SEC Files Settled Foreign Corrupt Practices Act Charges Against Siemens AG for Engaging in Worldwide Bribery With Total Disgorgement and Criminal Fines of Over $1.6 Billion

The Securities and Exchange Commission filed a settled enforcement action on December 12, 2008, in the U.S. District Court for the District of Columbia charging Siemens Aktiengesellschaft (“Siemens”), a Munich, Germany-based manufacturer of industrial and consumer products, with violations of the anti-bribery, books and records, and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”). Siemens has offered to pay a total of $1.6 billion in disgorgement and fines, which is the largest amount a company has ever paid to resolve corruption-related charges. Siemens has agreed to pay $350 million in disgorgement to the SEC. In related actions, Siemens will pay a $450 million criminal fine to the U.S. Department of Justice and a fine of €395 million (approximately $569 million) to the Office of the Prosecutor General in Munich, Germany. Siemens previously paid a fine of €201 million (approximately $285 million) to the Munich Prosecutor in October 2007.

The SEC’s complaint alleges that:

Between March 12, 2001 and September 30, 2007, Siemens violated the FCPA by engaging in a widespread and systematic practice of paying bribes to foreign government officials to obtain business. Siemens created elaborate payment schemes to conceal the nature of its corrupt payments, and the company’s inadequate internal controls allowed the conduct to flourish. The misconduct involved employees at all levels, including former senior management, and revealed a corporate culture long at odds with the FCPA.

For more see SEC.gov.

SEC Files Settled Books and Records and Internal Controls Charges Against Fiat S.p.A. and CNH Global N.V. For Improper Payments to Iraq Under the U.N. Oil for Food Program — Fiat Agrees to Pay Over $10 Million in Disgorgement, Interest, and Penalties

The Securities and Exchange Commission filed Foreign Corrupt Practices Act books and records and internal controls charges against Fiat S.p.A. and CNH Global N.V. in the U.S. District Court for the District of Columbia. Fiat S.p.A., an Italian company, provides automobiles, trucks and commercial vehicles. CNH Global N.V., a majority-owned subsidiary of Fiat, provides agricultural and construction equipment. The Commission’s complaint alleges that from 2000 through 2003, certain Fiat and CNH Global subsidiaries made approximately $4.3 million in kickback payments in connection with their sales of humanitarian goods to Iraq under the United Nations Oil for Food Program (the “Program”). The kickbacks were characterized as “after sales service fees” (“ASSFs”), but no bona fide services were performed. The Program was intended to provide humanitarian relief for the Iraqi population, which faced severe hardship under international trade sanctions. The Program required the Iraqi government to purchase humanitarian goods through a U.N. escrow account. The kickbacks paid by Fiat’s and CNH Global’s subsidiaries diverted funds out of the escrow account and into Iraqi-controlled accounts at banks in countries such as Jordan.

According to the Commission’s Complaint:

During the Oil for Food Program, Fiat’s subsidiary, IVECO S.p.A., used its IVECO Egypt office to enter into four direct contracts with Iraqi ministries in which $1,803,880 in kickbacks were made on the sales of commercial vehicles and parts. After agreeing to pay the ASSFs, IVECO Egypt increased its agent’s commissions from five percent to between fifteen and twenty percent of the total U.N. contract price, which the agent funneled to Iraq as kickbacks. The agent submitted invoices for the inflated commissions, and IVECO financial documents show line items for “contract pay-back” due to the agent. IVECO and the agent secretly inflated the U.N. contracts by ten to fifteen percent. Despite the agent’s invoices being held for one year and the unusually large commissions, IVECO paid the invoices. In one instance, IVECO set up a bank guarantee in the amount of the ASSF in favor of a Dubai-based firm that operated as a front company for Iraq. IVECO’s bank guarantee was canceled and, instead, the agent established an identical bank guarantee to conceal IVECO’s role. A line item identified as “pay-back” on IVECO documents corresponded to the amount of the agent’s bank guarantee. The ASSFs were incorrectly recorded as legitimate commissions on the company’s books and records.

For more see SEC.gov.

New Study Reports That More Than 80% of Companies Exposed to Fraud

A new study released by Kroll and the Economist Intelligence Unit revealed that a majority of global companies are exposed to fraud.  The report states says that companies with over $5 billion in gross revenue lost an average of more than $20 million from fraud-related damages over the past three years. Even more remarkably, one out of every ten large companies lost over $100 million due to fraud over the same period.  This upward spike could suggest one of two possibilities: (1) global corporate compliance programs require more internal support and funding, or (2) escalation and reporting processes in compliance programs are more efficiently identifying and reporting fraudulent activity, but there really is not necessarily more wrong-doing taking place in global companies. 

 Is the glass half full?  You decide.  See the 2007 Corporate Fraud Report.

Baker Hughes to Pay Record Penalty To Settle Kazakhstan Bribery Charges

On April 26, 2007, the SEC filed a settled enforcement action in the U.S. District Court for the Southern District of Texas, charging Baker Hughes Inc., with violations of the Foreign Corrupt Practices Act (“FCPA”). Baker Hughes agreed to pay more than $23 million in disgorgement and prejudgment interest for these violations and a civil penalty of $10 million. The charges stem from alleged violations of a 2001 SEC cease-and-desist Order, which prohibited violations of the books and records (and internal controls) provisions of the FCPA.

For more on this action, see SEC v. Baker Hughes.

SENATE JUDICIARY HEARINGS: Half a Trillion Spent in Iraq With No Controls, Leahy Introduces Oversight Bill

The Vermont Senator Says We Are Otherwise On Track to Send a Full Trillion with No Oversight Adequate to Control Waste, Fraud and Abuse…

“We don’t have a law that would make war profiteering specifically a federal crime,” Sen. Leahy (D-VT) said in this morning’s efficient hearing conducted by the Senate Judiciary Committee, so he is introducing one. For more see this story.

SEC Settles Another Case Using the “Books and Records” and Internal Controls Provisions of the Foreign Corrupt Practices Act

The SEC today filed a consent decree in the U.S. District Court for the District of Columbia, alleging The Dow Chemical Company (Dow) violated the books and records and internal controls provisions of the FCPA in connection with an estimated $200,000 in improper payments made by an off-shore subsidiary to Indian government officials from 1996 through 2001. Without admitting or denying the allegations, Dow consented to pay a $325,000 civil penalty.

Here is a copy of the SEC’s press release and cease and desist order.

Falling on the Sword in the Name of Cooperation: Executive Resigns and Company Self-Reports FCPA Investigation Results to SEC and DOJ

Model corporate citizen J&J announced the resignation one of its senior executives, who stepped down upon a voluntarily disclosure to the SEC and Department of Justice the results of an investigation showing improper payments to foreign officials. Time will tell whether a high-level “resignation” and self reporting will affect charge decisions. The case also raises interesting questions around selective waiver, currently subject of debate in the context of proposed new Federal Evidence Rule 502(c), assuming J&J decides to hand over interview summaries or more than simply the outcome of the investigation.

For more on the story, see Wall Street Online Journal.