Thursday, February 21, 2008

Deferred Prosecution Agreement with Flowserve

A press release of the DOJ states that "Flowserve Corporation (Flowserve) has agreed to pay a $4 million penalty as part of an agreement with the U.S. government regarding charges brought in connection with an ongoing investigation related to the United Nations Oil for Food program." Flowserve notes the agreed upon penalty on their website as being "a fine, profit disgorgement and related prejudgment interest to the SEC totaling $6,574,225 and a penalty to the DOJ of $4,000,000."

DOJ notes that "[t]he Information [filed by the government] charges that Flowserve Pompes engaged in a conspiracy to commit wire fraud and to violate the books and records provisions of the Foreign Corrupt Practices Act."

(esp)

February 21, 2008 in Deferred Prosecution Agreements, FCPA, Settlement | Permalink | Comments (0) | TrackBack (0)

Sunday, February 17, 2008

Wabtec Deals With Government

A DOJ press release tells of their recent "agreement with Westinghouse Air Brake Technologies Corporation (Wabtec) regarding improper payments to government officials in India in violation of the Foreign Corrupt Practices Act." The release states that

"[t]he agreement requires that Wabtec pay a $300,000 penalty, implement rigorous internal controls, and cooperate fully with the Department. The agreement acknowledges Wabtec’s voluntary disclosure and thorough self-investigation of the underlying conduct, the full cooperation provided by the company to the Department, and the remedial efforts undertaken by the company."

(esp)

February 17, 2008 in FCPA | Permalink | Comments (0) | TrackBack (0)

Friday, January 18, 2008

Will Siemens Have the Mother of All Monitorships?

With each passing quarter the internal investigation at Siemens AG keeps delivering more bad news about the company's overseas bribes.  A case that started with accusations of a few payments in one division has now stretched across what seems like the entire company, with total payments exceeding $2 billion, by far the largest FCPA case seen to date.  The latest letter (here) from Debevoise & Plimpton, the law firm conducting the internal investigation, now indicates that the wrongdoing stretches into Siemens' executive suite, specifically members of its Managing Board.  The firm states, "Since November 28, 2007, we have obtained significant new information and developed very substantial leads from participants in Siemens' amnesty program, as well as other sources, regarding topics relevant to our investigation.  In particular, certain of this new information pertains to the conduct and knowledge of a number of individuals who have served on the Managing Board during the past several years." [italics added]  That is certainly bad news for a company that tried to downplay the bribery problems and insisted, at least to this point, that the payments were a localized issue that did not implicate senior managers.  That line of defense is now pretty much over.

Under German corporate law, there are two Boards at a company.  The Managing Board is responsible for the day-to-day management of the enterprise, the equivalent of the senior managers in a U.S. company.  At Siemens, there are eight members of the Managing Board, including CEO Peter Löscher, and they are responsible for the different operating units.  Above them is the Supervisory Board, which has oversight responsibility for the company and appoints (or dismisses) the members of the Managing Board.  This is the equivalent of the board of directors at a U.S. company, although only half the Supervisory Board members are elected by the shareholders, while the other half represent employees, many of whom are members of unions.  That is quite different from the board of an American company, which is elected only by shareholders and the members are usually picked by management to stand for election.

Siemens has already settled an investigation by local German prosecutors, and the SEC and Department of Justice are conducting FCPA investigations.  The latest revelations will make settling the case more difficult, and the involvement of senior management will require that any deferred prosecution agreement include a monitor with wide-ranging responsibilities.  Siemens had almost €87 billion in sales in 2007, and has nearly 475,000 employees in every major country and region in the world.  The scope of the overseas bribery will require a monitor to go into almost every part of the operation, and given the extensive sales in countries like China, where corruption is endemic, it could take years for an outside agency to assess Siemens' compliance with a DPA.

I suspect the Debevoise investigation has already cost Siemens upwards of $50 million, and quite possibly more as it expands -- the letter states that "significant new information continues to be developed on virtually a daily basis."  The monitorship could well cost it over $250 million.  There has been quite a bit of controversy lately over the appointment of monitors in cases settled by DPAs  (see Washington Post story here), and much has been made of the estimated cost of former Attorney General John Ashcroft's monitorship for Zimmer Holdings that will cost the company between $28 million and $52 million.  That case is fairly straightforward, involving illicit payments to doctors to use the company's devices in replacement surgeries.  Indeed, it's not clear how Ashcroft can charge that much for a fairly simple monitorship, but if that's the going rate, Siemens will easily cost ten times as much, and possibly even more. 

