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Harry Cassin
Publisher and Editor

Andy Spalding
Senior Editor

Jessica Tillipman
Senior Editor

Bill Steinman
Senior Editor

Richard L. Cassin
Editor at Large

Elizabeth K. Spahn
Editor Emeritus

Cody Worthington
Contributing Editor

Julie DiMauro
Contributing Editor

Thomas Fox
Contributing Editor

Marc Alain Bohn
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Bill Waite
Contributing Editor

Russell A. Stamets
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Richard Bistrong
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Eric Carlson
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Was Justice Served?

Its historic settlement on Monday of Foreign Corrupt Practices Act violations was bound to raise the questions: Did Siemens enjoy checkbook justice? Did it achieve something ordinary criminal defendants can’t? Did it use its extraordinary wealth and power to arrange a rather painless resolution with the U.S. government? By paying $800 million in penalties and disgorgement, did the German giant get off easy?

By any measure, Siemens’ crimes were terrible. Evidence the company itself gathered and disclosed shows that for at least ten years it operated as a corrupt global enterprise. How much of its profit came through kick-backs and bribes we’ll never know, but it amounted to billions. The company spread sleaze all over the globe, distorting government decisions and hurting millions by its lawlessness. But how many of its 400,000 employees were directly involved in the criminal acts? How many arranged or paid the bribes? How many had a hand in cooking the books to cover up the fraud? Was it a dozen employees? Or more like a hundred, or even a thousand? Whatever the number, the crooked ones were a minuscule part of Siemens’ total workforce.

The question, then, is how much punishment should be inflicted on the corporation because of a few bad apples, relatively speaking? Should the DOJ have put Siemens on trial for bribery and sought the harshest sanctions available? Prosecutors, after all, had the company cold. Under the doctrine of respondeat superior, an organization is generally guilty per se when one of its employees commits a crime within the scope of his or her employment. In this case, then, Siemens was defenseless — a sitting duck awaiting execution.

But the DOJ is understandably reluctant to hit corporations head on. The Arthur Andersen prosecution in the aftermath of the Enron scandal demonstrated the catastrophic consequences that can result from a corporate felony charge. For Andersen it was an instant death sentence, even though the firm was later exonerated. That’s why the DOJ has since adopted a softer approach to FCPA and other white collar offenses. It offers companies that want to cooperate alternatives in the form of negotiated settlements.

The idea is that no company is beyond redemption. That each one can change — most dramatically by changing its board and top management, as Siemens had already done. Schnitzer Steel did that a couple of years ago in an FCPA case involving outrageous criminal conduct, and it saved itself. Like Siemens, Schnitzer wasn’t charged with bribery. Instead a subsidiary was allowed to plead guilty to violating the FCPA’s antibribery and books and records provisions. And Bristow Group Inc. settled serious FCPA violations last year with the SEC without paying a dollar in penalties, mainly because its all-new management showed their commitment to compliance. Is there anything more a corporate body can do?

And even though corporations might escape the harshest aspects of the law, their culpable employees aren’t always so fortunate. From the time the DOJ began backing off its stiff-armed approach to corporate prosecutions, the number of individuals held accountable under the FCPA has shot up. So nobody’s getting away with anything.

In Siemens’ case, were the goals of criminal sentencing — retribution, deterrence, incapacitation and rehabilitation — all met? Once the company had new leaders who uncovered and confessed its crimes, who adopted an effective compliance program, accepted a monitor, agreed to pay fines and disgorge profits, was there any reason to punish the organization further? Wouldn’t more strokes of the cane merely have bloodied innocent employees, partners, shareholders and customers, while doing nothing about the long-gone crooks?

Peter Löscher became Siemens’ CEO in July 2007, just as the frightening scope of its wrongdoing was becoming clear. In an interview a year ago this week, this was his assessment:

It’s completely clear that the management culture failed. Managers broke the law. But this has nothing to do with a lack of rules. Siemens had and still has an outstanding set of rules. The only problem is that they were apparently being violated on an ongoing basis. The management culture was simply not practiced consistently and uniformly. This is why my job now is to install a new culture. And I can guarantee you that senior management will practice what it preaches — to a T.

Löscher committed himself and everyone around him to a clean company. That’s what saved Siemens — not its money or its power. The most important ingredient in its survival was its leader’s decision to fix things by demanding real change. As Löscher said last year: Siemens endorses clean business. Period. I am not interested in deals that can only be had through corruption. That’s it, then. Compliance first, profit second.

We believe in corporate redemption — in well-earned second chances. And we’re glad Siemens is getting one now.

For some great observations about Siemens’ sentence, take a look at Ellen Podgor’s post on the White Collar Crime Prof Blog here.

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1 Comment

  1. The argument against imposing the "death penalty" on companies for FCPA violations seems to incorporate more than a bit of the "too big to fail" argument advanced with respect to certain financial institutions over the past eighteen months. One might argue, however, that although there will be disruption and inconvenience, eliminating a company from participating in its chosen market (e.g., defense) due to numerous and material breaches of the FCPA or analogous legislation does not mean that the company assets will wither and die. Instead, as in the bankruptcy context, the assets can be acquired and redeployed by others who have not engaged in criminal behavior. For example, Verizon’s acquisition of WorldCom assets (and employees) after the discovery of far-reaching fraud and other criminal behavior shows that while companies may die, businesses can continue. In the defense context, one might consider imposing a criminal sentence on the company that prevents that company from engaging in any further business, while at the same time putting some or all of the business assets in a trust – either to be acquired or re-incorporated by third parties. Otherwise, one might wonder whether there are two brands of justice – one for those who are large and/or operate in critical areas and another for small or mid-size companies who – though perhaps less culpable – are not as "important."

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