Corporate Governance

Investigations and Prosecutions

On this page

• Allergen Pays Enormous Fines Over Misuse of Botox® Therapeutic
• Daimler AG Agrees $185 million in fines for global bribery
• Pfizer Pays Largest Fine in History - Signs Integrity Agreement
• EU Sets Huge Anti-Trust Fine Against Intel
• Dairy Scandal in China Sees Guilty Plea
• Siemens AG Pays Highest Ever Fines for Corruption
• Case Study: Auditing Russian Companies
• Enron's Last Mystery - The Role of Its Law Firm
• The Enron Verdict: Opinions and Analysis
• Top Corruption Investigations of 2006




* * *
Enormous Fines Agreed By US Company In BOTOX Cases

Allergen to pay $600 million in criminal and civil fines to settle US cases

The U.S. Government's Department of Justice released the following report:

American pharmaceutical manufacturer Allergan Inc. has agreed to plead guilty and pay $600 million to resolve its criminal and civil liability arising from the company’s unlawful promotion of its biological product, Botox® Therapeutic, for uses not approved as safe and effective by the Food and Drug Administration (FDA), the Justice Department announced today.  The resolution includes a criminal fine and forfeiture totaling $375 million and a civil settlement with the federal government and the states of $225 million.

Under the Food, Drug and Cosmetic Act (FDCA), a company in its application to the FDA must specify each intended use of a biological product.  After the FDA approves the product as safe and effective for a specified use, any promotion by the manufacturer for other uses – known as “off-label” uses – renders the product misbranded.

Tony West, Assistant Attorney General for the Civil Division of the Department of Justice, and Sally Quillian Yates, U.S. Attorney for the Northern District of Georgia, today announced the filing of a criminal information against Allergan for promoting Botox® for headache, pain, spasticity and juvenile cerebral palsy – none of which were approved by the FDA.  According to the criminal information, Allergan made it a top corporate priority to maximize sales of Botox® for such off-label uses.

In 1989, the FDA approved Botox®, a prescription biological product containing botulinum toxin type A, a purified neurotoxin, to treat strabismus (crossed eyes) and blepharospasm (involuntary eyelid muscle contraction).  In 2000 and 2004, approval was given to treat cervical dystonia (involuntary neck muscle contraction) and primary axillary hyperhidrosis (excessive underarm sweating), respectively.  In 2010, approval was given to treat adult upper-limb spasticity.

The criminal information alleges that Allergan exploited its on-label cervical dystonia (CD) indication to grow off-label pain and headache (HA) sales.  In 2003, Allergan developed the “CD/HA Initiative” as a “rescue strategy” in the event of negative results from its clinical trials to ensure continued expansion into the pain and headache markets.  As part of this initiative, Allergan claimed that cervical dystonia was “underdiagnosed” and that doctors could diagnose cervical dystonia based on headache and pain symptoms, even when the doctor “doesn’t see any cervical dystonia.”

Allergan’s off-label marketing tactics also included calling on doctors who typically treat patients with off-label conditions.  In 2003, Allergan doubled the size of its reimbursement team to assist doctors in obtaining payment for off-label Botox® injections.  Allergan held workshops to teach doctors and their office staffs how to bill for off-label uses, conducted detailed audits of doctors’ billing records to demonstrate how they could make money by injecting Botox®, and operated the Botox® Reimbursement Hotline, which provided a wide array of free on-demand services to doctors for off-label uses.  Allergan also lobbied government health care programs to expand coverage for off-label uses, directed physician workshops and dinners focused on off-label uses, paid doctors to attend “advisory boards” promoting off-label uses, and created a purportedly independent online neurotoxin education organization to stimulate increased use of Botox® for off-label indications.

“The Food, Drug and Cosmetic Act protects the public from drugs and biologic products that are not proven to be safe and effective.  When drug companies make unsubstantiated and misleading statements about their products, they undermine the Act’s protection of public health,” said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice.  “We will continue to pursue drug companies that violate the Act for their own financial gain.”

