Question

Discussion #5: Bribery

Go to pg. 304-306 of the text and read the "Daimler's" case on bribery. Answer question #2 - "What internal controls could have been usefully introduced to prevent bribery at Daimler?"

304 CHAPTER 5 lane Macartncy. "Rio Tinto Sacks Four Executives Jaled Michael Sainsbury, "Jailing of Two Chinese Steel Execu- in China for Bribery." The Timmes, March 30, 2010 tives Ends Rio Tinto's Brbery Saga The Australan eremy Peloiskay, US Jadge OKs Setlement in Daimler August 9, 2010 Bribery Case Thomson Ruters, April 1, 2010 Daimler's Settles U.S. Bribery Case for $185 Million ETHICS CASE David Bazzetta learned in July 2001 at a Deferred prosecution and independent corporate audit executive committee meet monitoring for two years by former Fed- ing in Stuttgart Germany that Daimler era Bureau of Investigation Director Chrysler "business units continued to Louis Freeh. maintain secret bank accounts to bribe for- The scope of Daimler's bribery opera eign government officials' though the com- pany knlew the practice violated US tion was staggering. From 1998 to 2008, payments for bribes, kickbacks, gifts of den box, 10,000 copies of an official's personal manifesto translated into German, and lavish travel had been given to officials in at least twenty-two countries, including Russia, a whistleblower complaint under the U.S. Foreign Corrupt Practices Act (FCPA) that ultimately led to a multiyear investigation of surprising scope and U.S charges against a company headquartered in Germany for bribes made China, Vietnam, Nigeria, Hungary, Latvia, to foreign officials around the world On April , 2010, the German and Croatia, Bosnia, Egypt, Greece, Hungary North Korea, and Indonesia. Focusing on much Russian business units of Daimler AG pleaded guilty to charges laid under the just fifty-one transactions out of a FCPA for bribing foreign officials and for failing to maintain books and records and of a investigation found the following internal controls as required under the Tens of millions of dollars "were made FCPA. As a result, Judge Richard J. Leon through the use of U.S. mails or the of the U.S. District Court for the District of means or instrumentality of U.S. inter- Columbia approved an arrange settlement that included the following state commerce. "Daimler also violated the FCPA's books Payment of $91.4 million to the Securi and records and internal controls provi- sions in connection with the 51 transac- an additional 154 ties Exchange Commission (SEC) for dis gorgement of profits earned as a result of bribery. Daimler law since it was a registrant with the SEC in order to raise capital (issue shares and debt) in the United States Payment of $93.6 Department of Justice for related crimi- nal charges. tions and at least r was subject to the US. transactions, in which it made im payments totaling at least $56 million to secure business in 22 countries.... Through these transactions that commercial vehi- Daimler cles and 500 passenger cars, for related crimi Teremy Pelofsky. US. Judge OKs Settlement in Daimler Bribery Case,accessed November 11, 2010, at http//www.reuters.com/article/idUSTRE6303WY20100401. Daimler AG is the successor company to DiamlerChrysler following the sale of Chrysler in 2007 Tbid bid United States Securities and Exchange Commission v. Daimler AG. United States District Court for the District of Columbia, Case 1:10-cv-00473, accessed November 26, 2010, at http://www.sec.gov/litigation/complaints /2010/comp-pr2010-51.pdf Ibid, 2. 110-qr-00473, accessed Nowmber 26, zo1a at http/www.sec-gow/litigtion/complaints

Answer 1

Daimler COULD HAVE USED FOLLOWING INTERNAL CONTROL TO PREVENT BRIBERY:

• Policies
  The need to document applies especially to policies. Companies should make sure to document and communicate policies to the entire employee population in an easily understood language and platform.
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• Practices and procedures
  Each policy should have a corresponding practice and documentation procedure. This could be as simple as an employee reimbursement form. The practice of using forms acts as a control and helps to remind employees of the moral implications.
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• Enforcement
  Most individuals understand regulatory obligations for documentation, but companies and their employees are falling short. If policies and practices are well-documented and in accordance with regulatory requirements, a company's internal audit program is in much better shape for monitoring and is less likely to come under enforcement action.
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• Whistle blowing
  Employees have a moral obligation to speak up when something doesn't seem right and they need to feel comfortable doing so. Companies should celebrate the employees who allow them to bring a business solution to a legal issue.

Implementing and maintaining the above components of culture alone will not eliminate bribery all together. Companies also need to lessen the siloed nature of their SOX, compliance, and internal audit functions.