The Work

December 15, 2008 7:04 PM

Debevoise, Davis Polk Help Siemens Settle FCPA, German Investigations

Posted by Brian Baxter

Europe's largest engineering company, Munich-based Siemens, announced on Monday that it had agreed to pay a record $1.34 billion to settle two-year-old corporate corruption investigations in the U.S. and Germany.

The charges stem from a bribes-for-business scandal that emerged after German police and prosecutors raided Siemens offices in November 2006. Investigators began combing through company records for evidence of over $1 billion in bribes being paid to governments around the world in order to win lucrative infrastructure contracts.

In May 2007 a German court convicted two former Siemens executives of bribery and ordered the company to pay a $51 million fine. The two were accused of paying roughly 6 million euros in bribes to help Siemens secure $609 million in gas turbine supply contracts from Italian energy giant Enel. Munich prosecutors claimed that Siemens maintained a system of slush funds to fund such illegal payments.

As the allegations of misconduct at Siemens spread, the company sought to revamp its hierarchy, hiring former Morgan, Lewis & Bockius partner and GE Healthcare general counsel Peter Solmssen, as its new head of compliance in September 2007.

Eight months earlier in December 2006, Siemens's supervisory board retained Debevoise & Plimpton to conduct an independent internal investigation to assess the company's quality of its compliance protocols and determine whether anti-corruption regulations had been violated.

According to a statement by the firm, the two year investigation resulted in roughly 1,750 interviews, over 1,000 informational briefings, 82 million documents electronically searched and 14 million documents reviewed, 38 million financial transactions analyzed, and 10 million bank records reviewed.

Debevoise litigation partner Bruce Yannett led a team from the firm that included litigation partners Anne Cohen, Matthew Fishbein, Mark Friedman, John Hall, Jyotin Hamid, Sean Hecker, Jeffrey Jacobson, James Johnson, John Missing, Joseph Moodhe, and Colby Smith, M&A partners Marcia MacHarg and Thomas Schürrle, international dispute resolution partners Peter Rees and Karolos Seeger, and counsel Erik Bierbauer, Steven Michaels, Michael Ostrove, Nicola Port, and Dietmar Prager. (Debevoise retained global accounting firm Deloitte & Touche to assist in its internal inquiry; Siemens estimates the two spent over 1.5 million hours of billable time devoted to the investigation.)

In the Justice Department's 26-page sentencing memo, Debevoise and Deloitte were singled out for particular praise. The government states that both firms, "at the direction of Siemens, provided frequent and extensive reports to the [Justice] Department and the SEC in face-to-face presentations and conference calls that assisted [the government's] investigation enormously."

According to the sentencing memo, Siemens's "exceptional" and "wide-ranging cooperation" was made possible by Debevoise's internal inquiry that "uncovered evidence of corruption by Siemens spanning several decades in many operating groups and regions." Wilmer Cutler Pickering Hale and Dorr was engaged by the company to investigate related claims that it had violated the United Nations Oil-for-Food Program; Wilmer lawyers found that several Siemens subsidiaries had paid kickbacks to the Iraqi government under Saddam Hussein.

The company itself retained Davis Polk & Wardwell to advise it in criminal and civil investigations being conducted by the Justice Department and the SEC into whether Siemens had violated provisions of the Foreign Corrupt Practices Act of 1977 (FCPA).

The Davis Polk team consisted of litigation partners Robert Fiske, Jr., John Cooney, Jr., Scott Muller, Angela Burgess, Paul Spagnoletti, and counsel Lynn Earl Busath, corporate finance and capital markets partner John Banes, and M&A partner Patrick Kenadjian and counsel Margaret Ayres.

Under the terms of Monday's agreement with the Justice Department and SEC, Siemens will pay a $450 million fine and forfeit $350 million in profits. While Siemens itself will not formally enter a guilty plea to bribery charges--allowing the company to maintain its crucial contracts as a "responsible contractor" with the Fort Belvoir, Va.-based Defense Logistics Agency--it does admit to inadequate internal controls and a failure to comply with appropriate business records provisions of the FCPA.

The agreement with the Justice Department and SEC, which has been approved by the U.S. District Court for the District of Columbia, also states that Siemens has agreed to be monitored to ensure future compliance with anti-bribery laws. Davis Polk said in a statement that the company had engaged Theodor Waigel, a former German finance minister, as compliance monitor.

The total $800 million settlement is the largest ever imposed under the FCPA. But Siemens is also on the hook for an additional $540 million to settle the German portion of the investigation. The German fine comes on the heels of a $284 million fine imposed on Siemens last year for corrupt practices in securing foreign contracts by the company's telecommunications division.

German regulatory authorities are still investigating allegations of wrongdoing by individual Siemens executives.

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