On December 15, 2008, the Department of Justice (DOJ), the Securities and Exchange Commission (SEC), and Siemens AG (Siemens) announced that they had reached agreements with respect to violations of the Foreign Corrupt Practices Act (FCPA) by Siemens and its subsidiaries. Pursuant to these agreements, Siemens pleaded guilty to two counts of violating the books and records and internal controls provisions of the FCPA. Siemens subsidiaries in Argentina (Siemens Argentina), Bangladesh (Siemens Bangladesh), and Venezuela (Siemens Venezuela) each pleaded guilty to separate one-count informations charging conspiracy to violate the anti-bribery and books and records provisions of the FCPA. In connection with these guilty pleas Siemens agreed to pay a criminal fine of approximately $448.5 million and each of the subsidiaries agreed to pay criminal fines of $500,000 for a combined total of $450 million. In connection with the SEC agreement, Siemens agreed to disgorge profits of approximately $350 million to resolve civil FCPA charges. The $800 million combined total is the largest monetary sanction ever imposed in an FCPA case. In addition to the monetary penalties, Siemens must retain an independent compliance monitor for four years to “oversee the continued implementation and maintenance of a robust compliance program,” and continue cooperating fully with DOJ in its ongoing investigations of corrupt payments by company employees and agents. The criminal and civil charges stem from admissions by Siemens that it had paid approximately $1.36 billion through various mechanisms for unknown purposes and corrupt payments to foreign officials.

Siemens also announced that it had reached an agreement with the Munich Public Prosecutor’s Office relating to charges that the former Managing Board of Siemens AG failed to fulfill its supervisory duties. In relation to this agreement, Siemens AG agreed to pay € 395 million in fines and disgorgement of profits. In October 2008, Siemens telecommunications group entered a separate agreement with the prosecutor and agreed to pay € 201 million. In dollars, the two agreements result in payments by Siemens in Germany of approximately $856 million.

The total payments to be made by Siemens to date as a result of this investigation are approximately $1.6 billion and are not likely the end of penalties to be paid by Siemens as there are outstanding investigations in several other countries involving bribes paid by Siemens subsidiaries. According to the Director of the SEC’s Division of Enforcement, Linda Chatman Thomsen, “The pattern of bribery by Siemens was unprecedented in scale and geographic reach … involv[ing] more than $1.4 million in bribes to government officials in Asia, Africa, the Middle East and the Americas.” The result of these many investigations around the world is greater cooperation among law enforcement personnel in corruption investigations. It is likely that there will be an increase in joint corruption investigations among various countries in the future.

There are several notable observations stemming from the Siemens settlement. The first is that while the settlement was large, it could have been much larger and much harsher. Under the sentencing guidelines the criminal penalty range was between $1.35 billion to $2.7 billion. The sentence reduction is a reflection of Siemens extraordinary cooperation with investigative authorities both in the United States and abroad, and its commitment to rooting out the problem and making extensive changes to the company’s leadership and its compliance program. These extraordinary efforts were sufficient to result in a downward departure from the sentencing guidelines despite not making a voluntary disclosure. In reading DOJ’s sentencing memorandum, it also appears likely that the fact that Siemens AG was not required to plead guilty to the anti-bribery portions of the FCPA was related to an interest in preserving Siemens ability to contract with the US government given Siemens high level of cooperation and remedial efforts. The question that remains to be seen in future FCPA prosecutions is whether the level of internal investigation and remediation will be required from future companies under investigation.

Another lesson to be taken from the Siemens case is that where there is systematic noncompliance with the FCPA, compliance on paper only will lead to greater problems. Many of the charges against Siemens resulted from only mild attempts to comply with anti-corruption laws in Germany and the United States that did nothing in reality to solve the problem. Instead, substantial efforts are needed to solve the problem. While Siemens paid a hefty penalty in this case, as noted, it could have been much larger were it not for its substantial efforts to remedy its corruption problem.

Also notable in this case is that it is the first time DOJ has criminally charged a company with a violation of the internal controls provision of the FCPA. Finally, the length of the independent compliance monitor was extended from the usual three years to four years and the monitor for the first time in an FCPA case is not a US citizen.

The full, more detailed version of this article, along with an attachment containing additional facts relating to FCPA violations by foreign subsidiaries, can be read by clicking here.