“The FDA had approved therapeutic uses of Botox for only four rare conditions, yet Allergan made it a top corporate priority to maximize sales of far more lucrative off-label uses that were not approved by FDA,” said Sally Yates, U.S. Attorney for the Northern District of Georgia.  “Allergan further demanded tremendous growth in these off-label sales year after year, even when there was little clinical evidence that these uses were effective.  The FDA approval process ensures that pharmaceutical companies market their medications for uses that are proven to be safe and effective, and this case demonstrates that companies that fail to comply with these rules face criminal prosecution and stiff penalties.”
Allergan has agreed to plead guilty to a criminal misdemeanor for misbranding Botox® in violation of the FDCA.  Under the plea agreement, the company will pay a criminal fine of $375 million, which includes forfeiting assets of $25 million.  Allergan’s guilty plea and sentence is not final until accepted by the U.S. District Court.

“The FDA exists to assure that drugs marketed to the American people are safe and effective” said Dr. Margaret Hamburg, Commissioner, Food and Drug Administration. “The ‘off-label’ promotion of drugs threatens public health and the role of the FDA, which has served our country well and has protected Americans from unsafe and ineffective drugs.”

As part of the civil settlement, Allergan has agreed to pay an additional $225 million to the federal government and the states to resolve claims that its unlawful marketing practices caused false claims to be submitted to government health care programs such as Medicare, Medicaid, TRICARE, and to the Federal Employees Health Benefit Program, the Department of Veterans’ Affairs, and the Department of Labor’s Office of Workers’ Compensation Programs.   The civil settlement addresses allegations that from 2001 through at least 2008, Allergan promoted Botox for off-label indications that were not medically accepted and therefore not covered by federal health care programs, made unsubstantiated and misleading statements about the safety and efficacy of Botox® for off-label indications, instructed doctors to miscode Botox® claims for uncovered indications using inappropriate diagnosis codes to ensure payment by government health care programs, and provided inducements to doctors to inject more Botox®.   The federal share of the civil settlement amount is $210,250,000, and Allergan will pay up to $14,750,000 to states that opt to participate in the agreement.


Posted 09/02/2010

 

* * *

Statement on International Bribe-Paying from Germany’s Daimler AG

"Compliance has high priority at Daimler,” stated Dr. Dieter Zetsche, Chairman of the Board of Management of Daimler AG.

Fines in US of $185 million agreed.

Daimler AG Reaches Settlement with U.S. Securities and Exchange Commission (SEC) and U.S. Department of Justice (DOJ)
Stuttgart, Germany, April 1, 2010

• FCPA Investigations concluded 
• Daimler pays a total of USD 185 (approx. EUR 138) million, in fines and civil disgorgement 
• SEC investigation settled through entry of consent judgment 
• Daimler AG enters into deferred prosecution agreement with DOJ to resolve charges of violations of books and records provisions of the FCPA 
• Chinese subsidiary enters into deferred prosecution agreement with DOJ 
• German and Russian subsidiary each enter guilty pleas
  


Daimler AG announced today that it has reached a settlement of the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) investigations of violations of the Foreign Corrupt Practices Act (FCPA). Under the terms of the settlements, Daimler will pay a fine of USD 93.6 (approx. EUR 70) million and civil disgorgement of profits of USD 91.4 (approx. EUR 68) million. Sufficient provisions have been made to cover these charges.

Daimler cooperated with the SEC and the DOJ regarding the investigation into the past conduct. In the course of the investigation, which began in the fall 2004, Daimler took appropriate personnel and remedial actions to ensure that its conduct going forward
complies with the Company’s Integrity Code and with all applicable laws.

"Compliance has high priority at Daimler,” stated Dr. Dieter Zetsche, Chairman of the Board of Management of Daimler AG. “We have learnt a lot from past experience. Today, we are a better and stronger company, and we will continue to do everything we can to maintain the highest compliance standards."

Pursuant to the agreement with the SEC:

• The company agreed to settle a civil action against it brought by the SEC for violations of the FCPA. 
• Daimler agreed to pay USD 91.4 (approx. EUR 68) million in disgorgement of profits.
  