The Department of Justice has been formulating guidelines for the appointment of monitors to regularize the process and remove any appearance of impropriety from positions that can be quite lucrative.  The Siemens monitorship will be the big prize, so let's hope that a program is in place for the appointment of the inevitable outside monitor.  And look for Siemens to create a hefty reserve to settle the case, because I suspect the federal government will be looking for a sizable fine and appointment of a long-term monitor to police the global enterprise. (ph) 

January 18, 2008 in FCPA, Investigations | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 25, 2007

Yet Another FCPA Matter - This Time It's Lucent

Cases involving the Foreign Corrupt Practices Act (FCPA) are clearly on the rise.  This time it involves a settlement with Lucent Technologies, Inc. The company will be paying a fine of one million dollars to resolve FCPA allegations. What is happening with these settlements is that the contours of what is permitted expenses and what will not be tolerated are coming to light.  Companies are finding out the hard way, that it is better to err on the side of not paying sums that might in any way be considered bribery to a foreign official.  In the Lucent matter, the DOJ press release states:

"Lucent acknowledged that it provided Chinese government officials with pre-sale trips to the United States to attend seminars and visit Lucent facilities, as well as to engage in sightseeing, entertainment and leisure activities. In 2002 and 2003 alone, there were 24 Lucent-sponsored pre-sale trips for Chinese government customers. Of these, at least 12 trips were mostly for the purpose of sightseeing. Lucent spent over $1.3 million on at least 65 pre-sale visits between 2000 and 2003. The individuals participating in these trips were senior level government officials, including the heads of state-owned telecommunications companies in Beijing and the leaders of provincial telecommunications subsidiaries.

Between 2000 and 2003, Lucent also provided Chinese government officials with post-sale trips that were typically characterized as “factory inspections” or “training” in contracts with its Chinese government customers. By 2001, however, Lucent had outsourced most of its manufacturing and no longer had any Lucent factories for its customers to tour. Nevertheless, Lucent provided individuals with trips for “factory inspections” to the United States, Europe, Australia, Canada, Japan and other countries that involved little or no business content. These trips consisted primarily or entirely of sightseeing to locations such as Disneyland, Universal Studios, the Grand Canyon, and in cities such as Los Angeles, San Francisco, Las Vegas, Washington, D.C., and New York City, and typically lasted 14 days each and cost between $25,000 and $55,000 per trip.

In the agreement, Lucent admits to all of this conduct, as well as other instances of providing travel and educational opportunities to Chinese government officials and to the improper recording of those expenses in its corporate books and records."

An additional cost that many companies can face when having to deal with FCPA allegations is the cost of attorney fees to respond to government investigations and actions. See also the WSJ here that talks about Alcatel-Lucent paying 2.5 million in fines.

(esp)

December 25, 2007 in FCPA | Permalink | Comments (0) | TrackBack (3)

Thursday, December 20, 2007

Film Exec and Wife Charged with FCPA Violation

A Press Release of the DOJ tells that "a film executive and his spouse were arrested today on allegations of making corrupt payments to a Thai government official in order to obtain lucrative contracts to run an international film festival in Bangkok, in violation of the Foreign Corrupt Practices Act (FCPA)."  The case - -charged in early December, but just unsealed -- alleges that the defendants "conspired to make more than $1.7 million in bribe payments for the benefit of a government official with the Tourism Authority of Thailand (TAT) in order to obtain the film festival contract and contracts with TAT worth more than $10 million."  The defendants are alleged to have been bidding "for the management contract for the annual Bangkok International Film Festival."

(esp)

December 20, 2007 in FCPA | Permalink | Comments (0) | TrackBack (0)

Sunday, November 25, 2007

BAE Investigation

Nelson D. Schwartz and Lowell Bergman have a fascinating NYTimes article titled, "Payload Taking Aim at Corporate Bribery" here.  And without doubt, the BAE investigation is one that needs to be followed. The article details some of the major Foreign Corrupt Practices Act (FCPA) cases of recent vintage. And it notes that Alice Fisher, head of the DOJ Criminal Division is noting the increased prosecution of FCPA cases, and saying the trend will continue. For a discussion of some of the FCPA investigations and cases discussed on the blog - go here. It is interesting to see that TRAC reports white collar crime prosecutions as being down (see here), and Ms. Fisher is saying that FCPA cases are up. Are FCPA not included in the white collar figures?  Or is that other forms of white collar crime are so very low to allow for this higher number here? 

