ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Good afternoon. With me today is Linda Thomsen, who is the Director of Enforcement for the U.S. Securities and Exchange Commission; Jeff Taylor, who is the United States Attorney for the District of Columbia; Joe Persichini. Joe is the Assistant Director in Charge of the Washington Field Office of the FBI; and Andre Martin, who is a Special Agent in Charge of the Washington Field Office for IRS Criminal Investigations.
This morning in Federal District Court here in the District of Columbia, Siemens AG, a German corporation which did businesses across the globe, and three of its subsidiaries, pled guilty to violations of the Foreign Corrupt Practices Act. This Act, commonly known as the FCPA, makes it illegal to bribe a foreign official to get business. The FCPA also requires issuers, that is companies whose stocks trade on U.S. exchanges, to have internal controls and to maintain accurate books and records. And Siemens, which had traded on the NYSE since 2001, was subject to these provisions.
Of course, one of the reasons for having such internal controls is to make sure that foreign bribery does not occur in the first place. The underlying criminal conduct in this case is set out in court documents as well as in Siemens' admissions made in court today. From the 1990s through 2007, Siemens engaged in a systematic and widespread effort to make and to hide hundreds of millions of dollars in bribe payments across the globe.
These efforts by Siemens executives included using off-the-books slush fund accounts and shell companies to facilitate bribes, making false entries on the company's books and records by, for example, falsely recording bribes as consulting fees; by accumulating profit reserves as a liability on company books, and then using these funds to facilitate bribe payments.
These efforts also included short-changing audits that might have gotten too close to so-called "business consultants," who were in fact conduits for illicit payments; using removable post-it notes so as to hide the identity of executives who had authorized illicit payoffs; and last, the time-tested method of suitcases filled with cash. More than $800 million in bribes were paid by Siemens and various of its entities over the course of 2001 to 2007.
For a time these efforts worked as the corrupt officials held up their side of the bargain, and in exchange, Siemens received billions of dollars worth of government contracts. For example, in the case of Siemens Venezuela, the prize was a $340 million contract to build two city rail systems. In the case of Siemens Bangladesh, corrupt payoffs there resulted in a $40 million mobile phone project. And in the case of Siemens Argentina, the goal was a billion dollar contract for work on Argentina's national identity card.
Today's filings make clear that for its business operations overseas, bribery was nothing less than standard operating procedure for Siemens. Under the terms of the plea agreement announced today, first, Siemens AG will plead guilty and has pled guilty to one count of failure to maintain internal controls and a one-count books and records violation. In addition, three Siemens subsidiaries, those located in Bangladesh, Venezuela and Argentina, have pled guilty to conspiring to violate provisions of the FCPA.
Second, Siemens will pay a criminal fine to the United States in the amount of $450 million. This is far and away the largest criminal fine in FCPA enforcement in U.S. history.
Third, Siemens will retain an independent monitor for a period of four years and will continue to implement enhanced controls.
These penalties are strong medicine, but they are commensurate with the conduct at issue here, which can only be described as egregious. And they are necessary to ensure that all companies, domestic and foreign, large and small, have equal access to the globalized markets. This disposition reflects both the severity of the misconduct at issue, as well as appropriate credit to Siemens for its remedial measures. While I'm paraphrasing what he said in District Court today, Judge Richard Leon referred to this disposition as fair and just for both parties involved.
And just as I have not minced words in describing the nature of the crime which occurred here, neither will I mince words in describing the extent of Siemens' cooperation. Siemens' cooperation, in a word, has been exceptional. Siemens has faced facts, accepted responsibility, retained experienced counsel to conduct thorough internal investigations, and has implemented real reforms.
There are a few other aspects of this case that I would like to comment on. First, this is a case in which we have worked from the beginning in close cooperation with German law enforcement. Indeed, this case began with the execution of searches by German authorities in November of 2006.