  

Pursuant to the agreements with the DOJ:

• Daimler AG entered into a deferred prosecution agreement to resolve charges of violations of books and records provisions of the FCPA, pursuant to which Daimler agreed to pay a fine of USD 93.6 (approx. EUR 70) million. 
• Daimler North East Asia Ltd., formerly known as DaimlerChrysler China Ltd., also entered into a deferred prosecution agreement with the DOJ to resolve charges of violations of anti-bribery provisions of the FCPA. 
• Mercedes-Benz Russia SAO, formerly known as DaimlerChrysler Automotive Russia SAO, and Daimler Export und Trade Finance GmbH pleaded guilty to charges of violations of anti-bribery provisions of the FCPA in U.S. District Court in Washington.

The deferred prosecution agreements of Daimler AG and Daimler North East Asia Ltd. are premised upon the requirement that no further FCPA violations occur during the two year term of the agreements and that a comprehensive compliance program is maintained. This program is designed to ensure, among other things, compliance with anti-bribery laws such as the FCPA. Upon successful satisfaction of the terms set forth in the deferred prosecution agreements, the matters against Daimler AG and Daimler North East Asia Ltd. will be dismissed without further action.

In addition, Judge Louis Freeh, will serve as a corporate compliance monitor for three years. Judge Freeh will monitor the Company's FCPA compliance program, among other things. Judge Freeh's work pursuant to the agreement will build upon his service since 2006 as Independent Compliance Advisor to Daimler concerning issues related to compliance, including organizational and policy changes.

Bodo Uebber, Daimler's Chief Financial Officer and a member of the Company's Board of Management said: "We have reviewed all areas of our business and consequently improved our business practices: Accounting, financial reporting, internal control systems and compliance. For the future, we are positioned very well."

Some of the measures implemented by Daimler include:

• Global extension of Daimler's compliance organization to achieve adherence to the Integrity Code of the Company and the governing laws. 
• Appointment of local compliance managers in numerous group entities and business units all of whom report to the Chief Compliance Officer.
• Extension of an international training program, including regularly scheduled compliance conferences, training seminars and compliance information. 
• Establishment of a Compliance Consultation Desk that offers tailored responses to questions concerning compliance issues at Daimler. 

 

* * *

PFIZER FINED OVER $2 BILLION

WHISTLEBLOWERS REWARDED -INTEGRITY AGREEMENT SIGNED WITH US GOVERNMENT

In an unprecdented set of actions the U.S. Department of Justice on winning guilty please from Pfizer (see detailed fact sheet below) imposed criminal and civil fines on the world's largest drug maker and also announced that as part of the settlement, Pfizer also has agreed to enter into an expansive corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services.  That agreement provides for procedures and reviews to be put in place to avoid and promptly detect conduct similar to that which gave rise to this matter.

Whistleblower lawsuits filed under the qui tam provisions of the False Claims Act that are pending in the District of Massachusetts, the Eastern District of Pennsylvania and the Eastern District of Kentucky triggered this investigation, said the Department of Justice.  As a part of the agreement with pfizer, six whistleblowers will receive payments totaling more than $102 million from the federal share of the civil recovery.

Daniel R. Levinson, Inspector General of the United States Department of Health and Human Services told a September 2 press conference,. “The corporate integrity agreement requires senior Pfizer executives and board members to complete annual compliance certifications and opens Pfizer to more public scrutiny by requiring it to make detailed disclosures on its Web site.  We expect this agreement to increase integrity in the marketing of pharmaceuticals.”

The Fact Sheet from the U.S. Department of Justice

Pfizer to pay $2.3 billion to resolve criminal and civil health care liability relating to fraudulent marketing and the payment of kickbacks

• Largest combined federal and state health care fraud settlement in the history of the Department of Justice
• Resolution includes $1.3 billion in criminal fines and forfeiture and a combined federal and state civil False Claims Act settlement of $1 billion

