Croatia's former prime minister faces a corruption investigation. Earlier this year, Daimler admitted paying about $6 million in bribes to sell fire trucks there.
Entries in Germany (98)
On the new CPI, America landed just ahead of Uruguay, France, and Estonia -- a neighborhood not well known for iron-fisted compliance. What's that mean for FCPA enforcement?
About half of the world's lawyers haven't heard of the FCPA. Seventy percent are unaware of the U.K. Bribery Act, and four in ten don't know about the OECD and U.N. anti-corruption conventions.
What's life like for Ousama Naaman? He's scheduled to be sentenced in December and faces up to ten years in prison. But he hopes to serve his time in a Canadian jail.
During its billion-dollar internal investigation, Siemens discovered and documented 4,283 illegal payments related to 332 projects around the world. The total value of bribes paid was at least $1.4 billion, resulting in fines and penalties in the U.S. and Germany of about $1.6 billion.
That was 2008. What has Siemens done since then about compliance?
In FY2007, it had 173 compliance staff worldwide. By FY2009, the number had grown to 598. It has now given in-person compliance training to 1,400 senior managers, 80,000 employees with "sensitive functions," and 220 compliance officers. Another 140,000 employees have completed on-line compliance training (the company has about 400,000 employees). In FY2009, Siemens fired 244 employees for compliance breaches and disciplined another 473.
A few years ago, Siemens could have received a corporate death sentence. Its crimes were that bad. And its compliance program, if you could call it that, had been subverted. But instead of a death sentence, there was that rather painless settlement with U.S. and German authorities. Some complained that justice wasn't served.
A year before the settlement, however, new CEO Peter Löscher had said: Siemens endorses clean business. Period. I am not interested in deals that can only be had through corruption.
Compliance first, profit second, he said. People believed him. So the company got a second chance and made it count.
As Peter von Blomberg, the deputy chairman of Transparency International Germany, recently said: "The case of Siemens shows that companies can be successful without corruption. Even with a compliance monitor appointed by the U.S. authorities, a much larger compliance organization, and scrutiny of every transaction, CEO Löscher just announced the best quarterly results ever."
That's why we like second chances.
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German police last Thursday raided a global pipeline-equipment supplier on suspicion of bribing foreign officials to win work.
The raid came two weeks after Eginhard Vietz, 69, the owner and managing director of Hanover-based Vietz GmbH, gave an interview to the German business newspaper Handelsblatt. Vietz told the paper his company and its competitors pay bribes in Africa, the Middle East, and Asia as a standard business practice.
Vietz GmbH supplies welding, bending, and testing gear for onshore and offshore oil and gas pipelines to customers world wide.
Mr. Vietz said his company regularly paid bribes "because there are certain countries where there is no other way to do it."
"Nobody is disadvantaged by what I am doing," he said, explaining he was only trying to keep his workers busy.
The Hanover prosecutor, Manfred Knothe, told the German Press Agency (DPA) that police raided the company's head office in Hanover and plants in Leipzig and Essen, seizing computers and files.
Knothe told DPA that "Vietz's description of the kickbacks had been so detailed that prosecutors had no choice but to investigate him on suspicion of corrupting others, an offence punishable by up to 5 years in prison."
Overseas bribery is sensitive in Germany. Since 2007, prosecutors have charged leading firms Siemens, Daimler, and MAN. Siemens and Daimler also faced FCPA enforcement actions in the U.S.
The Handelsblatt newspaper quoted Vietz as saying, "I don't feel I did anything wrong. You can't change the way the world is."
Last year, according to German press reports, Vietz accompanied Germany's economics minister on a trip to Abu Dhabi and Saudi Arabia. This year, he visited the United Arab Emirates as part of a delegation with state premier Christian Wulff, who's now Germany's president.
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In the Handelsblatt interview, Eginhard Vietz said among other things that he'd paid bribes repeatedly. In countries such as Algeria, Egypt, and Nigeria, he said it's not easy to do business without bribery. "The same goes for Russia," Vietz said.
