Yesterday’s post (here) covered the DOJ indictment and SEC civil complaint against former Siemens’ executives and agents.  This post provides a more in-depth analysis of the allegations.  Every enforcement action needs a name, so let’s call this large case the Siemens Argentina Enforcement Action, recognizing that Siemens itself resolved its exposure for the conduct described below  in 2008 and is not a part of the current matter.

DOJ Indictment

As noted in the previous post, the DOJ indictment (here) charges the following individuals.  Uriel Sharef, Herbert Steffen, Andres Truppel, Ulrich Bock, Stephan Signer, Eberhard Reichert, Carlos Sergi and Miguel Czysch.

The below defendants are  described as “officers, directors, employees and agents” of an “issuer” (Siemens AG).

According to the indictment, Sharef (a dual citizen of Israel and Germany) was employed by Siemens from 1978 to December 31, 2007.  The indictment alleges that from 2000 until his departure from Siemens, Sharef was a member of Siemens AG’s Managing Board and Corporate Executive Committee (“CEC”), with oversight responsibilities for Siemens AG’s power operations group, including Siemens Power Transmission and Distribution (“Siemens PTD”), and Siemens AG’s operations in the Americas region, including Siemens Argentina.

According to the indictment, Steffen (a German citizen) was a long-time Siemens employee who left the company in 2003.  The indictment alleges that Steffen, at various times, was: group president of Siemens AG’s transportation systems operating division; group president of Siemens PTD; CEO of Siemens Argentina; and chairman of the Supervisory Board of Siemens Argentina.

According to the indictment, Truppel (a dual citizen of Germany and Argentina) was employed by Siemens until 2002 when he then became a consultant to Siemens until 2004.  The indictment alleges that until his “shift to consultant status” Truppel was CFO of Siemens Argentina.

According to the indictment, Bock (a German citizen) was a long-time employee of Siemens until 2001 when he then became a paid consultant to Siemens until 2007.  While a Siemens employee, Bock was commercial head of Siemens Business Services (“SBS” – a wholly-owned subsidiary of Siemens AG and a unit in Siemens information and communications operating group).

According to the indictment, Reichert (a German citizen) was a long-time Siemens employee until 2001.  He was the technical head of SBS’s Major Projects subdivision.

According to the indictment, Signer (a German citizen) was a long-time Siemens employee until 2011.  The indictment alleges that from 2000 to 2007, Signer worked for SBS as a commercial director in various capacities.

The below defendants are described as “agents” of Siemens AG who served as “intermediaries between Siemens and officials of the Government of Argentina” – the so-called “Intermediary Defendants.”

According to the indictment, Sergi (a citizen of Argentina) “was a prominent businessman in Latin America with extensive high-level government contacts in Argentina.”  The indictment states that Sergi was for a 15 year period ending in 2003 a member of the Supervisory Board of Siemens Argentina along with Sharef.

According to the indictment, Czysch (a German citizen and resident of Switzerland) was a business associate of Sergi.

For both set of defendants, the indictment invokes 78dd-1 of the FCPA.   The jurisdictional hook under 78dd-1 for non-U.S. “issuers” is “use of the mails or any means or instrumentality of interstate commerce” in furtherance of a bribery scheme.  As described below, the indictment alleges certain conduct in the U.S. as well as wire transfers of money through U.S. bank accounts in furtherance of the bribery scheme.

The indictment also refers to six unindicted co-conspirators (two individuals described an attorneys in Argentina and former senior officials in the Argentine Ministry of Justice; a former CEO of Siemens Argentina; a former deputy general counsel in the Legal Services office at Siemens AG headquarters; a business partner of Sergi; and a business partner of Czysch).

Under the heading “Overview of the Conspiracy” the indictment alleges as follows.  “In or about August 1994, the Government of Argentina issued a tender for bids to replace an existing system of manually created national identity booklets with state-of-the-art national identity cards” – the so-called DNI (Documento Nacional de Identidad) project.  According to the indictment, the “total estimated value of the DNI project was approximately $1 billion.”    In 1998, the President of Argentina issued a decree awarding the DNI project to Siemens IT Services S.A. (“SITS”), a special-purpose subsidiary created by SBS for the purpose of bidding on the DNI project.  According to the indictment, from 1996 to 2009, the defendants and others “engaged in a conspiracy on behalf of Siemens to obtain the lucrative proceeds of the DNI project, and to foster future business, by means of bribery, fraud, and other forms of corruption.”

