Department of Justice and Securities and Exchange Commission Deferred Prosecution Agreements and Guilty Pleas March 22, 2010 - April 1, 2010
Daimler AG, a German corporation, and three of its subsidiaries resolved FCPA charges that stemmed from a long-standing practice of paying bribes to foreign government officials in at least 22 countries, including China, Croatia, Egypt, Greece, Hungary, Indonesia, Iraq, Nigeria, Russia, Thailand, Turkey, Turkmenistan, Uzbekistan, and Vietnam. Daimler and its Chinese subsidiary entered into separate deferred prosecution agreements, and its other two subsidiaries entered guilty pleas.
Daimler was a major global producer of premium passenger cars and the largest manufacturer of commercial vehicles in the world. Daimler had many government and state-owned customers in foreign countries. According to court documents, Daimler used a variety of mechanisms to pay the bribes, including the use of corporate ledger accounts known as “third-party accounts” or “TPAs,” corporate “cash desks,” off-shore bank accounts, deceptive pricing arrangements, and third-party intermediaries. The corrupt payments involved more than 200 transactions, which earned Daimler $1.9 billion in revenue and at least $90 million in illegal profits through these sales practices, involving at least 6,300 commercial vehicles and 500 passenger cars. Key factors cited resulting in FCPA violations included Daimler’s decentralized foreign sales force, a lack of central oversight, a corporate culture that encouraged or overlooked bribery, and the involvement of key executives, such as the then heads of overseas sales and internal audit, as well as the CEO of several subsidiaries and affiliates.
U.S. enforcement agencies learned of Daimler’s actions when, in March 2004, a former Daimler employee filed a whistleblower complaint, regarding Daimler’s alleged practice of maintaining secret accounts for the purpose of bribing foreign government officials. In August 2004, the SEC opened a formal investigation, followed by the DOJ soon thereafter. In response, Daimler conducted a global internal investigation, remediated problems as they became known, and kept authorities up to date on its actions. Daimler’s reforms included overhauling its compliance program, creating a whistleblower hotline, and linking board members’ compensation to success in compliance-related matters. It also took disciplinary action against 60 employees, including terminating about 45 employees. The DOJ determined that Daimler’s cooperation in the investigation was “excellent” and recommended an overall criminal penalty of $93.6 million, which was 20 percent below range according to the Sentencing Guidelines. This penalty recommendation also included consideration of whether there would be disproportionate harm to the shareholders and others not proven personally culpable, and the impact on the public, arising from the prosecution. The subsidiary criminal penalties totaled approximately $61 million. In addition to the fines, Daimler agreed to continued cooperation and the imposition of a corporate compliance monitor for a period of three years. Daimler also agreed to pay $91.4 million in disgorgement to settle the SEC’s charges and consented to the entry of a court order permanently enjoining it from future violations of the Exchange Act.