Was the DOJ's FCPA Enforcement Action Against Siemens Award-Worthy?

That's the question I have after reading that the DOJ recently awarded distinguished service awards to eight individuals involved in its Siemens FCPA enforcement action.

First, let me be clear. With the post, I mean no disrespect to the award recipients - I used to work with one recipient, and I congratulate all the recipients for the recognition received by their employer. Rather, my post is a commentary on DOJ's enforcement of the FCPA.

With that out of the way, let's return to the question - was the DOJ's FCPA enforcement action against Siemens award-worthy?

The DOJ press release announcing the awards (see here) states that all DOJ award recipients (not just those receiving an award in connection with the Siemens matter) have “advanced the interests of justice on behalf of the American people.”

As to the recipients specifically receiving an award in connection with the Siemens FCPA enforcement matter, the press release states:

"The department’s investigation uncovered evidence of hundreds of millions of dollars of corrupt payments in dozens of countries spanning several decades, and in virtually every Siemens operating group and region. The Department’s prosecution was announced simultaneously and coordinated with a civil enforcement action by the Securities and Exchange Commission (SEC) and a criminal prosecution by the Munich Public Prosecutor’s Office, resulting in overall sanctions of more than $1.6 billion. The Department of Justice’s coordination of its settlement not only with the SEC, but also with a foreign regulator sets a new standard in international cooperation and coordination, and serves as a model for future global anti-corruption enforcement."

In Attorney General Holder’s speech at the actual awards ceremony (see here), he said to the award recipients:

“... you have not just my sincere gratitude, but the knowledge that you have all truly done justice on behalf of the American people.”

Using Holder's words to thus ask the question - did the DOJ's FCPA enforcement action against Siemens "advance[] the interests of justice on behalf of the American people?"

In FCPA terms - did the DOJ's FCPA enforcement action against Siemens represent a "red-letter" day (i.e. a good day for FCPA enforcement) or a "black-letter" day (i.e. a bad day for FCPA enforcement)?

Reasonable minds may differ as to the answer, but for the reasons stated below, I submit that DOJ's FCPA enforcement action against Siemens was a "black-letter" day in the history of FCPA enforcement - a farcical facade of enforcement if ever there was such a thing. Surely not an award-worthy event.

First, some background.

In December 2008, Siemens (a global corporation organized under the laws of Germany with shares listed on the New York Stock Exchange since March 2001) agreed to pay $800 million in combined fines and penalties to settle FCPA charges for a pattern of bribery the Department of Justice ("DOJ") termed "unprecedented in scale and geographic scope." The combined fines and penalties were easily the largest ever levied against an FCPA violator.

Resolution of the FCPA charges against Siemens (and its affiliates) included both DOJ and Securities and Exchange Commission ("SEC") enforcement actions.

Because this post is about the DOJ awards, and more broadly DOJ FCPA enforcement, the below background information relates only to the DOJ enforcement action. (See here for all DOJ material related to the enforcement action including the criminal informations against Siemens and its affiliates, the DOJ plea agreement and sentencing memo, the DOJ news release and a transcript of the DOJ press conference).

In the DOJ enforcement action, Siemens pleaded guilty to a two-count criminal information charging violations of the FCPA's books and records and internal control provisions. The criminal information describes approximately $1.36 billion in payments Siemens made through various mechanisms, including approximately $555 million paid for unknown purposes (including approximately $341 million in direct payments to business consultants for unknown purposes) and approximately $806 million intended, in whole or in part, as corrupt payments to foreign officials.

According to the DOJ, for much of Siemens operations around the world "bribery was nothing less than standard operating procedure" and the criminal information details improper conduct in various of Siemens operating groups and subsidiaries around the world, several of which had offices in the U.S.

In conjunction with the filing of the Siemens' criminal information, the DOJ also filed separate criminal informations against Siemens' subsidiaries in Argentina, Bangladesh and Venezuela charging each with conspiracy to violate the FCPA's anti-bribery provisions and books and records provisions in connection with projects in those countries.

The total criminal penalty was $450 million (a $448.5 million fine against Siemens and a $500,000 fine against each of the three subsidiaries).

In agreeing to fines and penalties below the maximum $2.7 billion available under the advisory U.S. Sentencing Guidelines, the DOJ noted that resolution of the matter reflected, in large part, Siemens' actions in disclosing the conduct at issue to U.S. enforcement agencies after German authorities searched its offices and after Siemens conducted an extensive internal investigation. The DOJ specifically noted, among other things, the company's "extraordinary" cooperation in connection with its investigation (and the investigations of foreign law enforcement agencies), the "unprecedented" scope of the company's internal investigation which included virtually all aspects of its worldwide operations, and the significant remedial measures the company has undertaken.

With that background out of the way, and before returning to the ultimate question, is it really accurate for the DOJ to say that it "uncovered evidence of hundreds of millions of dollars of corrupt payments in dozens of countries spanning several decades, and in virtually every Siemens operating group and region?"

Use of the self-congratulatory term "uncovered" would seem a bit distorted given that the DOJ itself noted that "[t]he resolution of the U.S. criminal investigation of Siemens AG and its subsidiaries reflects, in large part, the actions of Siemens AG and its audit committee in disclosing potential FCPA violations to the Department after the Munich Public Prosecutor's Office initiated searches of multiple Siemens AG offices and homes of Siemens AG employees." (see here at p. 3).

Whether DOJ "uncovered" Siemens conduct or not is besides the point. The question remains - was the DOJ's FCPA enforcement action against Siemens award-worthy?

An initial reaction is most likely - "why of course, handing down the largest ever criminal penalty under the FCPA is indeed award-worthy and a good day for FCPA enforcement."

