In December 2008, Siemens Aktiengesellschaft ("Siemens") agreed to pay $800 million in combined fines and penalties to settle FCPA charges for a pattern of bribery the Department of Justice ("DOJ") termed "unprecedented in scale and geographic scope."
The combined fines and penalties against Siemens (a global corporation organized under the laws of Germany with shares listed on the New York Stock Exchange since March 2001) are easily the largest ever levied against an FCPA violator.
In addition to Siemens' resolution of the FCPA charges in the U.S., the company has also settled related foreign enforcement actions based on the same core facts. In October 2007, the Munich, Germany Public Prosecutor's Office announced that Siemens Telecommunications operating group agreed to pay approximately $287 million in fines, penalties and disgorgement of profits. In addition, contemporaneous with U.S. resolution of the FCPA charges, Siemens resolved another Munich Public Prosecutor's Office investigation of other Siemens' operating groups by agreeing to pay approximately $569 million in fines, penalties and disgorgement of profits. Thus, the total worldwide fines and penalties to date exceed $1.6 billion.
Resolution of the FCPA charges against Siemens included both DOJ and Securities and Exchange Commission ("SEC") enforcement actions which are detailed below.
Criminal Information Against Siemens
Siemens pleaded guilty to a two-count criminal information charging criminal violations of the FCPA's books and records and internal control provisions. Although the criminal information does not contain FCPA antibribery charges, it does describe approximately $1.36 billion in payments Siemens made through various mechanisms, including approximately $555 million paid for unknown purposes (including approximately $341 million in direct payments to business consultants for unknown purposes) and approximately $806 million intended, in whole or in part, as corrupt payments to foreign officials. According to the DOJ, for much of Siemens operations around the world "bribery was nothing less than standard operating procedure" and the criminal information details improper conduct in various of Siemens operating groups and subsidiaries around the world, several of which had offices in the U.S.
The criminal information describes Siemens' historical failures to detect and prevent the improper payments. Among other compliance failures, the criminal information details how Siemens, at various times relevant to the conduct at issue: (i) maintained project cost calculation sheets reflecting payments that were partly understood by many Siemens employees to constitute bribes; (ii) maintained "cash desks" where employees could load up suitcases with large sums of cash to make improper payments; (iii) maintained slush funds and other off-book accounts in foreign countries to facilitate the improper payments; and (iv) relied on purported business consultants in foreign countries whose sole purpose was to pass along the improper payments to foreign government officials responsible for awarding business.
Even though Siemens had promulgated certain written policies and procedures aimed at preventing the improper conduct, the criminal information charges that Siemens policies and procedures were little more than a "paper program" and that Siemens management provided little guidance on how to lawfully conduct business in countries where Siemens had historically been paying bribes. The criminal information also charges that Siemens' compliance resources were small and understaffed given its extensive worldwide presence. Because of these compliance deficiencies, the criminal information charges that Siemens routinely: (i) ignored "red flags" suggesting that improper payments were been made; (ii) failed to adequately investigate or follow-up on the "red flags"; and (iii) failed to take disciplinary action against known wrongdoers. The criminal information also explains how Siemens hindered auditing of the improper payments by, for instance, using removable post-it notes to hide the identity of the executives who authorized the improper payments.
Based on this and other conduct, the criminal information charges that from at least March 2001 to November 2006 Siemens violated the FCPA's books and records and internal control provisions by knowingly circumventing and knowingly falsifying its books and records to conceal the improper payments and by knowingly circumventing and knowingly failing to implement an effective system of internal controls.
The criminal information also describes how certain Siemens entities made kickback payments to various Iraqi government ministries under the United Nations' Oil for Food Program to obtain forty-two government contracts with a combined value of more than $80 million. According to the criminal information, to obtain these contracts, and at the demand of the Iraqi ministries, the entities caused to be paid approximately $1.7 million in kickback payments to the Iraqi government with the understanding that a substantial portion of these payments would be passed on to the Iraqi government in exchange for awarding the contracts. The criminal information charges that these improper payments were funneled through foreign agents, accomplished through sham invoices, and improperly characterized on the entities' books and records (which were consolidated with Siemens' books and records for purposes of year-end financial reporting) as commissions, thus providing an independent basis for charging violations of the FCPA's books and records provisions.
