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.