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Daimler to pay $185M penalty

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Daimler to pay $185M penalty

Settlement resolves charges over alleged bribes to get business

David Shepardson / Detroit News Washington Bureau

Washington -- Daimler AG will pay a $185 million fine to resolve civil and criminal charges that it paid tens of millions of dollars in bribes to at least 22 foreign governments over a 10-year period, The Detroit News has learned.

In a criminal complaint filed in U.S. District Court in Washington, the Justice Department charged the German automaker with violating the Foreign Corrupt Practices Act and earning more than $50 million in profits as a result.

The Securities and Exchange Commission filed a separate civil complaint.

People familiar with the settlement said Daimler will pay $93.6 million in penalties to the Justice Department and $91.4 million to the SEC. A federal judge is expected to approve the deal April 1. It includes felony guilty pleas by subsidiaries in Germany and Russia. Daimler AG and a company affiliate in China will enter into a deferred prosecution agreement and promise not to violate anti-bribery laws. No current or former employees have been charged with wrongdoing.

In a criminal complaint filed in U.S. District Court in Washington, the Justice Department charged the German automaker with paying bribes in China, Croatia, Egypt, Greece, Hungary, Indonesia, Iraq, Ivory Coast, Latvia, Nigeria, Russia, Serbia and Montenegro, Thailand, Turkey, Turkmenistan, Uzbekistan, Vietnam and other countries to assist in "securing contracts with government customers for the purchase of Daimler vehicles valued at hundreds of millions of dollars."

The bribes helped Daimler win business that U.S. automakers sought in some instances. U.S. companies are prohibited by U.S. law from bribing officials to win business; Germany signed a treaty in 1998 that also made the practice illegal.

The alleged Daimler bribes, between January 1998 and 2008, were funded through shell companies and in one case, Daimler created a specific U.S. shell company to pay bribes, the government says.

Among the larger alleged bribes were nearly $5 million in payments to Russian government officials and companies linked to the officials between 2000 and 2005.

The accounts were loosely managed by Daimler entities all over the world, with little oversight from Daimler's headquarters. In 2006, the company had more than 625 separate bank accounts.

The head of sales and marketing for Daimler's China units "was able to remove at least approximately ($310,500) from a company ... account without detection, and then direct those funds to the offshore bank account of his wife," the complaint said.

Most of the bribes involve cash payments to government officials, often to secret bank accounts, in exchange for lucrative contracts. The company allegedly entered into sham consulting contracts to conceal bribes, falsify its books and lavish gifts on government employees to win contacts.

In February 2000, Daimler gave a high-level executive official of Turkmenistan's government an armored Mercedes Benz S-class passenger car, valued at more than $420,000 for his birthday. In Indonesia, a Daimler employee gave a government employee a 55 percent discount

Daimler also made 10 percent kickback payments to the Iraqi government as part of its sale of vehicles under the United Nations' "oil for food" program. Daimler inflated the purchase price of vehicles to make the payments.

The Detroit News reported in 2006 that Daimler had hired former FBI Director Louis Freeh as an adviser. Freeh will continue to oversee the company's compliance as part of the deferred prosecution agreement, officials said.

At its height, the internal investigation led by prominent Washington attorney Robert Bennett involved 85 lawyers and nearly as many accountants reviewing millions of documents and conducting hundreds of interviews. The company's legal, accounting and consulting bills connected to the probe topped tens of millions of dollars.

Investigators traveled to 75 countries, closely examining 30, and interviewed hundreds of people, including former Daimler Chairman Juergen Schrempp and other executives.

In March 2006, Daimler revealed in its annual report that an undisclosed number of executives had been disciplined or fired as a result of the investigation and admitted that "improper payments" were made in Asia, Africa and Eastern Europe.

The company reduced 2005 net income by $84.5 million and 2005 operating profit by $21 million to account for the improper payments. It also faces the prospect of having to pay back taxes. Still unclear is how much senior executives knew of the arrangements.

From The Detroit News: http://www.detnews.com/article/20100324/AUTO01/3240321/1148/Daimler-to-pay-$185M-penalty#ixzz0j628j5eZ

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