I want to commend in particular Hildegard Baeumer-Hoesl from the Munich Public Prosecutor's Office. That Office announced today, in fact about an hour ago, the resolution of related charges against Siemens and the imposition of a 395 million Euro fine. Combined, Siemens and its subsidiaries will pay approximately $1.6 billion in criminal penalties and civil penalties in the United States and Germany. This includes an October 2000 settlement with German authorities, as well as the DOJ, SEC and German settlements announced today.
Second, there is no question that the Department has in recent years significantly increased its FCPA enforcement. From 2001 to 2004, the Department resolved or charged 17 FCPA cases. For the period of 2005 to 2008, that number is 42 resolutions, representing an increase of more than 200 percent within these four years as compared to the prior four-year period.
But what is potentially even more significant, and as this case makes clear, is the fact that the United States is not the only player at the table. We aren't the only ones fighting global corruption. Other nations are joining us in this effort, and I'm here to tell you that's a good thing, and something that we will only see more of in the future.
Through international instruments like the OECD convention and the U.N. convention against corruption, we have seen our international partners significantly step up their anti-corruption efforts. Everything we're seeing suggests that this trend will continue. South Africa, for example, became the 37th country and the first African nation to become a party to the OECD convention in 2007. Israel followed suit in September of this year, becoming the 38th signatory.
We are now working with our foreign law enforcement colleagues in bribery investigations to a degree that we never have previously. In the past, in a case of joint jurisdiction between the United States and another country, it was typically the case that only the U.S. prosecution would succeed. That is now significantly less likely to be the case.
And there are other examples as well. In November of this year, Japanese prosecutors secured guilty pleas from a Japanese firm, Pacific Consultants International, and four of its former executives, for paying more than $800,000 in bribes to a Vietnamese government official in connection with a road construction contract.
Another example from 2006 is the Statoil case, which involved a Norwegian oil company, and bribe payments to Iranian government officials. There the Justice Department entered into a deferred prosecution agreement with the company while Norway sanctioned the company and a former executive for violating Norway's trading and influence law.
Third, this prosecution, our cooperation with foreign counterparts and the work not only of this Department, but departments like State and Treasury, are all an important part of President Bush's strategy to internationalize the fight against kleptocracy, or so-called high-level corruption. As President Bush said in announcing this strategy in August of 2006, for too long the culture of corruption has undercut development and good governance and bred criminality and mistrust around the world.
I will tell you that on days like today, given the breadth and scope of this disposition, and the fact that we have worked it from day one with our foreign counterparts, on days like today, one can see the promise of that strategy and the promise of what may be possible if we work together as a global community in fighting corruption.
For let there be no doubt that corruption is not a victimless offense. Corruption is not a gentlemen's agreement where no one gets hurt. People do get hurt. And the people who are hurt the worst are often residents of the poorest countries on the face of the earth, especially where it occurs in the context of government infrastructure projects, contracts in which crucial development decisions are made, in which a country will live by those decisions for good or for bad for years down the road, and where those decisions are made using precious and scarce national resources.
Those decisions should be made on the merits. They should be made on the merits and for the benefit of all, and not for the enrichment of a corrupt few. Because when that happens, the result is not the best job for the best price, but frequently the very opposite.
The integrity of the marketplace here and abroad is crucial to our own nation's economy as well. Corporations both domestic and foreign should expect the Department and our international colleagues will continue our efforts to level the business playing field, making it free from corruption and open to all who seek to participate within it.
Finally, I would like to commend the prosecutors and agents who have worked on this case, and that includes first the prosecutors from the Fraud Section of the Criminal Division, led by its Chief, Steve Tyrell, its Deputy Chief, Mark Mendlesohn, and Trial Attorney Lori Weinstein.
Second, I would like to thank the prosecutors from the U.S. Attorney's Office for the District of Columbia, and in particular, Assistant United States Attorney John Griffith.
And third, I would like to thank the dedicated agents from the FBI in particular from the FCPA unit within the Washington Field Office, as well as agents from the IRS.