Criminal Plea

• Pfizer subsidiary Pharmacia & Upjohn, Inc. (Pharmacia), which was acquired by Pfizer in 2003, has entered a plea agreement
• One count information charging felony misbranding under 21 U.S.C. §§ 331(a), 333(a)(2) and 352 of the drug Bextra
• Criminal resolution includes $1.195 billion criminal fine and a criminal forfeiture of $105 million
• This is the largest criminal fine ever imposed in a United States criminal prosecution
• Bextra was approved in 2001 by the Food and Drug Administration (FDA) for the signs and symptoms associated with osteoarthritis, rheumatoid arthritis and primary dysmenorrhea (PD) (menstrual cramps)
• Pfizer marketed Bextra off label for acute pain and surgical pain and at dosages above the maximum levels approved by FDA
• From 2002 through April 2005, Pfizer used false and misleading claims of safety and efficacy to promote Bextra for unapproved uses and for dosages above the approved level. Pfizer did this in the following ways:
• Headquarter Marketing Plans: Pfizer’s marketing team positioned Bextra for acute pain, surgical pain, and other unapproved uses, created sales materials and messages to promote Bextra for these uses, commissioned market research to test its sales materials, confirmed these unapproved messages, and allowed the promotion of Bextra for these purposes to continue. In such documents, Pfizer’s marketing
• team stated as the “intended” use and message for Bextra that Bextra was for “acute pain.”
• Field Force Implementation: Pfizer’s sales force promoted Bextra directly to physicians for these unapproved uses and dosages, including by drafting and distributing proposed physician standing orders and hospital wide protocols and pain pathways that called for unapproved uses of Bextra.
• Payments and other Remuneration to Physicians and Purported Consultants: Pfizer and Pharmacia used so-called advisory boards, consultant meetings and other forums and remuneration, including travel to lavish resorts, to promote Bextra to medical prescribers for unapproved uses and dosages and with false and misleading claims as to its safety and efficacy
• Sham Physician Requests for Off-Label Information: Pfizer’s sales force created sham physician requests from physicians for medical information in order to send unsolicited information to physicians about unapproved uses and dosages
• Distributing Samples for Unapproved Uses and Dosages: Pfizer’s sales force provided promotional samples and otherwise promoted Bextra for unapproved uses and dosages to surgeons and other medical prescribers who had no FDA-approved use for the Bextra samples, or at that dosage
• Control of Purportedly Independent Medical Education to Disseminate Off-Label Messages: Pfizer sponsored purportedly independent continuing medical education programs (“CME”) to disseminate specific messages about unapproved uses of Bextra, including promoting the use of Bextra for acute pain and surgical pain
• Use of a Publication Strategy and Outside Vendors to Foster and Draft Publications to Disseminate Off-label Messages: Pfizer also promoted Bextra for unapproved uses and dosages by initiating, funding and sometimes drafting articles about Bextra for unapproved uses without appropriate disclosures of Pfizer’s role
• Prior convictions and settlements of Pfizer entities:
• In 2007, Pfizer subsidiary Pharmacia & Upjohn, Inc. paid $34 million and pled guilty to paying kickbacks for formulary placement of its drugs and entered into a Deferred Prosecution Agreement for off-label distribution of the drug Genotropin
• In 2004, Pfizer subsidiary Warner-Lambert pled guilty and paid more than $430 million to resolve criminal charges and civil liability in connection with its fraudulent marketing practices with respect to the drug Neurontin
• In 2002, Pfizer, and its subsidiaries Warner Lambert and Parke-Davis, paid $49 million to resolve civil claims that it had failed to report best prices for its drug Lipitor as is required under the Medicaid Drug Rebate Statute

Civil Settlement

• Combined federal and state civil settlement of $1 billion
• Federal government’s share of the settlement amount is $668,514,830
• States’ (which are entitled to a portion of the settlement attributable to the Medicaid program) share of the settlement amount is $331,485,170
• Resolves allegations that Pfizer violated the federal False Claims Act by knowingly causing false or fraudulent claims to be submitted to, or causing purchases by, Medicaid, Medicare and other federal health care programs by:
• Illegally promoting the drugs Bextra, Geodon, Zyvox, and Lyrica for uses not approved by the FDA and that were not medically-accepted indications for which the United States and state Medicaid programs provided coverage;
• Making and disseminating unsubstantiated and false representations about the safety and efficacy of Bextra, Geodon, Zyvox, and Lyrica;
• Paying kickbacks to health care providers to induce them to prescribe Bextra, Geodon, Zyvox, and Lyrica;
• Paying kickbacks to health care providers in connection with its marketing of nine other drugs: Aricept, Celebrex, Lipitor, Norvasc, Relpax, Viagra, Zithromax, Zoloft, and Zyrtec (Kickback Drugs)

 

Posted 09/03/2009

* * *

Antitrust: European Commission imposes fine of €1.06 bn on Intel for abuse of dominant position; orders Intel to cease illegal practices

Below - excerpts from the press release and complaint -click for the full press release - for the EU background memo on the case, and for excerpts from the press conference.