But, is agreeing to a $450 million criminal penalty when the advisory U.S. Sentencing Guidelines set forth a penalty range of $1.35 - $2.7 billion based on the alleged conduct award-worthy? (See DOJ Sentencing Memo here at p. 12). Is agreeing to a criminal penalty approximately 33% of the amount available under the guidelines (on the low end) and approximately 16% of the amount available (on the high end) “advanc[ing] the interests of justice on behalf of the American people?" If the answer is yes, what then does this say about the guidelines' formula for calculating criminal fines?

But, regardless of the guidelines, is agreeing to a $450 million criminal penalty when, per the DOJ, Siemens' corrupt or questionable payments totaled $1.36 billion award-worthy? Is agreeing to a criminal penalty approximately 33% of the amount of the actual improper or questionable payments "advanc[ing] the interests of justice on behalf of the American people?"

But, is agreeing to a $500,000 fine based on allegations of making over $31 million in corrupt payments in exchange for favorable business treatment in connection with a $1 billion project in Argentina award-worthy? Is agreeing to a criminal penalty approximately 2% of the amount of the actual corrupt payments "advanc[ing] the interests of justice on behalf of the American people?"

But, is agreeing to a $500,000 fine based on allegations of making over $18 million in corrupt payments in exchange for favorable business treatment in connection with two major metropolitian mass transit projects in Venezuela award-worthy? Is agreeing to a criminal penalty approximately 3% of the amount of the actual corrupt payments "advanc[ing] the interests of justice on behalf of the American people."

But, is agreeing to a $500,000 fine based on allegations of making over $5 million in corrupt payments in exchange for favorable treatment during the bidding process on a mobile telephone project in Bangladesh award-worthy? Is agreeing to a criminal penalty approximately 10% of the amount of the actual corrupt payments "advanc[ing] the interests of justice on behalf of the American people?"

Numbers, schulmbers you may be saying.

OK fine, but here is the real-kicker in my mind. Despite the DOJ's rhetoric - that Siemens engaged in bribery that was "unprecedented in scale and geographic scope" and that Siemens was a company where "bribery was nothing less than standard operating procedure" you will not find anywhere in the DOJ's enforcement action against Siemens FCPA anti-bribery charges!

If ever facts were deserving of an FCPA anti-bribery charge, would it not be the Siemens facts? Per the DOJ's information charging Siemens with FCPA books and records and internal controls only, the essential elements of an anti-bribery charge would seem to be present. Among other relevant facts, beginning in March 2001, Siemens became an "issuer" and thus subject to the FCPA's anti-bribery provisions and certain of its subsidiaries involved in the improper payments had offices in the U.S.

Yet, one will not find FCPA anti-bribery charges in the DOJ's enforcement action against Siemens despite the company being engaged in a bribery scheme that was "unprecedented in scale and geographic scope" and Siemens being a company where "bribery was nothing less than standard operating procedure."

Is the exercise of prosecutorial discretion in this instance, in the face of these facts, award-worthy and an example of "advanc[ing] the interests of justice on behalf of the American people?"

I submit that the answer to all of these above questions is a resounding NO and that DOJ's FCPA enforcement action against Siemens was a "black-letter" day in the history of FCPA enforcement - a farcical facade of enforcement if ever there was such a thing. Surely not an award-worthy event.

Those who frequent this blog are well aware of my frequent criticisms of DOJ/SEC FCPA enforcement as being too aggressive most often where DOJ/SEC advance untested legal theories resulting in an enforcement action being settled even though it is questionable as to whether the elements of an anti-bribery violation are even met.

However, I submit that the FCPA is a fundamentally sound statute when enforced by DOJ/SEC in a way that is consistent with Congressional intent (i.e. when the facts applied to the law results in all the elements of an anti-bribery violation being met).

In these cases, an FCPA violator ought to be punished and punished aggressively to deter others from engaging in bribery "unprecedented in scale and geographic scope" and operating a company where "bribery [is] nothing less than standard operating procedure."

I understand that cooperation means something in corporation criminal resolutions and I understand that Siemens, in addition to paying an SEC fine, paid fines in other jurisdictions (most notably in Germany).

I also understand that justice is probably not served when criminal fines and penalties force a company into bankruptcy.

Nevertheless, given the figures above, it is disturbing to see how Siemens ended up paying significantly less in DOJ criminal fines than the actual amount of the corrupt or questionable payments. In other words, even after payment of the $450 million DOJ criminal fine, Siemens appears to have profited, rather handsomely, from the bribery scheme that was "unprecedented in scale and geographic scope."

And consider this.

During the five year period (2004-2008), a period which does not even cover the entire time frame of Siemens' "unprecedented" bribery scheme, its net income was approximately $28.3 billion (after a currency conversion) (see here). Given these numbers, is a $450 million criminal fine even noteworthy, let alone award-worthy?

The final act in this comedy would seem to be this.

Earlier this year, a few weeks after DOJ termed Siemens' bribery "unprecedented in scale and geographic scope" and Siemens as a company where "bribery was nothing less than standard operating procedure" the company issued a new release (see here) announcing that:

"the lead agency for U.S. federal government contracts, the Defense Logistics Agency (DLA), issued a formal determination that Siemens remains a responsible contractor for U.S. government business."

If Siemens is a "responsible" contractor, I can't imagine a set of facts which would lead the DLA to conclude that a company is an "irresponsible" contractor for U.S. government business!

So what do you think - was the DOJ's FCPA enforcement action against Siemens award-worthy or did it represent a farcical facade of enforcement?