Daimler agrees to settle Justice Department charges of bribing foreign officials
Wednesday, March 24, 2010
Daimler has agreed to pay $185 million in fines and penalties to the U.S. government to settle charges that it violated federal bribery laws by paying tens of millions of dollars to officials in at least 22 countries to win lucrative contracts, according to a source familiar with the deal.
The proposed settlement would end a U.S. Justice Department investigation that concluded the German automaker had violated the Foreign Corrupt Practices Act (FCPA), which prohibits companies from bribing government officials to land business or receive favorable treatment.
In a 76-page filing in federal court on Tuesday, prosecutors said that Daimler made improper payments starting in 1998 to officials in countries that included China, Russia, Egypt, Greece and Nigeria. The charges against Daimler were made in a "criminal information filing" -- a document that typically precedes a plea agreement.
The charges come as U.S. law enforcement agencies have stepped up their scrutiny of companies' overseas business practices. Some probes have resulted in multimillion-dollar settlements and led to criminal charges against executives. In February, BAE Systems -- one of the world's biggest defense contractors -- agreed to pay $400 million to settle allegations it had misled the government about its compliance with anti-bribery laws. Another major case involved German conglomerate Siemens, which paid $1.6 billion in penalties.
"The Department of Justice has been on an unprecedented push in the area of criminal and civil FCPA enforcement," said Jacob S. Frenkel, a former Securities and Exchange Commission lawyer and an expert in white-collar crime. "FCPA enforcement is somewhat similar to speed camera enforcement. DOJ has been telling the world upfront this is a priority. If your picture is taken, you will get charged."
Under Daimler's proposed settlement, two of its foreign subsidiaries -- one in Russia and another in Germany -- are expected to plead guilty to FCPA violations, according to the source, who spoke on condition of anonymity because the settlement is not yet final. As part of the deal, Daimler and its subsidiaries will pay $93.6 million in fines and penalties to the Justice Department and another $91.4 million to the SEC to settle a relate civil investigation, the source said.
Daimler spokesman Han Tjan said Tuesday that the company had no comment, noting that a judge is expected to hold a hearing on the case April 1. The Justice Department declined to comment regarding a possible settlement.
In the government's court filing, prosecutors said that the improper payments were wired to U.S. bank accounts or to the foreign bank accounts of U.S. shell companies. In at least one instance, a U.S. shell company was "incorporated for the specific purpose of entering into a sham consulting agreement with Daimler in order to conceal improper payments routed through the shell company to foreign government officials," according to the filing.
Daimler recorded the payments in its corporate books and records as special discounts or commissions, the filing said, and the improper payments continued until January 2008. Illegal transactions with a connection to the United States resulted in over $50 million in pretax profits for Daimler, according to the filing.
With the Daimler settlement, as well as those involving Siemens, BAE and others, Frenkel said, the Justice Department "has sent a very strong message internationally."
"We know there are a lot of open investigations, and DOJ is pressing them hard," he said. "DOJ is saying that regardless if other countries are stepping up to the plate in their enforcement programs, the U.S. enforcement regime is unrelenting."