Daimler’s Contribution to the Façade of FCPA Enforcement
Monday, March 29, 2010
April Fool's Day is a day traditionally full of practical jokes and pranks.
Thus, it is only fitting that on April 1st U.S. District Court Richard Leon will hold a hearing on the Daimler FCPA enforcement action during which he is expected to approve a DOJ - Daimler brokered deferred prosecution agreement and other various aspects of the settlement discussed below.
If so, one pillar which contributes to the "facade of FCPA enforcement" - bribery, yet no bribery - will have a new poster-child in addition to the Siemens and BAE bribery, yet no bribery FCPA enforcement actions.
At least, Siemens and BAE pleaded guilty to something - even if that something was not an FCPA antibribery charge.
The Daimler enforcement action appears to take the "facade" one step further in that Daimler will not have to plead guilty to anything ... zero ... zilch.
Rather, Daimler will agree to a deferred prosecution agreement despite clear evidence (per the DOJ's own allegations as set forth below) of FCPA antibribery violations.
Sure, two insignificant entities in Daimler's massive corporate hierarchy, Daimler Export and Trade Finance GmbH ("ETF") and DaimlerChrysler Automotive Russia SAO ("DCAR"), are expected to plead guilty to FCPA antibribery charges. EFT is a finance arm far down on Daimler's corporate hierarchy and DCAR sells spare parts for Daimler in Russia.
In other words, it sure looks and feels like two junior, indirect subsidiaries are being offered up as "sacrificial corporate lambs" to take the fall for the more significant, powerful parent.
The end result is that the DOJ can boast it secured two FCPA antibribery pleas while allowing Daimler to say that it never violated the FCPA's antibribery provisions, thus allowing Daimler to escape debarment in Europe - a factor clearly at issue in this enforcement action as highlighted below.
Yet another instance of bribery, yet no bribery is not the only reason why the Daimler enforcement action contributes to the facade of FCPA enforcement.
In addition, wrapped into allegations which clearly establish all the elements of an FCPA antibribery violation, are numerous dubious and untested theories of FCPA liability.
Most notably, the entire criminal information against DaimlerChrysler China Ltd. ("DCCL") is premised, as so many recent FCPA enforcement actions are, on employees of alleged Chinese state-owned entities (companies doing business all over the world and companies with publicly traded stock) being "foreign officials" under the FCPA. As in other FCPA enforcement actions, the allegations as to these entities are bare-bones, uninformative, and replete with legal conclusions as to why these entities are "instrumentalities" of a foreign government.
Because these dubious and untested theories of FCPA liability are embedded into the much larger bribery, yet no bribery charges against Daimler which are being resolved through a deferred prosecution agreement, these dubious and untested theories will once again escape judicial scrutiny.
Because of the general lack of substantive FCPA case law, the entire Daimler enforcement action (including theories of liability premised on the dubious and untested legal theories) will once again be viewed as de facto FCPA case law.
The Daimler bribery, yet no bribery enforcement action is wide in scope and allegations of improper conduct go all the way up to senior levels of the company. The "things of value" are numerous, the "foreign officials" include bona fide government officials (as well as the dubious "foreign officials" referenced above) and the amount of business allegedly obtained or retained through bribery and corruption is in the hundreds of millions.
The countries in which the payments were allegedly made are numerous.
The alleged improper payments involved dozens and dozens of third parties, including several located in the U.S., which were allegedly utilized by Daimler and its affiliates to bribe foreign officials. Given Daimler's use of numerous U.S. based entities, it will be interesting to see if any of these U.S. entities and/or entity employees will be prosecuted for their role in the respective bribery schemes.
The Daimler bribery, yet no bribery case involves involves ineffective internal controls, lack of effective third-party due diligence, and intentional misrecording of bribe payments on Daimler's books and records (and those of its affiliates).
Yet in another interesting twist, Daimler also escapes criminal charges for knowingly failing to implement effective internal controls, even though the DOJ's own allegations would seem to support such a charge. (Even Siemens plead guilty to both criminal books and records and internal controls charges).
The more that is known about the Daimler FCPA enforcement action and the more that is understood about the facade of FCPA enforcement, the greater the chance the facade of FCPA enforcement will be exposed and addressed.
It all starts with the person standing between the DOJ and Daimler and that is Judge Richard Leon and he would be doing a great public service by rejecting the proposed settlement and injecting the "rule of law" into the current facade of FCPA enforcement.
Mike Koehler is an assistant professor of business law at Butler University. He edits the FCPA Professor Blog (http://fcpaprofessor.blogspot.com). To schedule an interview with Koehler, contact Courtney Tuell, (317) 940-9807, email@example.com.
To find other Butler University experts, visit http://www.butler.edu/experts/.
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