Daimler Charged with FCPA Violations

On March 22, 2010, the Department of Justice charged Daimler AG (“Daimler”) with conspiracy and violations of the books and records provision of the Foreign Corrupt Practices Act. According to the criminal information, between 1998 and 2008, Daimler made hundreds of improper payments worth tens of millions of dollars to foreign officials in at least 22 countries, including: China, Croatia, Egypt, Greece, Hungary, Indonesia, Iraq, Ivory Coast, Latvia, Nigeria, Russia, Serbia and Montenegro, Thailand, Turkey, Turkmenistan, Uzbekistan, and Vietnam. These improper payments assisted Daimler in securing contracts with government customers for the purchase of Daimler vehicles valued at hundreds of millions of dollars.

According to the information, Daimler engaged in a long-standing practice of paying bribes to foreign officials using a variety of mechanisms, including: corporate ledger accounts known as “third party accounts” or “TPAs,” corporate “cash desks,” offshore bank accounts, deceptive pricing arrangements, and third-party intermediaries. These payments were often recorded as “commissions,” “special discounts,” and/or “necessary payments,” which was understood to mean “official bribe.”

The information states that Daimler had an inadequate compliance structure and a corporate culture that tolerated and encouraged bribery. In fact, certain key executives and the head of internal auditing are alleged to have been involved in the bribery. The information states Daimler’s Board of Management was aware of the systematic bribery and held a meeting in response to Germany’s enactment of foreign anti-bribery legislation. In the meeting, the Board discussed their knowledge of past payments and discussed that adopting anti-bribery policies would result in losing business. At the meeting, an anti-bribery policy was adopted, but Daimler failed to make sufficient efforts to enforce the policy and to train employees on compliance.

The information further details the extensive and systematic bribery perpetrated by Daimler, including: violations of the U.N. Iraq Oil for Food program; commission payments to officials in Moscow; direct payments to family members of foreign officials; and, providing Mercedes passenger cars to the girlfriends of foreign officials in China. The information also alleges that Daimler provided, as a birthday gift to a high-level executive official of Turkmenistan’s government, an armored Mercedes Benz S-class passenger car valued at more than 300,000 Euros. In total, the information alleges the various bribery payments resulted in business that generated over $50 million pre-tax profits for Daimler.

This settlement will be subject to the court’s approval, and a hearing has been set for April 1, 2010, before Judge Richard J. Leon of the Federal District Court for the District of Columbia. It has been reported that Daimler has agreed to pay approximately $185 million in fines and that two of its subsidiaries will plead guilty to bribing foreign government officials in order to settle the corruption investigation with the Department of Justice and the Securities and Exchange Commission.