"I want to talk to you today about an antitrust decision that is focussed on consumer choice and innovation," said EU Competition Commissioner Neelie Kroes, adding: "Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years. Such a serious and sustained violation of the EU's antitrust rules cannot be tolerated."

On May 13 2009, the European Union’s Commission in Brussels announced that it is fining the Intel Corporation for violating EC Treaty antitrust rules on the abuse of a dominant market position (Article 82) by engaging in illegal anticompetitive practices to exclude competitors from the market for computer chips called x86 central processing units (CPUs). The Commission has also ordered Intel to cease the illegal practices immediately to the extent that they are still ongoing and it asserted that, “As a result of Intel's rebates, the ability of rival manufacturers to compete and innovate was impaired, and this led to reduced choice for consumers.”

The EU investigations, from October 2002-December 2007, were triggered by complaints by Intel rival AMD. The Commission charges that Intel gave wholly or partially hidden rebates to computer manufacturers on condition that they bought all, or almost all, their x86 CPUs from Intel; and, Intel made direct payments to computer manufacturers to halt or delay the launch of specific products containing competitors’ x86 CPUs and to limit the sales channels available to these products. “Such rebates and payments effectively prevented customers - and ultimately consumers - from choosing alternative products,” said the Commission.

The Commission said it will actively monitor Intel’s compliance with its decision. The world market for x86 CPUs is currently worth approximately €22 billion (US$ 30 billion) per year, with Europe accounting for approximately 30% of that.

Competition Commissioner Neelie Kroes said: "Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years. Such a serious and sustained violation of the EU's antitrust rules cannot be tolerated."

The complaint today said computer manufacturers concerned by Intel's conduct in the Commission’s decision are: Acer, Dell, HP, Lenovo and NEC. The retailer concerned is Media Saturn Holding, owner of the MediaMarkt chain. The complaint alleged that Intel awarded major computer manufacturers rebates on condition that they purchased all or almost all of their supplies, at least in certain defined segments, from Intel:

• Intel gave rebates to computer manufacturer A from December 2002 to December 2005 conditional on this manufacturer purchasing exclusively Intel CPUs
  
  
• Intel gave rebates to computer manufacturer B from November 2002 to May 2005 conditional on this manufacturer purchasing no less than 95% of its CPU needs for its business desktop computers from Intel
  
  
• Intel gave rebates to computer manufacturer C from October 2002 to November 2005 conditional on this manufacturer purchasing no less than 80% of its CPU needs for its desktop and notebook computers from Intel
  
  
• Intel gave rebates to computer manufacturer D in 2007 conditional on this manufacturer purchasing its CPU needs for its notebook computers exclusively from Intel.
  
  

Furthermore, Intel made payments to major retailer Media Saturn Holding from October 2002 to December 2007 on condition that it exclusively sold Intel-based PCs in all countries in which Media Saturn Holding is active.

Posted 05/13/2009

 

* * *

China's Dairy Scandal Trial Sends Powerful message to Business Managers

Guilty plea comes at the end of a year that saw nearly 5,000 officials face corruption prosecutions in China.

A chapter has closed on one of China’s biggest corporate scandals with a guilty plea by top executives in a major dairy products company. Leaders of the Sanlu Group were charged with selling fake and substandard milk powder.

As the New York Times noted, the former head of Sanlu, Tian Wenhua, is one of the highest ranking corporate executives ever to go on trial in China and could face life imprisonment or even the death sentence, according to legal experts and the local media.

Ms. Tian’s plea came on the first day of a trial that involves three other Sanlu executives. She said she knew the company was selling contaminated milk as early as May, but did not report the problem to local government officials until August. Media reports suggest that the scandal, which surfaced in mid-September, led to the deaths of six children and illnesses in nearly 300,000 others, as well as global recalls of Chinese milk products. The trial has been held in Shijiazhuang, in the northern province of Hebei.

