Mark Mendelsohn (DOJ Deputy Chief, Fraud Section and the DOJ's FCPA "top cop")recently defended the 2008 Siemens enforcement action.
Given that Mendelsohn signed the Siemens charging documents and plea agreement, this is a rather unremarkable event and is sort of like me saying I defend the substantive content on this blog.
In any event, and in the interest of sparking thought within the FCPA community, this post takes issue with Mendelsohn's defense of the Siemens enforcement action.
In an "exclusive interview with the International Bar Association towards the end of 2009," (see here) Mendelsohn stated that the Siemens enforcement action sends a "very, very strong message" and a "strong deterrent message."
Among other things, Mendelsohn notes that the overall total of $1.6 billion that Siemens paid to U.S. (DOJ and SEC) and German authorities is "only a fraction of the costs that Siemens incurred as a result of the bribery conduct." Mendelsohn legitimately notes that Siemens also was subject to a debarment proceeding at the World Bank which required Siemens to pay $100 million to help fight corruption over a period of time. Mendelsohn points out that "the cost of the investigation for the company and the remediation" "probably exceeded the fines that were assessed" and he also cites the "costs of disruption to Siemens' business," the replacement of members of Siemens' board, and the discipline of "lots of sales people."
Based on the Siemens' resolution documents, the DOJ's own statements about the case, and other information in the public domain, I strongly disagree that the Siemens enforcement action sends a "strong deterrent message."
For starters, since when is the cost of getting caught, the legal and professional fees associated with getting caught, and the remediation associated with getting caught in a bribery scheme "unprecedented in scale and geographic scope" (those are DOJ's words - not mine) part of the deterrence conversation?
I think every company in the world probably already assumed prior to the Siemens enforcement action that engaging in a bribery scheme "unprecedented in scale and geographic scope" would no doubt entail substantial legal and professional fees, employee terminations and other internal remediation costs upon getting caught. Thus, it is difficult to see how these pieces of the Siemens enforcement action send a "very strong message" or a "deterrent message."
In a prior post (see here), I took a look at some of the Siemens numbers per the DOJ's resolution documents. Looking at these numbers again is instructive in light of Mendelsohn's comments.
The criminal information (see here) 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. The criminal information, of course, does not charge Siemens with FCPA antibribery violations, so from the outset it is difficult to see how this case sends a "very strong message" or a "strong deterrent message."
The Siemens resolution also included charges against certain of Siemens' subsidiaries.
For instance, Siemens Argentina (see here) agreed to pay a $500,000 fine based on allegations that it made over $31 million in corrupt payments in exchange for favorable business treatment in connection with a $1 billion project in Argentina. Siemens Venezuela (see here) also agreed to pay 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 metropolitan mass transit projects in Venezuela. Likewise, Siemens Bangladesh (see here) agreed to pay 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?
When a fine amounts to a sliver of the improper payments allegedly made, and a sliver of a sliver of the business allegedly obtained or retained, since when does that send a "very strong message" or a "strong deterrent message?"
Finally, what sort of "very strong message" or "strong deterrent message" is sent when, on the same day a company settles a case for engaging in a bribery scheme "unprecedented in scale and geographic scope" the company also announces that it will be allowed to keep its coveted "responsible contractor" status with the U.S. government. It is further difficult to see the deterrence achieved by the Siemens enforcement action when, in the year since resolution, various U.S. government agencies, including the DOJ, continue to do substantial amounts of business with Siemens and its affiliate companies (see here for a prior post on this subject).
Far from sending a "very strong message" or a "strong deterrent message," the Siemens enforcement action sends the message that corporate bribery, even if caught, can still result in a net positive.