Asked about anti-corruption laws in the countries where he does business, he said China even has the death penalty for bribery. "Nevertheless, I have experienced myself that I could only win contracts through bribes. And I also have lost contracts because a competitor paid more."
Vietz said most of the people deciding who wins state contracts are poorly paid and easily bribed. "They're only human," he said. He usually bribes the senior management in purchasing departments -- the people who make the buying decisions. "They are mostly civil servants we are dealing with in these countries, mainly at state firms."
The payments are usually funded by inflating commissions to sales agents, he said, with the money then transferred to accounts in Switzerland and then passed on as bribes. The amounts are usually between 5% and 10% of the total contract value. He said those amounts are added to the prices he charges the customers, so his margins aren't reduced. He said he's always careful in structuring the payments to comply with German tax laws.
U.S. companies, he said, claim to be particularly clean but are actually the worst. The SEC, he said, uses its authority to prosecute foreign competitors, while U.S. companies make themselves world leaders with government protection. Asked for an example, he said three years ago in Moscow, while bidding for a big contract, he knew he was 40% below the offer of his American competitors. "Suddenly, the American ambassador spoke to the customer. I did not get the job."
Handelsblatt pointed out that since Siemens stopped paying bribes, it hasn't lost work or shed jobs because of compliance. Vietz replied, "I can't speak for Siemens. Maybe a large corporation has other possibilities. But I doubt that anyone can build large plants in countries such as Nigeria without making specific contributions."
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Special thanks to a reader for sending the link to the August 10, 2010 Handelsblatt interview with Eginhard Vietz. It can be viewed here.
By Nancy Z. Boswell and Robert N. Walton, Transparency International-USA
Transparency International’s sixth annual report on enforcement of the OECD Anti-Bribery Convention, released last week, paints a mixed picture. On the positive side, it shows active enforcement in seven of the 36 countries evaluated, including the U.S, Germany, Italy and Norway. The U.K. even made the cut, despite the disappointing news last month that it is postponing the implementation of its sweeping new Bribery Act until April 2011.
Far less encouraging is the report’s finding that there is only moderate enforcement in nine countries and little to none in the remaining 20. This latter undistinguished group represents 15% of world trade and includes G8 members Canada, Japan and France.
The numbers speak for themselves, but the underlying question is why, after a dozen years, so many governments that committed to criminalize the use of bribes to get business have failed to live up to that promise. One can only conclude many of them have decided that it is not in their economic interest to do so. Motivations may vary, but these governments may see greater value in promoting the international commercial success of their country’s enterprises. If that means ignoring the Anti-Bribery Convention, so be it.
This disheartening conclusion is ominous for the countries where bribes continue to be paid, and for fair competition for those who observe the rule of law. There can be little doubt that inconsistent enforcement will allow bribery to continue unabated and may well undermine support of those countries that have followed their commitments with action. Likewise, it will hinder efforts to ensure that important emerging exporters –- notably China, India and Russia –- agree to and impose foreign bribery constraints on their companies.
Given the serious and damaging consequences of bribery in countries that can least afford it, the OECD, the governments that are complying with the convention, and those of us in the anti-corruption movement need to put more pressure on lagging countries to step up to their commitments and actively enforce the convention. Time is running out.
Nancy Boswell is the President and CEO of Transparency International- USA (TI-USA) and a former member of the Board of Directors of Transparency International (TI). She can be contacted here.
Rob Walton is TI-USA's Senior Policy Director for Private Sector Initiatives. He can be reached here.
The debate about medical ghosting has focused on the U.S. market. But could the DOJ and SEC now be looking at the practice overseas, where it might violate the FCPA?
Main Justice reported that in April, the DOJ and SEC sent letters to AstraZeneca PLC, Baxter International Inc., Eli Lilly & Co., and Bristol-Myers Squibb Co. The letters asked about business practices in Brazil, China, Germany, Greece, Italy, Poland, Russia, and Saudi Arabia.