(esp)

November 25, 2007 in FCPA | Permalink | Comments (0) | TrackBack (0)

FCPA - Getting a Basic Education

How does the DOJ interpret the Foreign Corrupt Practices Act (FCPA), and what guidance is available to those attempting to understand its language?

Actually there is more available than one might suspect.  First there is a lay person's guide on the DOJ website here. And then there are opinion releases found here.  The one problem with the web-based opinion releases is that one doesn't find an index available and thus, one may have to hunt through the many there to find applicable guidance - or ask again. But as websites go for the DOJ, this is clearly one of the better ones, with helpful guidance to businesses in that interpretations are offered. For those who advocate for administrative rule-making, you can appreciate what is offered here. 

(esp)

Addendum - Another place to find materials/cases on FCPA - see here (Shearman & Sterling site)(w/ a hat tip to Paul Lekas)

November 25, 2007 in FCPA | Permalink | Comments (0) | TrackBack (0)

Saturday, November 17, 2007

Siemens Bribery Saga Just Keeps Growing

The continuing investigation of overseas bribery by industrial giant Siemens A.G. seems to bring to light even more suspect payments throughout the world, with the total now pegged at nearly $2 billion in questionable transactions.  The amounts involved are staggering compared to other foreign bribery investigations, which are often in the hudreds of thousands of dollars and rarely exceed $10 million.  A BusinessWeek article (here) speculates that the likely fines the company will pay in the United States to resolve criminal and civil investigations will easily exceed the prior record of $44 million for Foreign Corrupt Practices Act violations.  Siemens' more recent public disclosure on Form 6-K (here) states:

The Company remains subject to corruption-related investigations in the U.S. and other jurisdictions around the world. As a result, additional criminal or civil sanctions could be brought against the Company itself or against certain of its employees in connection with possible violations of law, including the FCPA. In addition, the scope of pending investigations may be expanded and new investigations commenced in connection with allegations of bribery and other illegal acts. The Company’s operating activities and reputation may also be negatively affected, particularly due to imposed penalties, disgorgements, compensatory damages, the formal or informal exclusion from public procurement contracts or the loss of business licenses or permits.

That's not very reassuring for a quick resolution of the investigations, particularly in the U.S.  With the ever-expanding internal and governmental investigations comes the cost of paying for all those lawyers and accountants.  According to the most recent disclosure, in fiscal 2007 the company had "€347 million in expenses for outside advisors engaged by Siemens in connection with the investigations into alleged violations of anti-corruption laws and related matters as well as remediation activities."  No word yet on the estimated cost of any fines, and in all likelihood one or more outside monitors will be required as part of a settlement, which will drive up the expenses from the overseas bribery even more. (ph)

November 17, 2007 in FCPA, Investigations | Permalink | Comments (0) | TrackBack (0)

Thursday, November 15, 2007

Chevron Settles FCPA Investigation Related to Iraq Oil-for-Food Program

Oil giant Chevron Corp. settled civil and criminal investigations related to illegal kickbacks paid into Iraqi-controlled accounts in 2001 and 2002 as part of the UN's Iraq Oil-for-Food program that has turned out to be a cesspool of corruption.  According to the SEC Litigation Release (here):

The Commission's complaint alleges that from approximately April 2001 through May 2002, third parties with which Chevron contracted paid approximately $20 million in illegal kickback payments in connection with Chevron's purchases of crude oil under the U.N. Oil for Food Program. Chevron knew or should have known that third parties paid a portion of the premiums they received from Chevron to Iraq as illegal surcharges. The Oil for Food Program provided humanitarian relief to the Iraqi population during the time that Iraq was subject to international trade sanctions. However, the surcharges paid by third parties in connection with Chevron's purchases of oil bypassed the escrow account and were instead paid to Iraqi-controlled bank accounts in Jordan and Lebanon.

