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Siemens Bribery Case And The Anti-Corruption New World Order PDF Print E-mail

The China-end of the Siemens bribery scandal came to a conclusion in an Intermediate Court in Henan last month when a China Mobile executive received a death sentence.

For the most part, this was just another anti-corruption case, one of a multitude flooding China’s courts these days.

However, the participation of the U.S. government, and the information it shared with Chinese enforcement officials, serves as an important reminder that the global fight against corruption has entered a new phase.

Since the case involved state secrets and was therefore not opened to the public, there hasn’t been a lot of reporting on the verdict. Caixin, however, published a breakdown of the case today:

As an industry veteran, Shi Wanzhong sat in senior positions of state-owned telecoms companies for years. In May, the Intermediate Court of Hebi City, Henan Province sentenced Shi to death with a two-year reprieve on charges of bribery.

In addition to the sentence that Shi received, Tian Qu, who facilitated Shi’s graft, was sentenced to a 15-year jail term. The court found that Shi and Tian had accepted a total of US$ 5.1 million in bribes from Siemens.

Although this was a case in a Chinese court, involving a Chinese national, foreign investors (particularly multinationals) should pay attention to how this case came about.

The U.S. Securities and Exchange Commission (SEC) and Department of Justice (DOJ) investigated Siemens for possible violations of the U.S. Foreign Corrupt Practices Act (FCPA) from 2006 to 2008. The investigation involved actions by the German company in several countries, including China, Vietnam and Mexico.

The SEC brought the hammer down late in 2008:

The Securities and Exchange Commission [on December 15, 2008] announced an unprecedented settlement with Siemens AG to resolve SEC charges that the Munich, Germany-based manufacturer of industrial and consumer products violated the Foreign Corrupt Practices Act (FCPA) by engaging in a systematic practice of paying bribes to foreign government officials to obtain business.

[ . . . ]

Siemens has agreed to pay $350 million in disgorgement to settle the SEC’s charges, and a $450 million fine to the U.S. Department of Justice to settle criminal charges. Siemens also will pay a fine of approximately $569 million to the Office of the Prosecutor General in Munich, to whom the company previously paid an approximately $285 million fine in October 2007.

This was a huge fine, and not surprisingly, the case received a great deal of attention not only in the U.S., but internationally. Keep in mind that the SEC and DOJ were acting under powers given to them under the FCPA, enforcing that law against a German firm. Moreover, the U.S. was cooperating with German enforcement authorities as well. Even without the involvement of China, this was a multi-jurisdictional enforcement action.

But that’s not where the story ends. According to Caixin:

After the Siemens bribery case was brought to light, information on the involvement of Chinese personnel was sent to the Chinese authorities via diplomatic channels, with Shi’s name appearing on relevant documents.

So the U.S. government, working with their German counterparts, investigates the actions of Siemens in several countries. As a result of that investigation, they uncover information on corrupt activities that involve Chinese companies and individuals. This information is then given by the SEC and DOJ to officials of the Chinese government, who use this to ultimately prosecute Shi Wanzhong and Tian Qu.

That’s a whole lot of information sharing and coordination between governments!

Since the case in Henan only involved Chinese nationals, none of whom worked for Siemens, should multinationals care about this? Absolutely. This is not a unique case, but it is instructive. It has become quite clear in the past few years that we are entering into a global phase of regulatory enforcement, brought about by globalization and trade.

This case involves corruption, but we could just as easily be talking about food, or pharmaceuticals, or electronic devices. Even regulations based on domestic laws flows across borders these days, forcing governments to work together and resulting in unprecedented information sharing.

Companies that do business in more than one jurisdiction cannot look narrowly at regulatory risk anymore, saying “This is a China problem” or “Our U.S. team will deal with this.” That was the past. These days, when a corruption matter (or any issue that involves international regulatory enforcement) arises, companies will have to take a look at each jurisdiction in which they are doing business.

All of this will no doubt result in higher regulatory and risk management costs, but government cooperation is on the rise and must be factored in to all compliance programs from now on.

Stan Abrams, China Hearsay

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