The indictment specifically alleges as follows.  “Members of the conspiracy won the DNI project for Siemens by bribing Argentine government officials.  They paid more bribes in the hope of reviving the project when, in or about 2001, the DNI project was stalled.  Ultimately [...] the DNI project was terminated altogether.  Even after this point, members of the conspiracy continued to pursue the profits that Siemens had expected to gain from the project.  They did so through additional bribes and corrupt conduct, including the pursuit of a fraudulent arbitration in Washington, D.C. against the Argentine government, demanding nearly $500 million while actively hiding the corruption from the tribunal.”

According to the indictment, “some of conspirators were employed by Siemens as executives, lawyers, and managers working on DNI project matters; others served as agents and conduits for the payment of bribes to Argentine government officials who were in a position to influence the direction of the DNI project.”  The indictment alleges as follows.  “Integral to the conspiracy, and to the concealment of the illegal objects of the conspiracy, was the conspirators’ use of at least 17 conduit entities (collectively, the ‘Conduit Entities’) controlled or otherwise affiliated with the Intermediary Defendants and with various Argentine government officials and candidates for office who were the recipients or intended recipients of bribe payments (the ‘Argentine Officials’).

The conduct alleged in the indictment starts with “initial bribe commitments and payments.”   The indictment alleges that various co-conspirators “committed Siemens to paying nearly $100 million in bribes to sitting officials of the Argentine government, members of the opposition party, and candidates for office who were likely to come to power during the performance of the project.”   According to the indictment, many of these payments were made pursuant to “black contracts, that is unwritten contracts” with third-parties who later sought reimbursement from Siemens.

Argentine officials described in the indictment are “Argentine Official A” (a senior official in the Office of the President and thereafter a candidate for office and member of the Argentine Congress), “Argentine Official B” (a senior official in the Ministry of Interior and thereafter a member of the Argentine Congress); and “Argentine Official C” (a senior official in the Ministry of Migration and the Office of Internal Security and thereafter a member of the Argentine Congress).  The indictment alleges that certain defendants “caused SBS to transfer two wires in the aggregate amount of approximately $7.4 million to a bank account in Manhattan, New York” in furtherance of the bribe scheme.

The indictment next alleges that in 1999 “with work on the DNI project underway, the Government of Argentina suspended the project, as the country faced a mounting economic crisis and a presidential election” and that a “new administration, which came to power [...] maintained the suspended status of the DNI project.”  The indictment alleges that Sharef and Steffen “led a campaign on Siemens’s part to restart the DNI project” and that “renegotiation of the contract governing the DNI project was a part of the campaign.”  The indictment charges that various defendants “lobbied Argentine government officials” and that Sharef met with a “Argentine Official D” (a senior official in the office of the Argentine President).  According to the indictment, “the meeting engendered optimism at Siemens that the President of Argentina would soon issue a decree authorizing the resumption of the DNI project” and that “continuing the payment of bribes was part of the conspirators’ effort to revive the DNI project.”

According to the indictment, the conspirators committed to pay additional bribes to Argentine Officials A, B, C, D, as well as “Argentine Official E” (a senior official in the Ministry of the Interior and thereafter a member of Congress), “Argentine Official F” (a senior official in the Ministry of the Interior and thereafter a candidate for office in the Argentine Congress), and “Argentine Official G” (a senior official in the Ministry of Interior).  According to the indictment, conspirators “agreed to funnel payments on all existing and new bribe obligations through the Intermediary Defendants” and “also agreed to conceal the bribe payments under a ‘white contract’ – that is, a contract that appeared legitimate on its face, but which did not reflect an actual transaction of business.”

The indictment next alleges that in 2001 “the anticipated decree authorizing the resumption of the DNI project still was not issued.”  According to the indictment, “the Argentine government was instead conducting an assessment of the merits of continuing the DNI project through a body” called the General Accounting Agency of the Nation (“SIGEN”) and that “in a further effort to prevent termination of the DNI project, members of the conspiracy determined to influence SIGEN’s assessment in Siemens’s favor by bribing a SIGEN board member (“Argentine Official H”).

According to the indictment, “despite Siemens’s efforts and bribe payments intended for various foreign officials, the Government of Argentina officially terminated the DNI project” in 2001.  Nevertheless, the indictment alleges that certain defendants and conspirators assembled a Crisis Management Team (“CMT”) continued a bribe scheme to “(i) ensure that Siemens recognized the economic benefits of the contract for the DNI project, notwithstanding its termination and the corrupt manner by which it had been procured, (ii) prevent public disclosure of the bribery associated with the DNI project, and (iii) ensure Siemens’s ability to secure future government contracts in Argentina and elsewhere in the region.”  According to the indictment “the conspirators sought to achieve these related goals by paying down outstanding bribe obligations to Argentine Officials through a complex series of transactions, paying down bribe obligations through a sham arbitration in Switzerland, and seeking to recoup the anticipated financial benefits of the DNI project through a fraudulent arbitration in Washington D.C.”