The settlement requires Chevron to pay $30 million, to be divided between a $20 million forfeiture payable as part of a settlement with the U.S. Attorney's Office for the Southern District of New York, $5 million in disgorgement in a settlement with the Manhattan D.A.'s office, a civil penalty to the SEC of $3 million, and another $2 million civil penalty to the Treasury Department's Office of Foreign Asset Controls.  Looks like everyone gets to claim a piece of this settlement. (ph)

November 15, 2007 in Civil Enforcement, FCPA, Settlement | Permalink | Comments (0) | TrackBack (0)

Monday, November 5, 2007

Yet Another FCPA Case - Individual Pleads Guilty

On the heels of a Fifth Circuit Appellate decision affirming a Foreign Corrupt Practices Act (FCPA) conviction (here), the DOJ reports on a plea to a FCPA charge. The press release states that "[a] former executive of a subsidiary of Houston-based Willbros Group Inc. (WGI) has pleaded guilty to conspiring to bribe officials of the government of Nigeria with more than $6 million in violation of the Foreign Corrupt Practices Act (FCPA)." The press release notes that this former executive admitted that "[t]hese payments were offered and made to officials of the Nigerian National Petroleum Corporation (the Nigerian state-owned oil company) and its subsidiary, National Petroleum Investment Management Services, a Nigerian political party, and a senior official in the executive branch of the Nigerian federal government, in order to assist in securing a major gas pipeline construction contract in Nigeria." Willbros Group Inc. had announced the sale of its Nigerian Operations back in February of 2007 (see here).

(esp)

November 5, 2007 in FCPA | Permalink | Comments (0) | TrackBack (0)

Saturday, November 3, 2007

Fifth Circuit Rules in FCPA Case

The Fifth Circuit Court of Appeals affirmed a Foreign Corrupt Practices Act conviction in the case of United States v. KayThe court opinion discusses, among other things, the application of the Rule of Lenity and whether the indictment and jury instructions failed to properly account for the element of "willfulness."  The court found that "where the legislative history shows that 'Congress meant to prohibit a range of payments wider than only those that directly influence the acquisition or retention of government contracts or similar commercial or industrial arrangements,' the FCPA is not sufficiently ambiguous to merit application of the rule of lenity." The court also found that the failure to include "willfulness" in the indictment was not harmful error.

(esp)

November 3, 2007 in FCPA | Permalink | Comments (0) | TrackBack (0)

Friday, November 2, 2007

Willbros Set to Settle FCPA Investigations

Energy services firm Willbros Group Inc. disclosed in its third quarter 10-Q (here) that it has reached a tentative settlement with the Department of Justice and the SEC over violations of the Foreign Corrupt Practices Act.  The bribes involved former subsidiaries operating in Nigeria, Bolivia and Ecuador, and the company will enter into a three-year deferred prosecution agreement requiring it to pay over $40 million in criminal and civil penalties, disgorgement, and prejudgment interest.  According to the company's disclosure -- buried in the footnotes to its financial statements -- the settlement with DOJ will involve:

  • A twelve-count criminal information will be filed against WGI and WII as part of the execution of the DPAs between the DOJ and each of WGI and WII. The twelve counts include substantive violations of the anti-bribery provisions of the FCPA, and violations of the FCPA’s books-and-records provisions. All twelve counts relate to operations in Nigeria, Ecuador and Bolivia during the period from 1996 to 2005.
  • Provided that WGI and WII fully comply with the DPAs for a period of approximately three years, the DOJ will agree not to continue the criminal prosecution and, at the conclusion of that time, will move to dismiss the criminal information.
  • The DPAs will require, for each of their three year terms, among other things, full cooperation with the government; compliance with all federal criminal law, including but not limited to the FCPA; and a three year monitor for WGI and its subsidiary companies, primarily focused on international operations outside of North America, the costs of which are payable by WGI.
  • The Company will be subject to $22,000 in fines related to FCPA violations. The fines are payable in four equal installments of $5,500, first on signing, and annually for approximately three years thereafter, with no interest payable on the unpaid amounts.