Foreign media were not allowed and the Chinese state-controlled media broadcast images of Ms. Tian, who is 66, looking pale and ill. Another 17 people involved in producing, selling, buying and adding melamine in raw milk have gone on trial in the last week. The company filed for bankruptcy protection last week. Between May and September, when Sanlu stopped production, prosecutors said the company made more than 900 tons of melamine contaminated baby milk powder. According to state media reports, Ms. Tian said she was told in May that European standards allowed up to 20 milligrams of melamine per kilogram to be present in food products. But in September, some Sanlu products were found to have over 2,000 milligrams per kilogram.

Reuters reported that the company set up a working team led by Tian to handle the case, but did not submit a written report about the milk powder to the Shijiazhuang city government until August 2, Tian said. The Shijiazhuang government did not report the case to higher government authorities until a month later, prompting speculation authorities sought to avoid a scandal upsetting Beijing's Olympic Games in August.

Along with Sanlu, 21 other local dairy companies that were found to have produced melamine-tainted milk have pledged 1.1 billion yuan ($161 million) to compensate victims and cover medical costs for affected children, a report posted on the Dairy Association of China website (www.dac.com.cn) said. Some 900 million yuan would be paid in cash compensation to victims, and the rest placed in a fund for medical treatment, the report said. But terms, which include a 2,000 yuan ($293) one-off payment for victims with "mild symptoms," have been greeted with skepticism, according to Reuters.

A report in The Wall Street Journal noted that Ms. Tian's case will be watched closely across China. A state-run newspaper in Henan, near the home province of Sanlu, editorialized on Dec. 26 that "the trial of Tian Wenhua is an alarm bell and a mirror of history." But the Henan paper and other government-controlled media outlets also said there was plenty of blame to go around. In an opinion piece published in the Shanghai newspaper Oriental Morning Post, writer Yu Ge argued that Ms. Tian was being unfairly singled out. "So far, only she has been pushed onto the altar to be the scapegoat," Mr. Yu wrote, despite that fact that other companies' products were also tainted and that wrongdoing or negligence at many levels contributed to the adulteration mess.
"This isn't just the responsibility of one company. Government supervisors at every level should take responsibility, too," said Ma Shuning, secretary general of the criminal-defense committee of the Beijing Lawyers Association. "I don't think giving a sentence only to Sanlu or Tian Wenhua will solve the problem."

2008 - Year of Major Prosecutions in China

The scandal and the trial come at the end of a year when Chinese authorities have taken unprecedented steps to curb corporate corruption and unethical corporate activities.

Nearly 5,000 higher-level Chinese government officials were punished for corruption over the past year, state media reported, according to the AP. The officials — all above the county-head level — were involved in corruption, bribery, acting against the public interest and other violations of discipline or the law said Gan Yisheng, deputy head of the Communist Party's Central Commission for Discipline Inspection, according to the official Xinhua News Agency. In the worst cases, a total of 801 officials were legally prosecuted for crimes, he said. He vowed to step up anti-graft efforts and "win trust from the people with actual results." Gan said government inspection departments investigated 144,000 cases that led to penalties for 146,000 lower-ranking government officials. Losses of 6 billion yuan ($900 million) were recovered through the anti-corruption

Posted 12/31/2008

* * *

The Siemens Case
OECD Convention Stars to Work….

U.S. Justice Department Acting Assistant Attorney General Matthew Friedrich told a press conference on December 15 that, “Through international instruments like the OECD convention and the U.N. convention against corruption, we have seen our international partners significantly step up their anti-corruption efforts.   Everything we're seeing suggests that this trend will continue.   South Africa, for example, became the 37th country and the first African nation to become a party to the OECD convention in 2007.   Israel followed suit in September of this year, becoming the 38th signatory.  We are now working with our foreign law enforcement colleagues in bribery investigations to a degree that we never have previously.   In the past, in a case of joint jurisdiction between the United States and another country, it was typically the case that only the U.S. prosecution would succeed.   That is now significantly less likely to be the case.”

He added, “let there be no doubt that corruption is not a victimless offense.   Corruption is not a gentlemen's agreement where no one gets hurt.   People do get hurt.   And the people who are hurt the worst are often residents of the poorest countries on the face of the earth, especially where it occurs in the context of government infrastructure projects, contracts in which crucial development decisions are made, in which a country will live by those decisions for good or for bad for years down the road, and where those decisions are made using precious and scarce national resources.”

