia, Serbia, Montenegro, Thailand, Turkey, Turkmenistan, Uzbekistan, and Vietnam are among the countries mentioned.

The company faces one count of conspiracy to violate the FCPA (18 U.S.C. §371) and one count of violating the books and records provisions (15  U.S.C. §§78m(b)(2)(A), 78m(b)(5), and 78ff(a), and 18 U.S.C. §2).

The 76-page information recounts years of systematic payments and gifts made through third-parties, many of them shell companies, to state-owned customers and government officials, including Changquing Petroleum Exploration Bureau, and Sinopec, both in China. In Turkmenistan, it gave a government official "an armored Mercedes Benz S class passenger car, valued at more than €300,000, for his birthday." Bribes in Iraq also violated the U.N.'s oil for food program.

Daimler's top brass knew about the bribery. The criminal information describes a 1999 meeting of the Board of Management:

[P]articipants 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. At that meeting, an integrity code with anti-bribery provisions was adopted. However, Daimler subsequently failed to make sufficient efforts to enforce the code, train employees on compliance with the FCPA or other applicable anti-bribery statutes, audit the use of [third-party accounts], or otherwise attempt to ensure that the company was not continuing to make improper payments in order to obtain or retain government business overseas.

In February, Daimler was reported to be close to settlement with U.S. authorities and ready to pay about $200 million.

The DOJ's filing of a criminal information instead of an indictment usually indicates a settlement has been reached, subject to court approval. A hearing is scheduled for April 1 in U.S. District Court in Washington, D.C.

A Daimler spokesperson said in February: “We are in discussions with the DOJ and the SEC regarding consensually resolving the agencies’ investigations.” See our posts here and here.

The information says before 2005, Daimler -- despite being an "issuer" since 1993 and subject to the FCPA, despite having by then "more than 270,000 employees and 60 affiliates and business units that sold vehicles to governments and government-related entities in many high-risk countries for corruption" -- had a feeble compliance program. There was no head of compliance; legal and accounting people reported directly to sales executives; the audit department was small and chronically understaffed; cash controls were absent -- employees could draw tens of thousands of dollars with little justification or oversight; the selection, use, and payment of agents was largely unregulated; employees received inadequate compliance training, and whistleblower hotlines were decentralized.

The FCPA investigation into Daimler began in 2004, triggered by the firing of an alleged whistleblower from the audit group at DaimlerChrysler Corp., Daimler's former U.S. affiliate.

"In total," the information alleges, "the transactions with a territorial connection to the United States resulted in over $50,000,000 pre-tax profits for Daimler."

Download the March 22, 2010 two-count criminal information in U.S. v. Daimler AG here.

Our thanks to Washington, D.C.'s Marc Alain Bohn for his help with this post.

The Story Of Graft

Transparency International's Global Corruption Report 2009 is here. At 462 pages, it may be the most complete account of global corruption and anti-bribery efforts ever assembled. Reference books like this are both important and fun; you don't need to read from front to back, first page to last. Dive in anywhere -- at the country reports, narrative chapters, footnotes, tables, sidebars, illustrations or research, even the index. It's all worthwhile. Here, from a couple of random dives, is what we mean:

• The Foreign Corrupt Practices Act "established the first comprehensive prohibition by any country against bribing foreign government officials for business purposes. The FCPA bans the use of bribery to obtain or retain business or to secure any other undue business advantage, and imposes strict record-keeping requirements for public companies. While enforcement in the early years was limited, it has increased markedly since the United States ratified the OECD Convention in 1998. From 2003 to 2007 the average number of new FCPA enforcement actions nearly tripled compared to the preceding five-year period."

• "In France, Germany, the United Kingdom and the United States, all major foreign investors and exporters and more than 80 per cent of surveyed executives admitted to ‘not being familiar at all’ with one of the most important legal frameworks in global business, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Only a third or so of companies surveyed by other polls in the construction and power sector -- industries with high corruption risks -- had training programs for executives on how to avoid corruption."

• "Almost 90 per cent of the top 200 businesses worldwide have adopted business codes, but fewer than half report that they monitor compliance. Although more than 3,000 companies have published CSR [corporate social responsibility] reports in 2007, fewer than a third were verified through independent assurance."

• Enforcement of foreign bribery cases has increased in France, Germany and the United States. "[T]here is still little or no enforcement in . . . Canada, Japan and the United Kingdom." In 2008, France brought 19 enforcement actions and had 16 ongoing investigations; Japan brought one case and had an unknown number of ongoing investigations.

• Globally, nearly forty percent of polled business executives have been asked to pay a bribe when dealing with public institutions. Half estimated that corruption raised project costs by at least 10 percent. Twenty percent claimed to have lost business because of bribes by a competitor. More than a third felt that corruption is getting worse.