This is another example of the growing trend to use deferred prosecution agreements in FCPA cases rather than full guilty pleas by companies. (ph)

November 2, 2007 in FCPA, Settlement | Permalink | Comments (0) | TrackBack (0)

Thursday, November 1, 2007

Ingersoll-Rand Settles FCPA Case from Iraq Oil-for-Food Program Bribery

Industrial manufacturer Ingersoll-Rand Co. settled criminal and civil investigations of Foreign Corrupt Practices Act violations related to bribes given to participate in the Iraq Oil-for-Food program, which seemed to generate a fountain of corrupt payments.  The bribes involved two foreign subsidiaries, in Ireland and Italy, and Ingersoll-Rand agreed to a three-year deferred prosecution agreement (here) and pay a $2.5 million fine. The government filed conspiracy to commit wire fraud charges against the subsidiaries, which will be dismissed if it fulfills the terms of the DPA.  In addition, the company settled an SEC civil enforcement action, agreeing to disgorge profits of $1,710,034, and pay $560,953 in pre-judgment interest and a $1,950,000 civil penalty (Litigation Release here).  Ingersoll-Rand's total cost was about $6.7 million, which does not include the increased expenses of ensuring compliance with the DPA.

A provision of the DPA that is becoming more common is a section allowing Ingersoll-Rand to assert the attorney-client privilege and work product doctrine to resist producing records prosecutors might request.  However, the cost of doing so is that "the Department may consider this fact in determining whether Ingersoll has fully cooperated with the Department."  Whether DOJ will ever follow through on such a threat remains to be seen, but this type of provision seems to be designed to avoid claims that the government is demanding across-the-board waivers of the privilege. (ph)

November 1, 2007 in FCPA, Settlement | Permalink | Comments (0) | TrackBack (0)

Friday, October 5, 2007

Siemens Settles German Overseas Bribery Probe

Multinational industrial giant Siemens A.G. settled with German prosecutors the probe of corrupt overseas payments by its telecom unit by agreeing to pay €201 million.  The company will also pay an additional €179 million to the tax authorities because it improperly deducted the foreign payments as ordinary business expenses.  As discussed in an earlier post (here), the scope of the questionable overseas payments is much broader than first suspected, with Debevoise & Plimpton's internal investigation raising questions about as much as €1.6 billion in transfers throughout the company and not just the telecom unit.  While the settlement with the German prosecutors closes one avenue of problems, Siemens still faces investigations by the SEC and Department of Justice in the United States and an inquiry by the Italian authorities.  Given the size of the payments and their occurrence in different parts of the company, this is the type of case that the federal government will pursue vigorously.  A Bloomberg story (here) discusses the settlement.  (ph)

October 5, 2007 in FCPA, International, Settlement | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 3, 2007

York Settles FCPA Investigation

York International Corp., now a subsidiary of Johnson Controls, settled an investigation of overseas bribes by agreeing to a deferred prosecution agreement (available below) with the Department of Justice and a civil settlement with the SEC.  The case involves a wide range of payments in violation of the Foreign Corrupt Practices Act, as described in the SEC's Litigation Release (here):

The Commission's complaint alleges that York International's Delaware subsidiary paid approximately $522,500 to an intermediary while knowing that most of the money was intended to bribe United Arab Emirate officials; York International's Dubai subsidiary authorized and made approximately $647,110 in kickback payments under the U.N. Oil for Food Program; and that York International's subsidiaries devised elaborate schemes to conceal kickback payments of over $7.5 million made to secure orders on certain commercial and government projects in the Middle East, India, China, Nigeria and Europe.

The company agreed to pay a $10 million criminal fine, a $2 million civil penalty, and disgorge profits and pre-judgment interest of over $10 million, for a total cost of $22 million. 

An interesting part of the deferred prosecution agreement concerns waiving the attorney-client privilege and work product protection, an issue that has become quite contentious.  The agreement provides that the Department of Justice can request documents and information from the company, including those covered by the privilege, and that York can assert the privilege and protection in response and refuse to provide the requested materials on that basis.  However, the agreement goes on to state that "[i]n the event that York withholds access to the information, documents, records, facilities and/or employees of York, the Department may consider this fact in determining whether York has fully cooperated with the Department."  While the company has not agreed to waive the privilege, assertion of it could come at the cost of determining whether (and to what extent) it has been cooperative. (ph)

Download us_v_york_international_deferred_prosecution_agreement_oct_2007.pdf

October 3, 2007 in FCPA, Settlement | Permalink | Comments (0) | TrackBack (0)