Medical ghosting works like this. Drug companies hire outside firms to draft articles touting a drug, then retain a doctor or scientist to sign off as the author. The drug company then finds a publisher, who doesn't know the article was written by someone other than the person who signed it.
Doctors and scientists eagerly participate because publication credit increases their prestige and professional standing. And the drug-companies use the medical journal articles as "independent" proof that their drugs are safe and effective.
A Senate report released last month and quoted in the New York Times said: “Manipulation of medical literature could lead physicians to prescribe drugs that are more costly or may even harm patients."
The FCPA's antibribery provisions prohibit among other things (1) the giving of anything of value (2) to a foreign official (3) to obtain or retain business. See, e.g., 15 U.S.C. §78dd-1(a) [Section 30A of the Securities & Exchange Act of 1934].
Ghosting has those elements. Giving a doctor or scientist an unsigned manuscript for publication has real value. Doctors and scientists working in government-owned or managed hospitals overseas are "foreign officials" under the FCPA. And articles appearing to independently endorse a drug help its manufacturer obtain or retain business.
We don't know if medical ghosting will figure in any FCPA-related investigations of the drug companies. But it could.
Two former senior managers from Siemens who were central actors in the company's global bribery scandal were convicted by a criminal court in Germany Tuesday but let off with only probation and fines.
Michael Kutschenreuter and Hans-Werner Hartmann, both 55, were found guilty in a Munich court of breach of trust and abetting bribery.
Kutschenreuter, who headed Siemens' telecoms group, was given probation for two years and fined €160,000. Hartmann, former accounting chief at the telecoms unit, was given an 18-month suspended sentence and ordered to pay €40,000 to charity.
In December 2008, Siemens AG pleaded guilty in the United States to violating the Foreign Corrupt Practices Act, reaching settlements with the Department of Justice and the Securities and Exchange Commission. At the same time, the company resolved charges by the Munich Public Prosecutor’s Office based on its corporate failure to supervise its officers and employees.
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. In the German case, it paid €395 million, on top of the €201 million it had paid in October 2007 to settle a related action brought by the Munich Public Prosecutor.
Siemens has said its global bribery may have topped $1.8 billion. The Justice Department's information charging the company in the biggest FCPA enforcement action ever tells of more than 4,000 payments to foreign officials to obtain or retain business -- and systematic and intentional violations of the FCPA's internal controls and books and records provisions.
According to the U.S. charging documents, Siemens' telecoms unit paid bribes of $5.3 million in Bangladesh and $4.5 million in Nigeria.
At least three other former Siemens executives have been convicted of bribery over the past few years. They were also given suspended sentences of around two years.
No one from the company has been charged in the U.S., possibly because American prosecutors haven't been able to assert jurisdiction over them. This week's convictions of Kutschenreuter and Hartmann may have been the final criminal trials in Germany of Siemens' personnel involved in the company's massive global bribery.
The German defendants' light treatment in their home courts contrasts sharply with this week's U.S. sentencing of American Charles Paul Edward Jumet. He was given 87 months in prison -- the longest sentence ever for FCPA-related offenses.
As head of the DOJ's Foreign Corrupt Practices Act enforcement unit, Mark Mendelsohn transformed the FCPA from a legal backwater to a headline practice. He's leaving the Justice Department Friday after a dozen years, and leaving behind the most aggressive overseas anti-bribery regime in the world.
In November last year, Mendelsohn's boss, Assistant AG Lanny Breuer, called him an "exceptional public servant and a visionary steward of the FCPA program." In private practice, he's expected to earn between $2.5 and $3 million a year.
Mendelsohn's view of the FCPA and American anti-corruption policy wasn't complicated. He pushed enforcement against corporations of any size and from any country -- including U.S.-government contractor KBR, German industrial giants Siemens and Daimler AG, British-based BAE Systems, and France's Alcatel-Lucent. Financial penalties ballooned during Mendelsohn's time, topped by Siemens' $800 million payment to the DOJ and SEC in December 2008.