With that, let me turn it over to Linda Thomsen so that she can tell you about the SEC disposition
DIRECTOR THOMSEN: Good afternoon. I'm Linda Thomsen, the Director of the Division of Enforcement at the Securities and Exchange Commission. With me today are some extraordinarily talented and dedicated SEC enforcement staff members, and we are very pleased to join our law enforcement counterparts here to announce this $1.6 billion settlement with Siemens AG for bribing government officials around the world to obtain business.
Siemens' pattern of bribery was unprecedented in scale and geographic reach. Our collective actions say, first, the worldwide community will vigorously and tenaciously pursue those who bribe government officials for business; and, second, the consequences for this type of behavior will be severe. If a company bribes government officials anywhere on the globe, law enforcement will work around the globe to hold the company accountable.
Bringing Siemens to justice today is a testament to the close coordinated working relationship among the SEC, the United States Department of Justice, and the other United States and international law enforcement agencies, particularly the Office of the Prosecutor General in Munich, Germany.
In the SEC's action we alleged that Siemens paid a staggering $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East and the Americas. The scope of the bribery scheme is astonishing, and the tone set at the top at Siemens was a corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company.
The SEC portion of the Siemens settlement, $350 million in disgorgement, is by far the largest settlement amount ever obtained by the SEC under the "Foreign Corrupt Practices Act." To put this in context, the largest prior SEC FCPA settlement was reached in 2007 and was for $33 million. The SEC settlement with Siemens is more than 10 times that amount.
Furthermore, the $1.6 billion total that Siemens will pay in these settlements is the largest amount that any company has ever paid to resolve corruption-related charges. And that is fitting because the alleged conduct by Siemens was egregious and brazen. It was systematic. It involved thousands of payments, and it occurred over an extensive period of time. Siemens created elaborate payment schemes to conceal these corrupt payments to foreign officials. The company's inadequate internal controls allow the conduct to flourish. The details tell a very troubling story.
Employees obtain large amounts of cash from Siemens' cash desks. Employees sometimes carried that cash in suitcases across international borders to pay bribes. Payment authorizations were recorded on post-it notes that were later removed to avoid leaving any permanent record. There were slush funds and a cadre of consultants and intermediaries to facilitate paying the bribes.
Investigating this intricate scheme and righting Siemens' wrongs has taken a remarkable and unprecedented level of coordination among many law enforcement agencies around the world.
I would like to thank everyone involved for their outstanding work, cooperation and coordination including the fraud section of the United States Department of Justice, the fraud and public corruption section of the United States Attorney's Office for the District of Columbia, the Federal Bureau of Investigation, the Internal Revenue Service, the Office of the Prosecutor General in Munich, Germany, the Financial Services Authority in the United Kingdom, and the Hong Kong Securities and Futures Commission.
This marks the first time that United States and foreign prosecutors have coordinated their law enforcement efforts as extensively as they have here today to address violations of the anti-bribery laws. I expect it will not be the last.
I also want to thank the SEC's Office of International Affairs that assisted us in reaching out to foreign jurisdictions. Finally, I want to say how very proud I am of the tenacious SEC team members who worked so hard on this matter: Cheryl Scarboro, Reid Muoio, Tracy Price, Robert Dodge, Denise Hansberry, Amanda Yingling, and Sara Ade.
And, always, those of us in the enforcement division at the SEC are extremely grateful for our Commission's support of our working and for their steadfast commitment to enforcing the "Foreign Corrupt Practices Act."
In the past three years the Commission has brought about three dozen FCPA cases. And to put that in context, in the preceding nearly three decades of the law's existence, we have brought about six dozen total cases. And all of our FCPA actions have helped to combat bribery and public corruption throughout the world.
The SEC will continue to work closely with other law enforcement authorities, foreign and domestic, to pursue wrongdoing wherever it occurs. The message stays clear. When any company circumvents the rules of fair play and honest competition by making improper payments to win business, it will face a strong and united front from law enforcement around the globe.
Thank you very much. And I think we'll now hear from the FBI.