Friday, September 28, 2007

Siemens Bribery Probe Keeps Expanding . . . Again

The internal investigation of corrupt payments at Siemens A.G. just can't seem to stop these days.  New York law firm Debevoise & Plimpton reportedly has told the company's managing board that the suspicious payments to obtain overseas contracts involve upwards of 1.6 billion euros, far more than the original disclosure of questionable payments of more than 400 million euros.  More importantly, the investigation shows the payments were not limited to Siemens' telecommunications unit, but also involve the power generation division and other units of the company.  As the extent of its foreign bribery grows, so too does the likelihood that Siemens will face a substantial criminal fine and may have to plead guilty in the U.S. to a Foreign Corrupt Practices Act violation rather than receive a deferred prosecution agreement.  An AP story (here) discusses the latest development at Siemens. (ph)

September 28, 2007 in FCPA | Permalink | Comments (0) | TrackBack (1)

Friday, August 24, 2007

Textron Settles FCPA Investigation

Manufacturer Textron Inc. entered a deferred prosecution agreement with the Department of Justice and settled civil charges filed by the SEC for violations of the Foreign Corrupt Practices Act.  The company, though French subsidiaries, paid over $650,000 in bribes related to the corruption-riddled Iraqi Oil-for-Food program, and another $115,000 to obtain contracts in the in the United Arab Emirates, Bangladesh, Indonesia, Egypt, and India.  According to the SEC Litigation Release (here):

Textron subsidiaries David Brown Guinard Pumps S.A.S. and David Brown Transmissions France S.A. made $1,936,926 in profits on Oil for Food contracts that involved illicit after-sales service fees ("ASSF"). DB Guinard Pumps obtained three Oil for Food contracts that were inflated by ten percent to cover the cost of secret ASSFs that it had agreed to make in undisclosed side letters with Iraq. Management approved ASSFs of approximately $83,000 to be funneled to Iraq through a Lebanese consultant. When the goods were held up at the Iraqi border on one contract, the Lebanese consultant provided DB Guinard Pumps with bank records showing that the ASSF payment was made on the company's behalf into a Lebanese bank account in the name of an Iraqi individual for the benefit of the Iraqi ministry. DB Transmissions France obtained ten Oil for Food contracts that were also inflated by ten percent to cover the cost of secret ASSFs. DB Transmissions France's Export Sales Manager noted in an internal memorandum that DB Transmissions France wishes "to avoid any written agreement [concerning the ASSF] with client side" and "[i]f written document cannot be avoided, this must remain highly confidential." He also noted that he discussed this issue with French management and received approval from his superiors to include the amount of the ASSF in the inflated contract price submitted to the U.N. Management approved ASSF payments of approximately $567,000 to be funneled to Iraq through a Jordanian consultant.

Textron's David Brown subsidiaries entered into thirty-six contracts involving illicit payments totaling $114,995.20 in countries other than Iraq. The payments were similar to the ASSF payments made on Oil for Food contracts because no bona fide services were performed and the payments were made to secure contracts. In the United Arab Emirates, subsidiaries paid $20,429 to employees of two government-owned gas companies, GASCO and ZADCO. $16,342 was paid to two "friends" employed by a Bangladesh government-owned fertilizer company. In Indonesia, a company representative was paid $149,000 of a $321,171 contract (more than half the contract value) to perform after-sales services. Of the $149,000 paid to the representative, $10,000 went to a procurement official of a government-owned company, Pertamina, to sponsor a golf tournament with very little documentation to show what the representative actually did with the remainder. Finally, $13,354 was paid to a government customer in Egypt, and $51,870 was paid to a non-government customer in India to secure business.

According to the Department of Justice press release (here), the government agreed to a deferred prosecution agreement rather than requiring a guilty plea "in recognition of Textron’s early discovery and reporting of the improper payments; Textron’s’ thorough review of those payments as well as its discovery and review of improper payments made in other countries, including India, Egypt, and the United Arab Emirates; and the company’s implementation of enhanced compliance policies and procedures." (ph)

August 24, 2007 in Civil Enforcement, FCPA, Settlement | Permalink | Comments (0) | TrackBack (0)

Thursday, August 16, 2007

Siemens Bribery Probe Keeps Expanding

The probe into overseas bribery at Siemens A.G. seems to grow with each quarterly disclosure.  What started out as an inquiry by Italian and Swiss authorities into secret payments now seems to be engulfing a significant portion of the far-flung German company's foreign operations -- which is saying a lot because it operates in over 90 countries.  According to the latest SEC disclosure (here), the most recent quarter has revealed the following at Siemens:

  • During the third quarter of fiscal 2007, the Company continued to analyze payments under the BCAs identified at year-end of fiscal 2006 and payments under BCAs subsequently identified at Com. The Company is in the process of completing a Company-wide collection of BCAs, and is currently also conducting an analysis of BCAs and related payments at five other Groups (PG, PTD, TS, Med and I&S). The Company has recently commenced the analysis of BCAs and related payments at the remaining Groups and in selected regional companies. As a result, the Company has identified a significant increase in the total amount of BCA payments under review. The Company is currently analyzing the deductibility for tax purposes of these payments.
  • During the third quarter of fiscal 2007, the Company continued its analysis of cash and check payments at Com which may relate to BCAs, and which may also raise concerns under the FCPA and anti-corruption legislation in Germany and other countries. In the third quarter of fiscal 2007, the Company also commenced internal inquiries regarding similar cash payments at other Groups. As a result of these inquiries, which are ongoing, the Company has to date identified payments which do not relate to Com and for which limited documentation is available, including a significant volume of payments made through a bank account in Liechtenstein. The Company is currently analyzing the deductibility for tax purposes of these payments.
  • As a result of the investigations and through cooperation with the public prosecutors, the Company has become aware of additional bank accounts and cash funds at various locations that were not recorded in the Company’s balance sheet. The Company is currently investigating the origin and ownership of the assets contained in these bank accounts and cash funds.

Finding more accounts used to pay bribes is not a positive development, to be sure.  Siemens disclosed earlier that the Department of Justice is conducting a criminal investigation, and recently the SEC bumped up its inquiry to a formal investigation, which means it can issue subpoenas rather than rely on voluntary cooperation. 

What could make things all the more dangerous for the company is a report in the Wall Street Journal (here) that some foreign units have not been cooperative with Debevoise & Plimpton, which is conducting the internal investigation of the bribery.  A hint of non-cooperation is sure to put prosecutors on edge, and will likely drag out the investigation further because it will be difficult to verify that all the corrupt payments have been properly accounted for by the company.  If Siemens' new CEO, Peter Löscher, had hoped to resolve the investigations quickly, his desire will not be fulfilled.  The question for Siemens is how many more shoes will drop, and whether one of them will be by a prosecutor in Europe or the United States. (ph)

August 16, 2007 in FCPA, Investigations | Permalink | Comments (0) | TrackBack (0)

Friday, August 3, 2007

The Cooperation Vise

The Wall Street Journal (here) and Washington Post (here) have interesting articles on possible criminal charges against board members of Chiquita Brands International for payments to a Columbian paramilitary group to protect the company's operations.  While Chiquita settled the case by pleading guilty and paying a $25 million fine, the investigation of individuals has moved forward because the payments continued after the company informed the government of them.  Chiquita apparently believed it could not simply cut off paying the paramilitary organization, which was designated a terrorist group on September 10, 2001, without endangering its workers.  While the government never said they could continue, it appears that federal prosecutors, including the then-head of the Criminal Division, Michael Chertoff, the current secretary of the Department of Homeland Security, did not tell Chiquita it had to stop.

As co-blogger Ellen Podgor points out in the WSJ story, "This case will make companies think twice about self-reporting."  At a minimum, the government's consideration of criminal charges against individual board members signals that when a company decides to cooperate it better be ready to stop all illegal activity it plans to disclose.  It may be that Chiquita did not have a Plan B in case the government did not authorize it to continue the payments because prosecutors clearly look askance at cooperation that does not include a cessation of the underlying activity.  The prosecution of Stolt-Nielsen is an example of a company accused of wrongdoing after agreeing to cooperate due to what prosecutors alleged is continued misconduct.  In addition to the decision to cooperate, the timing of the disclosure is an important issue if a company wants to show that it has made a clean break for prior illegal conduct. (ph)

August 3, 2007 in FCPA, International, Investigations | Permalink | Comments (0) | TrackBack (0)

Monday, July 30, 2007

PLeas in FCPA case

A DOJ Press Release reports that "[t]wo former ITXC Corporation executives have pleaded guilty and one former executive has been sentenced" "in relation to their participation in a foreign bribery scheme."  This case from the District of New Jersey charged in a one count information, conspiracy to violate the foreign corrupt practices act and the travel act.

(esp)

July 30, 2007 in FCPA | Permalink | Comments (0) | TrackBack (0)