Lessons for Business in an Era of Global Anti-Corruption Efforts

In sum, Siemens relieved the government of a substantial portion of the burden of performing a detailed, wide-ranging, time-consuming and expensive investigation. As noted in the DOJ sentencing memorandum: “It was only through the extensive, worldwide investigative efforts of the internal investigators that these complex criminal activities were uncovered.”

Benefits to Siemens that can be attributed, at least in part, to the company’s cooperation with the DOJ, SEC, and German officials include:

• A reduction in U.S. fines to $800 million from a possible fine ranging from $1.35 billion to $2.7 billion;

• The DOJ bringing charges only for violations of the accounting and books and records provisions of the FCPA and not for criminal violations of its bribery provisions;

• The preservation of claims to attorney-client privilege for information and documents shared with the SEC, DOJ, and in the future with the compliance monitor; and

• The Defense Logistics Agency issuing a formal determination that means that Siemens continues to be eligible to receive contracts for U.S. government business.

III. IT IS IMPORTANT TO HAVE STRONG COMPLIANCE PROGRAMS AND PRACTICES.

The government stressed the distinction between Siemens’ current and previously existing management and culture. Siemens expanded its compliance organization (which previously had been understaffed) and incorporated sophisticated technology and confidential communications channels for detecting or reporting corrupt behavior.

However, the DOJ and SEC filings against Siemens note that the company’s previous corporate culture had embraced corrupt practices even after Germany had signed the Organization for Economic Cooperation and Development in 1999 and after Siemens had begun to be traded on the NYSE in 2001.

Indeed, the DOJ described Siemens’ 2001-04 compliance efforts as a largely ineffective “paper program.” Similarly, both the SEC and DOJ note numerous investigations from 2003-06 that should have alerted Siemens to possible FCPA violations.

Despite this, Siemens did not implement a mandatory FCPA training program until 2007. The SEC, however, took notice of the fact that only $27.5 million of the alleged $1.4 billion in corrupt payments occurred after November 2006 when Siemens’ current management began efforts to probe allegations and to institute a strong compliance program. The apparent incremental success of these efforts was likely considered in the determination of the cooperation credit that Siemens received.

RED FLAGS

The DOJ and SEC filings indicate that a compliance program attuned to red flags would have caught many of Siemens’ problems. The DOJ has identified several red flags that corporations must be watchful for in negotiating relationships with joint venture partners, consultants and any other third party through which exposure for an FCPA violation could occur.

Unfortunately, as in other cases, these red flags are general and obvious and the specifics of any particular indicator and its relationship to Siemens’ alleged improprieties is clear only in hindsight. These include:

• Unusual payment patterns or financial arrangements;

• A history of corruption in a country;

• A refusal by a foreign joint venture partner or representative to provide a certification that it will not take any action in furtherance of an unlawful offer, promise, or payment to a foreign public official and not take any act that would cause the U.S. firm to be in violation of the FCPA;

• Unusually high commissions;

• Lack of transparency in expenses and accounting records;

• Apparent lack of qualifications or resources on the part of joint venture partner or representative to perform the services offered;

• Whether a joint venture partner or representative has been recommended by an official of the potential governmental customer.