Anatomy and Impact of Bribery on Siemens AG

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INTRODUCTION

FCPA was enacted by the US congress in 1977 (amended in 1988 and 1998) in response to allegations that major U.S. corporations were bribing foreign government officials, politicians and political parties to attract business and to gain undue advantage. Interestingly, the bribery allegation came to surface during the Watergate investigations (O'Melveny Handbook, 2012). FCPA enactment was the first of its kind and led to growing number of anti bribery laws through the ratification of the Organization for Economic Cooperation and Development's Convention on Combating Bribery of Foreign Public Officials in International Business Transactions in 1998 (OECD Anti-Bribery Convention). The passage of the UK Bribery Bill in 2010 is the most recent act in connection with the OECD Anti-Bribery Convention (OECD, 2012). Essentially, being legally liable for bribery is a very recent phenomenon. More interestingly, before 1999 in Germany, corporations could deduct bribery payments as business expense (Schubert and Miller, 2012).

The U.S. Congress provided many justifications for passing the FCPA. Prominent among them are: (i) it is unethical and against the moral values and expectations of Americans; (ii) it erodes confidence in the much valued free market systems by directing resources to entities that are unable to compete on price, service and quality, and; (iii) it casts a shadow on all American corporations whereby there is loss of reputation, loss of contracts, lawsuits, and possible seizure of corporation's assets in a foreign land (Unlawful Corporate Payments Act of 1977).

There are two parts to FCPA--(i) anti bribery and (ii) accounting provision--which are applicable to any person (issuer of U.S. securities, including non-public U.S. companies, U.S. residents, foreign non-residents) who directly or indirectly pays or promises to pay anything of value to a foreign official corruptly for influencing decision to obtain, redirect or retain business (O'Melveny Handbook, 2012). The accounting provisions require all issuer firms to keep their books and records in reasonable detail to accurately and fairly record all transactions and dispositions of their assets. Under the accounting provisions, issuers are also required to devise and maintain adequate accounting controls (O'Melveny Handbook, 2012).

Of the two enforcement bodies, DOJ is responsible for the criminal and civil enforcements as it relates to domestic concerns and foreign nationals, while the SEC is responsible for the civil enforcement as it pertains to issuers. There are two defenses to bribery allegation under the FCPA. The payment has to be (i) lawful under the country's laws, and or (ii) reasonable and bona fide expenditure such as travel and lodging expenditure for demonstration or explanation of the product or service to a foreign official. Also, payments made to expedite routine governmental actions such as permits, licenses, postal services, customs, and electrical connections are allowed. They are called grease or facilitating payments.

FCPA violation(s) may result in criminal and civil prosecutions by the DOJ and other actions by the SEC. First, in criminal prosecutions, business entities can be fined up to $2 million; officers, directors can be fined up to $100k and be jailed for up to five years. Violators can be also subject to alternative fines act which can result in fines up to double the amount of the benefit received. Civil violations can result in fines up to $100k for a natural person and up to $500k for any other person. The SEC can also bring action to enjoin the offending act against the business entity or the persons who act on its behalf. Moreover, the guilty party may be barred from doing any business with the federal government. Essentially, violation of the FCPA is not a slap on the wrist; it can substantially cripple the organization and or result in jail and ultimately loss of job and reputation for the officers/agents (Foreign Corrupt Practices Act, 2012). …