A January 19, 2008 report in the German business magazine WirtschaftsWoche (here) says unnamed members of Siemens’ supervisory board (equivalent to U.S. directors) think the company may be fined as much as €4 billion by United States regulators for alleged violations of the Foreign Corrupt Practices Act. The magazine reports that the supervisors are basing the figure on three times the €1.3 billion in illegal payments identified by the company. The article says Siemens insiders had hoped the U.S. Justice Department and Securities and Exchange Commission would be satisfied with penalties of not more than €1 billion. But their new worst-case scenario reflects FCPA-related penalties imposed on Titan Corporation in 2005 and ABB Ltd. in 2004. The article says the Siemens insiders have calculated that Titan’s penalties amounted to almost ten times the bribes it paid, and ABB’s penalties were about eight times the amount of the bribes in question. The unattributed story doesn’t carry any comments or reaction from official sources in Siemens or from U.S. authorities.
In fact, the Titan and ABB cases, among others, demonstrate that there’s no simple or consistent formula for determining financial penalties in FCPA matters. In March 2005, Titan paid $28.5 million — at the time the largest FCPA penalty ever imposed. For bribes of $3.5 million, it paid a criminal fine of $13 million and a civil penalty and disgorgement of $15.5 million. ABB resolved an FCPA matter in July 2004. For questionable payments of around $1 million to secure a $180 million contract, it agreed to pay a $10.5 million penalty and $5.9 million in disgorgement. Baker Hughes currently holds the record for penalties paid in an FCPA case — $44 million. The company’s illegal payments amounted to about $5.2 million. To settle the case in April 2007, it disgorged about $20 million, paid prejudgment interest of $3.1 million, a civil penalty of $10 million for violating a prior SEC cease-and-desist order, and a criminal fine of $11 million.
Some factors the SEC and DOJ have considered when assessing FCPA-related penalties in negotiated settlements are these:
— the presence or absence of an effective compliance program;
— the role played by the company itself in discovering and investigating potential violations, whether and when it self-reported to U.S. authorities, and the corrective action already taken to prevent future violations;
— the company’s history of prior violations;
— the role and culpability of current members of senior management and directors in the alleged violations; and
— the duration and extent of the alleged illegal behavior.
Under the statute itself, criminal penalties for organizations can include a fine of up to $2 million. But under the Alternative Fines Act, the actual criminal fine may be up to twice the benefit that the defendant sought to obtain by making the corrupt payment. Civil fines for an organization can be the greater of (i) the gross amount of the pecuniary gain to the defendant as a result of the violation or (ii) $50,000 to $500,000. When negotiating the financial aspects of FCPA settlements, however, the DOJ and SEC are not limited by the types or amounts of penalties specified in the statutes.
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