In conjunction with the filing of the Siemens' criminal information, the DOJ also filed separate criminal informations against Siemens' subsidiaries in Argentina, Bangladesh and Venezuela charging each with conspiracy to violate the FCPA in connection foreign government projects in those countries.
DOJ Plea Agreements
Based on this conduct, Siemens entered into plea agreements with the DOJ containing the following core terms: (i) an agreement by Siemens (and the referenced subsidiaries) to plead guilty to the charges in the respective criminal informations; (ii) a total criminal penalty of $450 million (a $448.5 million fine against Siemens and a $500,000 fine against each of the three subsidiaries); (iii) a continuing obligation to cooperate with U.S. and foreign law enforcement agencies, including the investigation of potentially culpable individuals; (iv) continued implementation and testing of compliance policies and procedures; and (v) retention of an independent compliance monitor for a four-year period to ensure that Siemens implements an effective system of corporate governance, complies with all applicable law and regulations, and complies with the terms of the plea agreements.
In agreeing to fines and penalties below the maximum $2.7 billion available under the advisory U.S. Sentencing Guidelines, the DOJ noted that resolution of the matter reflected, in large part, Siemens' actions in disclosing the conduct at issue to U.S. enforcement agencies after German authorities searched its offices and after Siemens conducting an extensive internal investigation. The DOJ specifically noted, among other things, the company's "extraordinary" cooperation in connection with its investigation (and the investigations of foreign law enforcement agencies), the "unprecedented" scope of the company's internal investigation which included virtually all aspects of its worldwide operations, and the significant remedial measures the company has undertaken.
In a parallel enforcement action based on the same core conduct described in the DOJ's criminal informations, the SEC filed a settled civil action against Siemens alleging violations of the FCPA's anti-bribery, books and records and internal control provisions. In its complaint, the SEC alleges that Siemens violated the FCPA by engaging in a "widespread and systematic practice of paying bribes to foreign government officials to obtain business" and that the misconduct involved employees "at all levels of the Company, including foreign senior management, and reveals a corporate culture that had long been at odds with the FCPA."
The SEC complaint alleges that Siemens made 4,283 separate payments totaling approximately $1.4 billion to bribe foreign government officials and that an additional 1,185 separate payments to third parties (totaling approximately $391 million) were not properly controlled and were used, at least in part, for improper purposes including commercial bribery and embezzlement. The complaint contains more detail than the DOJ's criminal informations and identifies the following transactions on which Siemens paid bribes and thereby garnering over $1.1 billion in profits: metro transit projects in Venezuela; metro trains and signaling devices in China; power plants in Israel; high voltage transmission lines in China; mobile telephone networks in Bangladesh; telecommunication projects in Nigeria; national identity cards in Argentina; medical devices in Vietnam, China, and Russia; traffic control systems in Russia; refineries in Mexico; and mobile communication networks in Vietnam.
The complaint alleges that Siemens made, directly or indirectly through intermediaries, improper payments in connection with at least 290 projects or individual sales in these countries. These payments, at least in part, had a U.S. jurisdictional nexus in that certain of the projects were financed by the World Bank or the U.S. Export-Import Bank, or because the payments were funneled through U.S. bank accounts, made through U.S. based intermediaries, or were discussed in meetings in the U.S. or in communications (mail, e-mail and fax) into and out of the U.S. Like the DOJ's criminal information against Siemens, the SEC's complaint also contains allegations that Siemens paid kickbacks to Iraqi ministries in connection with United Nations' Oil for Food Program contracts.
Without admitting or denying the SEC's allegations, Siemens agreed to consent to entry of a final judgment under which it will pay $350 million in disgorgement of profits and will agree to engage in certain undertakings regarding its FCPA compliance program, including the engagement of an independent monitor for a four-year period. The SEC noted Siemens' cooperation in its investigation, its extensive internal investigation, and the remedial actions promptly undertaken by the company.