Daimler Said to Agree to Pay $200 Million Over Probe of Bribes
By David Voreacos, Justin Blum and Joshua Gallu
Feb. 13 (Bloomberg) -- Daimler AG agreed to pay about $200 million and two subsidiaries will plead guilty to resolve a U.S. investigation into whether it paid bribes to secure business overseas, according to people familiar with the accord.
The carmaker seeks to conclude a Department of Justice probe of whether it violated the Foreign Corrupt Practices Act by bribing government officials and a related civil probe by the Securities and Exchange Commission, according to the people. The FCPA covers foreign companies with U.S. operations. The people declined to specify the precise charges for the units.
Government lawyers submitted the deal in Washington to U.S. District Judge Richard Leon, who must approve it, according to the people. In 2008, Leon accepted the guilty plea of Siemens AG and three subsidiaries for charges related to the FCPA. Munich- based Siemens, Germany’s largest engineering company, paid $1.6 billion to settle probes in the U.S. and Germany.
“We are in discussions with the DOJ and the SEC regarding consensually resolving the agencies’ investigations,” Ute Wuest von Vellberg, a spokeswoman for Stuttgart, Germany-based Daimler, said yesterday in an interview. “There can be no assurance about whether and when settlement with the DOJ and the SEC will become final and effective.”
Justice Department spokeswoman Laura Sweeney and SEC spokesman John Nester declined to confirm the accord. A law clerk for Judge Leon, who declined to provide his name, declined to comment.
Daimler fell 1.8 percent to close at 32.51 euros in Frankfurt trading yesterday. The company’s U.S. shares dropped 85 cents, or 1.9 percent, to $44.48 in New York Stock Exchange composite trading yesterday.
The SEC probe began in 2004 after an auditor at Daimler’s former DaimlerChrysler Corp. subsidiary claimed he was fired in part for complaining to superiors about the bribe payments, according to a company regulatory filing in 2005. Daimler sold Chrysler LLC in 2007 to Cerberus Capital Management LP. Chrysler filed for U.S. bankruptcy court protection in 2009.
The auditor, David J. Bazzetta, filed a whistleblower complaint with the Department of Labor and sued in federal court in Detroit over his firing. He claimed he learned in a July 2001 meeting in Stuttgart that business units kept “secret bank accounts to bribe foreign government officials,” according to his amended lawsuit.
Bazzetta, who was fired in January 2004, dropped his complaint in July 2005, court records show. The Wall Street Journal reported he had settled his claim.
At the 2001 meeting in Stuttgart, Bazzetta claimed, one vice president had just returned from a visit to a top Mercedes- Benz executive in South America. That vice president said using secret bank accounts to bribe government officials was “common practice” before the 1998 acquisition of Chrysler Corp., according to the complaint. The exchange occurred at a corporate audit executive committee meeting, according to the complaint.
The vice president said 40 secret accounts still existed and would be hard to eliminate because the chief executives of business units “not only favored this practice but believed it a necessary cost of doing business,” Bazzetta claimed.
In July 2005, the company disclosed in a regulatory filing that it was sharing its internal investigation with the SEC and the Department of Justice, which had joined the probe.
The company’s internal probe had identified “accounts, transactions and related payments in connection with certain foreign business activity,” according to the filing.
“If the DOJ or SEC determine that violations of law have occurred, they could seek criminal or civil sanctions, including monetary penalties, against DaimlerChrysler and certain of its employees, as well as changes to its business practices and compliance programs,” according to the filing.
In July 2005, the SEC also began investigating DaimlerChrysler’s role in the United Nations oil-for-food scandal, according to the filing.
In its 2005 annual report, the carmaker said its internal investigation found that “improper payments were made in a number of jurisdictions, primarily in Africa, Asia and Eastern Europe. These payments raise concerns under the U.S. FCPA, German law, and the laws of other jurisdictions.”
As part of the internal probe, “DaimlerChrysler has identified and self-reported potential tax liabilities to tax authorities in several jurisdictions,” according to the report.
“These tax liabilities of DaimlerChrysler AG and certain foreign affiliates result from misclassification of, or the failure to record, commissions and other payments and expenses,” according to the report.
The company also was taking steps to “safeguard against the recurrence of improper conduct” and was “evaluating and revising its governance policies and internal control procedures,” according to the report.
A U.S. bankruptcy court is overseeing the wind-down of Chrysler after the company sold most of its assets to Italy’s Fiat SpA, a United Auto Workers union benefit trust and the U.S. and Canadian governments in June.