United States: Settlements In Brief: Siemens Case Gets Israeli Sequel And SEC Emphasises Self-Reporting

Criminal and supervisory authorities regularly settle enforcement actions. In light of these developments, we advise companies to take appropriate measures. This month we highlight the Israeli Ministry of Justice's settlement with Siemens. This settlement can partly be traced back to Siemens' settlement with the US authorities in 2008 and proves that these trajectories can take up a considerable amount of time. We also discuss two settlements with the SEC for alleged violations of the Foreign Corrupt Practices Act. These settlements seem to indicate that the companies in these cases benefitted from prompt and voluntary self-reporting the alleged misconduct to the authorities and cooperating fully with the official investigation.

FCPA-case against Siemens receives an Israeli sequel

In early May 2016, a settlement between Siemens AG and the Israeli authorities became public in connection with the alleged bribery of Israeli officials working at state-owned entity, Israel Electric Corporation (IEC). In addition to paying NIS 160 million (around USD 42 million), Siemens agreed to the appointment of an external inspector responsible for supervising Siemens' activities in Israel. Additionally, six former senior Siemens executives were charged with money-laundering, fraud and breach of trust. According to various news outlets, representatives of Siemens in Israel had allegedly bribed senior IEC executives between 1999 and 2005 to obtain business. In exchange for payment, the IEC executives allegedly favoured Siemens' bids for the supply of turbines. The news outlets reported that the bribes were either transferred to Swiss bank accounts or taken out of the country in suitcases.

The non-prosecution agreement entered into with the Israeli authorities can partly be traced back to Siemens' 2008 settlement with the SEC and the U.S. Department of Justice for violations of the Foreign Corrupt Practices Act (FCPA). In 2008, Siemens settled for USD 350 million with the SEC and for USD 450 million with the DOJ for the alleged bribery of foreign governmental officials from several countries (including Israel) to obtain business. According to the SEC, Siemens used a number of schemes to hide the actual purpose of the payments, such as transporting cash via suitcases. Former senior Siemens management was also purportedly involved in the alleged corrupt practices. The SEC found that Siemens lacked sufficient internal controls to adequately prevent bribery. Siemens neither admitted nor denied the allegations.

The current settlement with the Israeli authorities indicates that a settlement with the US authorities does not mean that a case has permanently ended. Taking into account that national enforcement authorities are increasingly cooperating with each other in the global fight against corruption, a settlement with one authority could be the first of multiple enforcement actions relating to the same or similar conduct. Corporations should take into account that these national investigations can take up to several years before coming to an end, as the current settlement indicates.

SEC emphasises the importance of self-reporting in two separate NPAs

In June, the SEC announced two separate non-prosecution agreements for the alleged bribery of Chinese governmental officials. Firstly, Akamai Technologies settled for USD 671,885 disgorgement including interest. The other settlement that was announced was with Nortek Inc. The DPA provided for USD 322,058 disgorgement including interest.

According to the SEC, Akamai's Chinese subsidiary had made payments to Chinese governmental officials working at state-owned entities in exchange for the purchase of more network capacity than necessary. To this end and against company policy, Akamai allegedly provided the Chinese officials with gift cards, meals and entertainment. In a similar manner, Nortek is said to have made payments, and provided meals and entertainment to Chinese officials in order for these officials to treat Nortek preferentially and to put the company under a more relaxed regulatory regime. Moreover, Nortek allegedly paid reduced customs duties, taxes and fees as a consequence of the payments.

In its press release, the SEC emphasised that both companies self-reported the alleged misconduct and that they laid "all their cards on the table." According to SEC, this approach was the reason behind the "expeditious resolutions." Among other things, both Akamai and Nortek took the following mitigating measures:

  • self-report to the SEC within "the early stages of internal investigations"
  • share the detailed findings of the investigations with the SEC and regularly update the SEC of new findings
  • provide the SEC both with summaries of already conducted witness interviews and the opportunity to interview witnesses itself
  • voluntarily provide the SEC with translated documents
  • terminate the contracts of employees who were allegedly involved in the misconduct
  • improve the anti-corruption policies and facilitate global training for employees.

According to the SEC, both NPAs indicate that the prompt and voluntary reporting of actual or suspected misconduct and extensive cooperation with the SEC may not only lead to a severe mitigation of a sentence, but also to no criminal penalty being imposed on the corporation at all. Even though prompt disclosure and extensive cooperation can work in a company's favour, businesses are advised to thoroughly consider all possible outcomes of disclosure, including any negative consequences.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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