The U.S. Department of Justice Expands Enforcement of the Foreign Corrupt Practices Act's Internal Controls Provision
Much has been written about the recent record-breaking settlement between Siemens AG, the U.S. Department of Justice (DOJ), the U.S. Securities and Exchange Commission (SEC), and the Munich Public Prosecutor’s Office, pursuant to which Siemens AG and three of its subsidiaries pleaded guilty to various Foreign Corrupt Practices Act (FCPA) violations related to approximately 4,200 payments to foreign officials in Latin America and the Middle East in exchange for the awarding of approximately $1.4 billion in contracts to Siemens, including 42 contracts valued at more than $80 million from the Iraqi Government under the auspices of the United Nation’s Oil-for-Food Program (OFFP). Under the terms of the settlement, Siemens, Europe’s largest engineering conglomerate and the largest electronics company in the world, agreed to pay $1.6 billion in fines, penalties, and disgorgement of profits, including $800 million to U.S. authorities, the largest monetary sanction ever imposed in an FCPA case. See U.S. v. Siemens Aktiengesellschaft, Case No. 08-367 (D.D.C. Filed December 15, 2008); SEC v. Siemens Aktiengesellschaft, Case No. 1:08-cv-02167 (D.D.C. Filed December 15, 2008).
Little noticed beyond the unprecedented magnitude of the fines imposed upon Siemens by the DOJ and the SEC was that this case marked the first time that the DOJ has ever charged a company under the FCPA with a criminal failure to maintain adequate internal controls (unlike the SEC, which routinely includes internal controls charges in its civil enforcement actions). The FCPA’s internal controls provision, 15 U.S.C. § 78m(b)(2)(B), requires companies with securities listed in the United States to design and maintain a system of internal accounting controls that provide reasonable assurances that, among other things, (1) transactions are carried out in accordance with management’s authorization, and (2) financial statements are accurately prepared. To be held criminally liable under this provision, a company must “knowingly circumvent or knowingly fail to implement a system of internal accounting controls.” According to the Information filed by the DOJ, Siemens committed the following FCPA violations, among others, related to its internal controls: (1) it merely adopted a “paper program” limited to the distribution of anti-corruption circulars and the promulgation of FCPA policies; (2) it failed to establish a “tone at the top,” emphasizing adherence to these policies; (3) it failed to establish a “sufficiently empowered and competent” compliance department; (3) it failed to appropriately investigate and respond to corruption issues; (4) it failed to discipline culpable employees; (5) it lacked a mandatory FCPA training program until 2007; (6) it failed to implement sufficient accounting and finance controls; and (7) it maintained extremely limited internal audit resources to support FCPA compliance efforts.
Significantly, the deficiencies in Siemens’ internal control policies identified in the DOJ’s case highlight where U.S. and foreign authorities will expect companies to implement strong internal FCPA controls. Moreover, beyond merely implementing such controls, the Siemens case illustrates that these controls must be consistently and thoroughly monitored. Indeed, as foreign jurisdictions bolster their anti-corruption efforts and work more closely with U.S. authorities, it is more important than ever that companies act quickly to consult their lawyers in order to effectively confront an increased global focus on anti-bribery compliance.
Our lawyers have extensive experience in helping our clients address issues raised not only by U.S. authorities but also by foreign law enforcement agencies. If you would like assistance from us, please contact a member of the White Collar and Government Investigations practice.