ASSISTANT DIRECTOR PERSICHINI: Good morning. I first want to congratulate and thank the dedicated career prosecutors, agents, analysts, financial analysts, professional support and our attorneys for just tremendous, tremendous work and a very tedious investigation.
They are truly dedicated public servants and I thank them for their service. And they work every day to make this nation and this world a safer place to live. Thank you. Thank you so much.
Good afternoon. As Acting Assistant Attorney General Friedrich and SEC Director Thomsen have indicated, we are here today to disclose a massive, willful and carefully orchestrated criminal corruption scheme which was conducted by a major international corporation on a staggering scale.
Today the Siemens A.G. corporation and three of its regional companies have been charged with criminal violations of the Foreign Corrupt Practices Act, or FCPA, as we say. The provisions of the FCPA state that it's a federal crime for the United States citizens and companies traded on the United States markets to pay bribes in return for business. In addition, the FCPA contains books, records and internal control provisions for U.S. companies.
Today's filings of charges outline violations of all these provisions by members of the Siemens Corporation and three of its regional companies: Siemens Bangladesh, Siemens Argentina, and Siemens Venezuela. The illegal activities committed by Siemens Corporation and its three named companies constitute a specialized form of public corruption and the investigation of allegations of public corruption is the number one criminal priority of the FBI.
The FBI has a clear mission to defeat public corruption in all of its forms. In this case, high level public corruption occurred both domestically and internationally. The resulting repercussions of any violation of the FCPA are far reaching and tear at the very fabric of the principles of fair and honest business practices between our country and other nations.
Violations of the FCPA directly threaten the security of the United States. International corruption weakens good governance. It inhibits social and economic development, and it tears at the very fabric of the public trust in corporations, government and the ideals of fundamental fairness.
Over the past year, the Washington Field Office of the FBI has not only devoted more resources to investigate FCPA matters, but has begun the use of hands-on investigative techniques, such as joint global investigations with our foreign government and law enforcement partners with a focus on industry-specific practices, all in an effort to identify worldwide patterns of these crimes.
The FBI is taking a proactive and aggressive approach at investigating violations of FCPA. We no longer rely on companies or individuals to self report, or for whistleblowers to call a hotline. The FBI is currently joining forces with our overseas partners through our legal attaché offices worldwide in over 200 different countries in our 70 legal attaché offices.
This investigation exemplifies coordination and cooperation with our international partners. It started with the German authorities executing search warrants on the Siemens Corporation in Germany and concludes with today's charges in a global, corporate case, against Siemens.
As with any successful FCPA investigation, we continue to partner in this public corruption battle with the Securities and Exchange Commission and other federal agencies such as the Internal Revenue Service, who are each represented here today.
I would like to thank both agencies for all their support and resources they contributed to this investigation.
We would not be here today without their invaluable assistance. The FBI has zero tolerance for corporations and their officials paying bribes in foreign countries as a cost of doing business in those countries.
Let me be very clear. Those charged today showed a willful and deliberate practice in engaging in corrupt practices to obtain and maintain their business. Their actions were not an anomaly. They were standard operating procedures for corporate executives who viewed bribery as a business strategy.
The FBI is dedicated in its mission to ensure that corporate and business communities are not tarnished with the kind of violations we are presenting here today. We are committed to utilizing all necessary resources to fight these examples of global corruption.
Thank you very much, and we'll take some questions.
ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Yes?
QUESTION: Pat Huber from the German Press Agency. I'm curious about where the $1.6 billion comes from that you mentioned earlier. How did we arrive at that total?
ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: That's a combination of different fines from different places. Some of them are in this country in terms of criminal fine or SEC enforcement action; and then on the German side a settlement from October of 2007 as well as the one that's announced today. We can give you the exact breakdown afterwards, but that's what it's based on.
QUESTION: Sir, T. Miller with "The Republic" and "The Front Line." Can you tell me a little bit about why the Justice Department agreed? They actually didn't plead guilty to bribery. They pleaded guilty to other related charges. Can you tell me a little bit about why you felt it was okay to allow them to not plead guilty directly to a direct bribery charge?
ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Right. You know, I think every case that we have to make these judgments with regard to companies, that's always a very difficult calculus, and one that we evaluate carefully and closely on a case-by-case basis. And while I'm not going to comment specifically on the inclusion or exclusion of any specific charge here, what I can tell you about is this case had two things.
One, it had a very dramatic and widespread crime on the one hand. On the other hand you also had significant remediation and cooperation by the company. And if you look through our sentencing memorandum, you're going to see in even more detail what some of those things are. I think in terms of legal hours billed by Siemens in this case it was something like 1.5 million hours. It makes a lot of happy lawyers out there. The fact of who they brought in as their monitor.
Their monitor in this case, which they proposed and which we agreed to, is a gentleman by the name of Theo Weigle. He is the former finance minister of Germany. He is an attorney who served in the German Parliament. He is well-regarded and, you know, we thought perfectly well-suited to handle a monitorship in this type of case, you know, which will last for something like four years. So the company engaged in very, very significant reforms, and they did so even prior to the disposition that was reached today. And in this case one weighed all the factors. This was the right disposition and the court agreed with our proposal.
QUESTION: Does Siemens get to complete all these projects that they obtained through bribes?
ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Let me put it this way. There is not, for example, a disgorgement process as part of a plea. Now, it may depend on, for example, if specific proceeds are identified or if a specific payment is located someplace, then there may be, for example, asset forfeiture measures that could be taken into account. But the disposition today resolves the criminal matter completely.
QUESTION: How was it the company was charged as opposed to some of the former executives?
ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: My comment to that is that this investigation continues.
QUESTION: I have a question for Ms. Thomsen, please?
ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH:
QUESTION: Sorry to switch gears, but in the Bernard Madoff case can you explain please why the SEC did not investigate sort of widespread reports for the past two years that there was no way that his firm could produce the same kind of returns that others thought they were reaping in the face of $20 billion, a large fraud?
DIRECTOR THOMSEN: Sure. First of all, I think the Commission announced on Friday that the SEC had done relatively recently both an examination and an enforcement investigation. And while I can't comment on historical matters at this point, I can say that right now we are acutely focused with our colleagues in the Southern District of New York and the FBI to figure out exactly what's going on, to pursue the case that we've got, to preserve assets to the extent we were able and to bring everyone who was responsible for the conduct at the Madoff firm. It's justice. It is a very important matter. It's a very high priority, and historically without regard to particular matters that we've done in the past, I think if you look at all we've done, we follow the evidence where it leads and we bring as many cases as we can to protect investors. And that's been our mission forever.
QUESTION: While we're on the subject, Ms. Thomsen, do you have any sort of direct response to the early criticism that the SEC was asleep at the switch or took too long to get started in this investigation? And do you have any further information about sort of the status of where this is going?
DIRECTOR THOMSEN: Sure. It is hard to directly respond given the fact that so much of what we've done historically is non-public, and needs to remain non-public until such time as someone decides otherwise. But, I think what I can say more generally is if you look at the work that the examination staff and the enforcement staff do overall and I would suggest that you look at last week alone where we started with a case against Mr. Dreier.
During the course of the week we finalized the auction rate securities matters which resulted in providing liquidity to 40 percent of the market in the auction rate market which froze last February, which includes cases for gifts against Fidelity representatives. I think there was also a case involving an unregistered foreign broker-dealer coming into this country and we ended the week with the Maidoff matter. And then actually it was the end of the week we literally filed this case, although it was finalized today.
It is that kind of activity that you see from the Enforcement Division all the time, and I think that that record should be ample evidence if somewhat direct that we are sort of vigorous in pursuing those who violate the federal securities laws.
DIERCTOR THOMSEN: Thank you. Yes?
QUESTION: If I could back to the question about why no individuals were charged.
ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Right.