Specifically, the indictment charges that certain defendants met with Sergi and Czysch in Miami, Florida to “re-negotiate the amount of outstanding bribe commitments to the Argentine Officials.”  The indictment further alleges certain “wire transfer instructions for payment through a bank account in Manhattan, New York” and payments through a New York-based account.  The indictment further alleges that one of the Conduit Entities had Miami, Florida addresses.  The indictment further alleges that certain defendants also met in Manhattan, New York “to discuss the outstanding bribe obligations.”

Thereafter, the indictment alleges that Sergi (the prominent businessman in Latin America with extensive high-level government contracts in Argentina who served as an agent of Siemens AG) filed a formal claim against SBS in a Swiss arbitral tribunal in 2005 to recover under a sham contract used to make certain bribe payments.  The indictment states that “although the members of the conspiracy knew that none of the services described in the contract were performed and were not expected to be performed, and that the contract was a sham used to disguise illegal bribe obligations, none of the conspirators acknowledged as much before the Swiss tribunal.”   According to the indictment,  SBS settled the claim for approximately $8.8 million, but that the “settlement was actually a mechanism to disguise a partial payment of bribe obligations to the Argentine Officials.”  According to the indictment, certain of the settlement money passed through bank accounts in Manhattan, New York.

As to the Washington D.C. arbitration, the indictment alleges that certain of the defendants and co-conspirators “orchestrated the filing of a fraudulent arbitration claim in Washington D.C. in 2002 to cause the Argentine government to pay Siemens AG damages in an amount equivalent to incurred expenses and the total profits the company would have earned from the DNI project had it not been terminated.”  According to the indictment, “exposure of the bribery associated with the DNI project would have likely rendered the arbitration claim futile because the contract would have been procured through illegal corruption.”  The indictment alleges that certain defendants and co-conspirators “successfully kept evidence of bribery out of the arbitration in Washington D.C.” by filing witness statements containing “material misrepresentations and omissions relating to the DNI’s project origins, among other matters.”  According to the indictment, despite later claims by Argentina that the DNI project bidding was corrupted – claims Siemens denied, the arbitral tribunal sided with Siemens AG and on February 2007 it awarded Siemens AG approximately $218 million in loss of investment, plus interest.  However, the factual portion of the indictment ends with the following statement – in August 2009 “Siemens AG personnel who were not members of the conspiracy caused the company to waive its right to the award.”

Based on the above conduct, the indictment charges the defendants with conspiracy to violate the FCPA’s anti-bribery, books and records and internal control provisions; conspiracy to commit wire fraud; conspiracy to commit money laundering; and substantive wire fraud.

SEC Complaint

The SEC’s complaint (here) is based on the same core conduct alleged above.  Reichert and Czysch are not named as defendants in the SEC action, but the SEC complaint includes as a defendant Bernd Regendantz (the CFO of SBS who allegedly authorized certain bribe payments).  Each of the SEC defendants are charged with violating the FCPA’s anti-bribery provisions;  aiding and abetting Siemens’ FCPA violations – both anti-bribery violations and books and records and internal controls; and violating other securities laws by falsifying documents, including invoices and sham consulting contracts in furtherance of the bribery scheme.

According to the SEC, “over the course of the bribery scheme, Siemens paid an estimated total of over $100 million in bribes, approximately $31.3 million of which were made after [...] Siemens became subject to the U.S. securities laws.”

In addition, Regendantz is charged with violating Rule 13b2-2 by signing false internal certifications pursuant to SOX.  As to Regendatz, the SEC complaint alleges that he “had no prior dealings with the DNI contract” when he became CFO of SBS in 2002 and that he had resisted other defendants pressure to authorize additional bribe payments.  According to the complaint, “Regendantz sought guidance from Siemens’ Head of Compliance, Chief Financial Officer, Chief Executive Officer, and two members of the Managing Board.”  The complaint alleges that “in each instance, Regendantz explained that the payment demands lacked any legitimate commercial basis and that he was reluctant to authorize them.”  The complaint then states as follows.  “In each instance, Regendantz explained that the payment demands lacked any legitimate commercial basis and that he was reluctant to authorize them.  In each instance, Regendantz’s superiors gave every indication that they were familiar with the DNI Contract and with the nature of the payment demands.  And in each instance, his superiors told Regendantz that it was his responsibility to find a solution to the problem.  Regendantz understood these responses from his superiors to be an instruction that he authorize the bribe payments.”

The SEC’s release noted that Regendantz settled the SEC charges without admitting or denying the allegations and consented to entry of a final judgment that enjoins him from future violations.  The release states that Regendantz previously paid a $40,000 administrative fine ordered by the Munich prosecutor.