The Work Of A Monitor And Checking In On Siemens

This article originally appeared on Professor Koehler’s FCPA Professor website (www.fcpaprofessor.com) and is reprinted with his permission.

The 2008 Foreign Corrupt Practices Act enforcement action against Siemens remains the largest in FCPA history in terms of resolution amount – $800 million ($450 million DOJ, $350 million SEC).  The DOJ stated in this release that “for much of its operations across the globe, bribery was nothing less than standard operating procedure for Siemens.”  The SEC stated in the release that the “pattern of bribery by Siemens was unprecedented in scale and geographic reach” and the “corruption involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East and the Americas.”

Not surprisingly, given the nature and extent of the conduct at issue, as part of its plea agreement (here), Siemens was required to engage a corporate monitor for a three year period.

Time passes quickly, and on December 18, 2012, the DOJ filed this ”Notice Regarding Corporate Monitorship” notifying the court that Siemens has “satisfied its obligations under the plea agreement with respect to the corporate compliance monitor engaged by the company.”

This post details the monitor’s work and then highlights the difficulties of anti-corruption compliance in a large, multinational company.

The Work of a Monitor

The recent DOJ filing details the work of the monitor and states as follows.

“In accordance with the plea agreement, the Monitor conducted an initial review and three subsequent reviews of Siemens’s anti-corruption compliance program, and documented the Monitor’s findings and recommendations in four annual reports dated October 5, 2009, October 13, 2010, October 7, 2011, and October 12, 2012. Over the course of those four years, the Monitor conducted on-site or remote reviews of Siemens’ activities in 20 countries; conducted limited or issue-specific reviews in or relating to an additional 19 countries; reviewed over 51,000 documents totaling more than 973,000 pages in 11 languages; conducted interviews of or meetings with over 2,300 Siemens employees; observed over 180 regularly scheduled company events; and spent the equivalent of over 3,000 auditor days conducting financial studies and testing.

During that time, the Monitor made a total of 152 recommendations in over a dozen topic areas, such as third-party risks, financial controls, and compliance policies and training that, pursuant to the plea agreement, were “reasonably designed to improve the effectiveness of Siemens’ program for ensuring compliance with the anti-corruption laws.”  Without objection, Siemens AG adopted and implemented all 152 recommendations. Thereafter, the Monitor confirmed that all of the recommendations had been fully implemented.

Those recommendations and the other remedial measures and internal control improvements undertaken by Siemens have included enhanced policies and a revised code of conduct directed at prohibiting corruption; additional and more frequent training for employees, agents, and business partners on the enhanced anti-corruption policies and procedures; additional staffing and resources dedicated to coordinating and overseeing the implementation and enforcement of the anti-corruption program; improved hotline for reporting potential violations of the code of conduct; improved accounting system controls designed to ensure the maintenance of accurate books and records; and improved due diligence and review processes for agreements with agents and business partners, including an express clause related to anti-corruption.

Pursuant to the terms of the plea agreement, the Monitor has met with representatives from the government and the SEC on an annual basis to review the findings and recommendations in the Monitor’s annual reports.  In accordance with the terms of the plea agreement, the Monitor certified on October 13, 2010, October 7, 2011, and October 12, 2012, that “Siemens’ compliance program is reasonably designed and implemented to detect and prevent violations within Siemens of anti-corruption laws . . . .”

Based on the monitor’s work, the filing then states as follows.

“[T]he government concludes that Siemens AG has satisfied its obligations under the plea agreement with respect to the corporate compliance monitorship. The government has conferred with the staff of the SEC and the staff of the SEC concludes that Siemens AG has also complied with the terms of the Final Judgment in the civil action with respect to the corporate compliance monitorship.”

As highlighted in my article “Revisiting an FCPA Compliance Defense” (here), even before the Siemens monitor began its work, Siemens had – in the words of the DOJ – “already implemented substantial compliance changes” and was setting “a high standard for multi-nationals to follow.”  According to the DOJ, Siemens’ total external costs for this pre-monitor remediation exceeded $150 million.  Although Siemens has not, to my knowledge, disclosed its costs associated with its post-enforcement action monitor, one can safely assume that the monitor costs easily exceeded this $150 million figure and perhaps reached as high as the $800 million amount announced on enforcement action day.