He also led the government's charge against individual FCPA defendants -- among them KBR's Jack Stanley, entrepreneur Frederic Bourke, and the 22 shot-show defendants.
During his term, no corporations mounted a courtroom defense against FCPA charges; instead all made deals with the DOJ to settle their cases. That gave Mendelsohn extraordinary power -- in the FCPA realm, he and the DOJ became prosecutor, judge, and jury. That's more power than most mortals can handle, but he did just fine.
Like all top cops, he was criticized from every direction. Some said he was overzealous, that his expansive view of the FCPA went far beyond Congress' original intent. Others complained that corporations enjoyed easy settlements, based not on bribery charges but only related offenses, and never resulting in debarment from U.S. government business. But his fans cheered because nearly all corporate defendants were given second chances.
Above all, Mendelsohn was an honest advocate for compliance, not only at home but abroad. That may be his most important contribution. His steady hand encouraged prosecutors in other countries to fight public sleaze. And his FCPA team partnered with counterparts in England and Germany, Italy and France, Switzerland, Hungary, Costa Rica, Nigeria and elsewhere, forging ties that led to the first real global enforcement actions. Those cases helped change attitudes everywhere.
His boss was right. Mark Mendelsohn was an extraordinary public servant and an FCPA visionary.
A Bloomberg story today in Business Week here says Daimler AG will pay "about $200 million and two subsidiaries will plead guilty to resolve a U.S. investigation into whether it paid bribes to secure business overseas, according to people familiar with the accord."
Bloomberg said the deal still needs approval by federal district court judge Richard Leon in Washington, D.C.
The story quoted a Daimler spokesperson as saying: “We are in discussions with the DOJ and the SEC regarding consensually resolving the agencies’ investigations.” The spokesperson was identified as Ute Wuest von Vellberg, from Stuttgart, Germany. “There can be no assurance about whether and when settlement with the DOJ and the SEC will become final and effective," he said in an interview.
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 affiliate.
We'll update this story as it develops.
Special thanks to Marc Bohn for his help with this post.
German truck maker MAN Group said on Friday that two subsidiaries will pay fines of €75.3 million each to German authorities to resolve corruption charges first disclosed in May this year (here). The fines were imposed against MAN Nutzfahrzeuge AG (the commercial vehicles division) and MAN Turbo AG (the compressors / turbines division) by the public prosecutors' office in the Munich District Court. The company announced at the same time a €20 million settlement with German authorities for unpaid taxes. MAN's releases about the settlements are here and here.
The company separately disclosed (here) that two executive board members of MAN Turbo had resigned "to clear the way for new management." Dr. Gerhard Reiff had been on the board since 2005 and Dr. Stephan Funke since 2007.
MAN's internal investigation uncovered suspicious payments of €51.6 million relating to around 80 transactions. The payments were found in a number of countries and most were through agents and other intermediaries. The company said it has fired 20 employees and is considering suing them for damages. It didn't disclose the countries involved or who may have received illegal payments in the form of "so-called referral commissions." The internal investigation involved "around 70 lawyers, auditors and tax experts . . . working since mid-May to analyze the suspicious payments made in the last ten years at all of MAN’s subgroups."
MAN is Germany's second largest truck, bus and diesel-engine manufacturer behind Daimler AG. It reported revenue in 2008 of €14.9 billion and has 51,000 employees worldwide.
The company said it launched a compliance initiative in July. It said it will disclose to prosecutors any future suspected bribery cases and cooperate with them, establish a revamped compliance office on January 1, 2010 reporting directly to the executive board, provide hands-on compliance training to all employees in sales, purchasing, and marketing jobs, use an IT system designed to reveal any suspicious payments, abolish "referral commissions," and impose due diligence requirements on all agents. MAN said it will also continue talks with various anti-corruption NGOs about joint projects.
The company is listed on the German DAX and its largest shareholder is Volkswagen. MAN AG's ADRs trade on the over-the-counter pink sheets under the symbol MAGOY.PK. It hasn't disclosed any investigations by the U.S. Justice Department or SEC.