• "In developing and transition countries alone, corrupt politicians and government officials receive bribes believed to total between US$20 and 40 billion annually – the equivalent of some 20 to 40 per cent of official development assistance."

• "When corruption allows reckless companies to disregard the law, the consequences range from water shortages in Spain, exploitative work conditions in China or illegal logging in Indonesia to unsafe medicines in Nigeria and poorly constructed buildings in Turkey that collapse with deadly consequences. Even facilitation payments -- the many, often small payments made by companies to ‘get things done’ -- are found to be harmful, as they are funneled up through the system and help nurture and sustain corrupt bureaucracies, political parties and governments."

Transparency International's Global Corruption Report 2009: Corruption and the Private Sector can be downloaded here.

Disclosure: We acted as a peer reviewer for this publication.
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Siemens: Systematic Global Corruption

[Updated and Corrected] It was a corporation that tolerated fraud, deceit and concealment. There were slush funds used to bribe public officials. There were phony contracts and fake invoices to cover up the corruption, and there was a boardroom that knew for years what was happening but feigned ignorance. And yet it was one of the world's most important companies, a global powerhouse in electronics and electrical engineering, with nearly 400,000 employees and yearly revenues above $100 billion.

As reported Friday, Siemens AG will plead guilty as early as Dec. 15th to Justice Department charges of violating the Foreign Corrupt Practices Act, likely resulting in fines of $450 million. And once an expected agreement with the Securities and Exchange Commission is signed, the company will also be required to disgorge at least $350 million of its tainted profits.

The Justice Department's Information charging Siemens in the biggest FCPA enforcement action ever tells of more than 4,000 payments worth at least $1.4 billion to foreign officials to obtain or retain business -- and systematic and intentional violations of the internal controls and books and records provisions that might have prevented or detected the payments (15 U.S.C. §§ : 78m(b)(2), 78(b)(5) and 78ff(a)).

How could it have happened? Because of the corporate structure Siemens created and the culture it nourished. Where operating groups and foreign subsidiaries were accountable for their bottom line but little else. Where ethics training didn't happen. Where compliance personnel and inside auditors were choked off from resources and hobbled by internal restrictions and a confused mission. Where reliable reports to headquarters of large-scale corruption weren't investigated. Where senior employees known to have paid bribes and cooked the books were never disciplined -- but instead were allowed to retire with benefits, bonuses and severance packages.

And then there's the story in the Sentencing Memorandum of Siemens' eventual road to redemption. Because of the scope of its bribery, the company faced fines under the Federal Sentencing Guidelines of up to $2.7 billion. But the DOJ's prosecutors are asking for a penalty reduced to $450 million. And they haven't charged Siemens under the FCPA's antibribery provisions, so it probably won't be barred from U.S. government contracts. Why? The Justice Department said it views as exceptional Siemens’ wide-ranging cooperation efforts throughout this investigation, which included a sweeping internal investigation, the creation of innovative and effective amnesty and leniency programs, and exemplary efforts with respect to preservation, collection, testing, and analysis of evidence. ... More on that in later posts.

For today, here are some key allegations from the 36-page Information:

• In April 2006, in response to a special audit request by the board of directors, Siemens’ outside auditors reported at least 250 suspicious payments made through the parent to companies in foreign jurisdictions. The audit report was provided to the board of directors, members of management and the Corporate Compliance Office. But no one made any attempt to investigate these facts, or explore whether they were related to other similar instances of wrongdoing.

• From 2004 to 2006, in addition to learning of corruption issues involving Siemens in Nigeria, Italy, Greece, Liechtenstein, and elsewhere, the company's senior management learned of government investigations into corruption by Siemens in Israel, Hungary, Azerbaijan, Taiwan, and China. Nevertheless, executives and senior management failed to adequately investigate or follow up on any of these issues.

• Siemens also failed to take effective disciplinary measures with respect to any of the employees implicated in the various investigations. For example, the three managers implicated in the Italian cases each received a severance package standard for early retirees, despite the fact that certain Siemens board members knew that at least two of the managers had already admitted to paying bribes at the time of their retirement.

• From 2004 to 2006, the Corporate Compliance Office continued to lack resources, and there was an inherent conflict in its mandate, which included both defending the company against prosecutorial investigations and preventing and punishing compliance breaches. In addition, there were extremely limited internal audit resources to support compliance efforts. All of these factors undermined the improved policies because violations were difficult to detect and remedy, and resources were insufficient to train business people in anti-corruption compliance.

