Thursday, October 19, 2006

Schnitzer Steel Settles Criminal and Civil FCPA Cases

Schnitzer Steel Industries, Inc., a Portland, Oregon, based-company that purchases and recycles scrap steel in the U.S. and abroad.  The company settled an SEC action alleging that its employees paid bribes to managers of Korean and Chinese steel mills that are both privately-owned and government enterprises to ensure continued business in violation of the Foreign Corrupt Practices Act.  Schnitzer Steel also entered into a deferred prosecution agreement with the Department of Justice, and its wholly-owned subsidiary, SSI International Far East Ltd., based in Korea, entered a guilty plea to violating the FCPA, conspiracy, and wire fraud charges.  According to a DoJ press release (here):

In the information and plea documents, SSI Korea admitted that it violated the FCPA and the conspiracy and wire fraud statutes in connection with more than $1.8 million in corrupt payments paid over a five-year period to officers and employees of nearly all of Schnitzer Steel’s government-owned customers in China and private customers in China and South Korea to induce them to purchase scrap metal from Schnitzer Steel. Additionally, in the deferred prosecution agreement, Schnitzer Steel agreed to accept responsibility for the conduct of its employees, and the employees of its subsidiary, in making corrupt payments and aiding and abetting the making of false books and records entries; to adopt internal compliance measures; and to cooperate with ongoing criminal and Securities and Exchange Commission (SEC) civil investigations.  The deferred prosecution agreement also provides that an independent compliance consultant will be appointed to review Schnitzer Steel’s compliance program and monitor its implementation of and compliance with new internal policies and procedures related to the FCPA and private bribery.

The case will likely continue, with prosecutors and the SEC looking at the conduct of one or more Schnitzer Steel executives.  In the SEC's Administrative Order (here), it states:

In May 2004, Schnitzer’s compliance department uncovered the improper payments and Schnitzer began to investigate the potential FCPA violations. At that time, a senior executive of Schnitzer prohibited any further payments, but nonetheless authorized Schnitzer employees to pay at least two additional bribes that Schnitzer previously had promised private customers. The same senior executive also authorized Schnitzer employees to increase entertainment expenses in lieu of cash payments to its private and government-owned scrap metal customers. In response, Schnitzer employees gave managers of Schnitzer’s scrap metal customers additional gifts, including gift certificates worth $10,000 and a watch worth $2,400.

Not the kind of response expected when a company uncovers an FCPA violation.  Schnitzer Steel's cooperation earned it a deferred prosecution agreement, and only the subsidiary has to plead guilty to the criminal charge. (ph)

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