I noted in my Compliance Defense article that “there is likely no other company in the world today … that has devoted as many corporate resources towards compliance” and that “likewise, there is likely no other company in the world today .. that faces as many negative consequences should its compliance efforts fail.”

Difficulties of Anti-Corruption Compliance

The discussion of Siemens in my article, and here, demonstrates that not even a company that has “set a high standard for multi-national companies to follow” (again, in the words of the DOJ) can insulate itself from FCPA and related exposure.

This fact (and a fact I submit makes a compelling case for an FCPA compliance defense as outlined in my article) is clear from a review of Siemens most recent annual report (here), filed with the SEC on Nov. 28, 2012.   The filing contains a separate section titled “public corruption proceedings.” To be sure, the section lists various proceedings that pre-date 2008 and that may have been indicative of the corporate culture at Siemens that gave rise to the 2008 FCPA enforcement action in the first place.  However, certain proceedings in listed in the filing are post 2008, including the following.

“As previously reported, in May 2011 Siemens AG voluntarily reported a case of attempted public corruption in connection with a project in Kuwait in calendar 2010 to the U.S. Department of Justice, the SEC, and the Munich public prosecutor. The Munich public prosecutor discontinued the investigations, which related to certain former employees, but imposed conditions on them. Siemens is cooperating with the U.S. authorities in their ongoing investigations.”

“As previously reported, in July 2011 the Munich public prosecutor notified Siemens AG of an investigation against an employee in connection with payments to a supplier related to the oil and gas business in Central Asia from calendar 2000 to 2009. Siemens is cooperating with the public prosecutor.”

Add to this list a Dodd-Frank whistleblower retaliation complaint (here) recently filed against Siemens in federal court by Meng-Lin Liu, a former compliance officer for Siemens AG in China.  As highlighted by this Reuters report, Liu alleges that Siemens fired him after he tried to expose a kickback scheme involving medical equipment sales to hospitals in China.

In pertinent part, the complaint alleges as follows.

“Shortly after he started at [Siemens China Ltd. (SLC)] in March 2008, Liu began encountering and confronting a culture within Siemens’ Chinese healthcare business of evading and circumventing the anti-corruption due diligence systems and controls required by the FCPA and Siemens’ 2008 Plea Agreement.”

” … Liu consistently objected to and tried to remedy systemic evasion of Siemens’ due diligence systems in circumstances where there were major ‘red flags’ indicating extremely high risks of corruption.  Ultimately, Liu uncovered incontrovertible evidence that Siemens was submitting inflated bids for many of the multi-million-dollar medical diagnostic and scanning equipment sales it made to public hospitals in China, and then selling the equipment at substantially lower prices to intermediaries designated by the hospital’s procurement officials.  In other words, Liu discovered that Siemens itself was complicit in a scheme whereby the end-user hospitals paid amounts to third-party intermediaries that were between 20% and 130% higher than the price Siemens received for the equipment, which was resold by these intermediaries to the end-user hospital at the original Siemens’ inflated bid price.  This had all the hallmarks of a classic bribery or ‘kickback’ scheme and there was no legitimate explanation for the huge price differential that existed between prices at which Siemens sold the equipment and the prices paid by the end-user hospitals.”

“Within a week of presenting this evidence to SLC’s CFO for Healthcare, Liu was summarily removed from his position as Compliance Officer, instructed not to report to the office for the remaining four months of his employment contract and given ‘early notice’ that his contract would not be renewed upon its expiration.  Four months later his employment was terminated.”

About the Author

Mike Koehler

fcpa-professor-Mike-KoehlerAbout the Author Mike Koehler is an Assistant Professor at Southern Illinois University School of Law and is an expert FCPA columnist for Corporate Compliance Insights. Professor Koehler is a leading expert on the FCPA and other anti-corruption laws and initiatives and he founded and maintains the site FCPA Professor, an industry leading forum that has earned national and international recognition.