• There was a consistent failure on the part of certain members of management to alert the Audit Committee to the significance of the compliance failures discovered within Siemens. Reports to the Audit Committee by the Chief Compliance Officer were principally status reports on prosecutorial investigations and often conveyed incomplete information. In some instances, management provided inaccurate information in response to Audit Committee inquiries. At no time did management convey to the Audit Committee a sense of alarm or growing crisis.

And here, from the final paragraph of the Information, are the DOJ's books-and-records charges against the company:

From at least March 2001 to November 2006, Siemens knowingly falsified and caused to be falsified books, records, and accounts required to, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the company. In doing so, Siemens:

(a) used off-books accounts as a way to conceal corrupt payments;

(b) entered into purported business consulting agreements with no basis, sometimes after Siemens had won the relevant project;

(c) justified payments to purported business consultants based on false invoices;

(d) mischaracterized bribes in the corporate books and records as consulting fees and other seemingly legitimate expenses;

(e) accumulated profit reserves as liabilities in internal balance sheet accounts and then used them to make corrupt payments through business consultants as needed;

(f) used removable Post-It notes to affix signatures to approval forms authorizing payments to conceal the identity of the signors and obscure the audit trail; and

(g) drafted and backdated sham business consulting agreements to justify third party payments; and

(h) falsely described kickbacks paid to the Iraqi government in connection with the Oil for Food Program in its corporate books and records as commission payments to agents when Siemens and Siemens France, Siemens Turkey and others were aware that a substantial portion of these payments was being passed on to the Iraqi government in exchange for being awarded contracts with the Iraqi government.
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Download a copy of the DOJ's Information charging Siemens AG here.

Download the DOJ's Sentencing Memorandum here.

Download here the charges related to Argentina, Bangladesh and Venezuela.

Download the Joint Statement here.

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Our special thanks to readers who assisted in compiling the documents filed by the DOJ in U.S. District Court in Washington, D.C. Friday. Those linked above are at the heart of this extraordinary FCPA enforcement action.

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York International Pays $22 Million To Resolve Global Corruption Case

Internal Investigation into Oil-For-Food Abuses Uncovered Widespread Bribery

York International Corporation has reached a settlement with U.S. prosecutors of numerous violations of the U.S. Foreign Corrupt Practices Act -- relating to bribes paid under the United Nations oil-for-food program and kickbacks for other government contract work in Bahrain, Egypt, India, Turkey, the United Arab Emirates and China. York -- a subsidiary of Johnson Controls, Inc. since 2005 -- provides heating, ventilation, air conditioning, and refrigeration products and services worldwide.

Under York's three-year deferred prosecution agreement with the U.S. Department of Justice, it will pay a $10 million criminal penalty, cooperate with the DOJ’s related investigations and appoint an independent compliance monitor. York also consented to the Securities and Exchange Commission’s filing of a complaint for FCPA violations and agreed to disgorge about $10 million and pay $2 million in civil penalties.

From 2001 through 2006, York paid over $7.5 million in bribes through subsidiaries and agents to obtain work on commercial and government projects throughout the world. York referred to the payments internally as "consultancy payments" but no bona fide services were involved. It made 854 improper consultancy payments on more than 770 contracts -- 302 projects involved government end-users, such as government-owned companies, public hospitals, or schools.

The payments violated the anti-bribery provisions of the FCPA, and York failed to devise and maintain an effective system of internal controls to prevent or detect the bribes. It also failed to accurately record in its books and records the kickbacks to Iraq, bribes in the UAE, and the bogus consultancy payments made in various countries. York consented to the entry of a final judgment with the SEC permanently enjoining it from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934. The DOJ’s three-count criminal Information charged York with conspiracy to commit wire fraud and to falsify books and records in violation of 15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(5) and 78ff(a).

York self-reported the violations and worked with the DOJ and the SEC to investigate the illegal conduct. The criminal Information also mentions "Employee A" and “Employee B,” citizens of the United Kingdom and Syria respectively, who were involved in the bribery, as well as "Company X," a consulting company based in Jordan that acted as a sales agent for York in the Middle East. They have not yet been charged with FCPA violations.

Among the details mentioned by prosecutors, York’s Danish subsidiary, which sells refrigeration equipment to ship builders and ship yards owned by the Chinese government, made illegal payments from 2004 through 2006 to agents and to Chinese officials connected with the shipyards. “Hundreds of thousands of dollars for nebulous and undocumented services” were processed through York’s Danish subsidiary, which also provided Chinese ship yard employees with lap top computers and other electronics.

York's parent company, Johnson Controls, Inc. (NYSE: JCI) will not be prosecuted on the facts admitted by York.

View the DOJ’s October 1, 2007 News Release Here.

View the October 1, 2007 Deferred Prosecution Agreement and Criminal Information Here.

View the SEC’s Litigation Release No. 20319 / October 1, 2007 Here.

View the SEC’s Complaint Here.