QUESTION: You and Mr. Persichini both said that corporate executives were willfully engaged in this practice as standard operating procedure over a period of years widespread. Why does the investigation need to continue? It sounds like you had identified executives who were engaged in this patterned practice of behavior. Why were no individuals charged?
ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: I'll say it's not infrequent that a disposition is reached first vis-a-vis a company and then there are individual prosecutions after that. I'm not commenting on this case in specific. I'm talking about the practice generally. I wouldn't draw the conclusion that you're drawing.
QUESTION: Were there any U.S. officials or people in the United States who were involved in some of the bribe schemes?
ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: In terms of officials, no. If you read some of the factual statements, there may have been agents in the United States who facilitated some of these payments.
QUESTION: In terms of payments coming from U.S. bank accounts, or from Siemens entities in the United States?
ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: In terms of payments from Siemens, ultimately to a foreign official someplace else, by use of agents in the United States, and if you go through the statement of facts, it will spell out what some of that is on a case-by-case basis.
QUESTION: I'm (inaudible) from the German Daily (inaudible) Times. I may ask you to kind of bear with my ignorance of the U.S. law. Will you give me a little bit kind of advice how you proceed regarding the prosecution against the corporate executives or individuals who were involved in this? I mean just I understand that you can't talk about the specifics of this specific case. But how would that proceed? You have now done with the company, but you can still look at persons who were, let's say, five years ago were running the show, who tolerated or even encouraged this. How would that (inaudible)?
ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Sure. Well, let me say this. In terms of our prosecution of corporations, that has been directed over the years by various policy memos, the last one issued by the Deputy Attorney General Mark Filip this year.
Among the things that it talks about in terms of prosecutions is the fact that where we prosecute a corporation, that is not a substitute for prosecution of individuals. I think that language is something like rarely will it be the case that even a guilty plea by a company means that we will not pursue individuals. So that's the policy statement of the Department.
And just from different corporate fraud cases that I've worked on over the years, as I said before in answer to another reporter's question, it's not unusual that the government will reach a settlement or a disposition or a plea with a company, get information, get facts, get documents, and then use that to go on from there to build a record that can be used either to decide to indict or not indict culpable executives within a company.
Does that answer your question?
QUESTION: It helps at least.
ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Okay.
MODERATOR : I think we have time for about two more.
ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Yes, sir?
QUESTION: You mentioned there's been an uptick in the actual number of cases filed. Can you tell me why? Are corporations more corrupt, or are you paying more attention?
ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Yeah. On the first part, I can't comment. On the second part, I can tell you that we've put more resources into it in terms of prosecutors and agents, and you heard Joe Persichini start to talk about the agents who are dedicated within the Washington Field Office of the FBI to working FCPA cases. That's been a significant boost to us to have agents who are working with us hand-in-hand in these types of cases.
And I also think that, you know, a lot of it is due to the hard work of the line attorneys, both assistant United States attorneys in the field, but also the fraud section of the criminal division. They do a great job with the resources that they have to make these cases.
And also, you know, some of it is we're trying to encourage disclosure in individual cases; whereas in this case there was a search and then there was disclosure from there.
In many cases, it's the company walking into us and saying, you know, "We have a problem here, and we'd like to work this out." And that's what we like to see.
QUESTION: Do FCPA cases ever or often lead to people being accused of people soliciting and accepting bribes? And if so, do you expect that to come up in this case?
ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Right. The significant difference is between an FCPA case versus, say, a bribery case, an ordinary bribery case here, is the official is located overseas. And you'll notice in our information, for example, we don't name who those people are. Typically, that's the type of thing that would be left to foreign law enforcement to follow up on. In this case, I will refer you to the law enforcement authorities within those countries.
QUESTION: One other non-related subject. Newsweek Magazine was reporting over the weekend that the NSA domestic wire-tapping program, that a former Justice Department attorney was responsible behind the leak. Can you provide us a status with that investigation, and a response to the report?
ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: I'm aware of the report. I don't have a comment on it.
Thank you very much.
END 1:40 P.M. EST