Siemens Agrees to largest Fines for Corruption in the History of Anti-Corruption Prosecutions. Evidence shows bribe-paying across the world in many different business sectors.

Siemens AG of Germany, which is subject to U.S. Justice Department and U.S. Securities and Exchange Commission (SEC) regulation as its shares are publicly listed on the New York Stock exchange has agreed to pay the largest fines in SEC history. In total, Siemens has agreed to fines from U.S. and German authorities amounting to US$1.6 billion.

The details of global corruption by Siemens were disclosed in Washington DC at a Justice Department press conference and in detailed documents released by both Justice and the SEC.

The Justice Department alone fined the company and its subsidiaries in Argentina, Bangladesh and Venezuela, $450 million for violations of the U.S. Foreign Corrupt Practices Act (FCPA). The SEC stated at the same time that Siemens agreed to further fines of $350 million to settle SEC charges. And, the SEC also stated that Siemens will pay a fine of approximately $569 million to the Office of the Prosecutor General in Munich, to whom the company previously paid an approximately $285 million fine in October 2007.

The combined total of more than $1.6 billion in fines, including $800 million to U.S. authorities, make the combined U.S. penalties the largest monetary sanction ever imposed in an FCPA case since the act was passed by Congress in 1977.

The documents reveal that Siemens sought contracts in many countries and in many business sectors by bribing public officials. This was not just criminal activity by one corporate division in one country or region. The corruption was so pervasive that the U.S. authorities indicated that the firm’s most senior executives were aware of the corrupt dealings and the lack of controls to curb them, but no individuals are named in the U.S. documents or in the letters of agreement to the U.S. authorities from Siemens.

Today’s filings make clear that for much of its operations across the globe, bribery was nothing less than standard operating procedure for Siemens,” said Acting Assistant Attorney General Matthew Friedrich.

Under the terms of the plea agreement, Siemens AG agreed to retain an independent compliance monitor for a four-year period (it will be former German Finance Minister Theo Weigle).   Siemens AG also agreed to continue fully cooperating with the Department in ongoing investigations of corrupt payments by company employees and agents.

+++ Beginning around September 1998 and continuing until 2007, Siemens Argentina made significant payments to various Argentine officials in exchange for favorable business treatment in connection with a $1 billion national identity card project.  From March 2001, through approximately January 2007, Siemens Argentina made approximately $31,263,000 in corrupt payments to various Argentine officials through purported consultants and other conduit entities.

+++ Beginning around November 2001 and continuing until approximately May 2007, Siemens Venezuela made corrupt payments of at least $18,782,965 to various Venezuelan officials in connection with two major metropolitan mass transit projects called Metro Valencia and Metro Maracaibo. Some of those payments were made using U.S. bank accounts.

+++ Siemens Bangladesh admitted that from May 2001 to August 2006, it made corrupt payments of at least $5,319,839 through purported business consultants to various Bangladeshi officials as it bid on a mobile telephone project.  At least one payment to each of these purported consultants was paid from a U.S. bank account. 

“This pattern of bribery by Siemens was unprecedented in scale and geographic reach.  The corruption involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East and the Americas,” said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. 

Joseph Persichini Jr., Assistant Director in Charge of the FBI’s Washington Field Office, noted, “it is a federal crime for U.S. citizens and companies traded on U.S. markets to pay bribes in return for business. The FBI will continue to assist its law enforcement partners to ensure that the corporate and business communities are not tarnished with violations of the kind we are presenting here today.”

Among the transactions on which Siemens paid bribes:

+++ to design and build metro transit lines in Venezuela;
+++ metro trains and signaling devices in China; high voltage transmission lines in China;
+++ power plants in Israel;
+++ mobile telephone networks in Bangladesh;
+++ telecommunications projects in Nigeria;
+++ national identity cards in Argentina;
+++ medical devices in Vietnam, China, and Russia;
+++ traffic control systems in Russia;
+++ refineries in Mexico; and,
+++ mobile communications networks in Vietnam.
+++ Siemens also paid kickbacks to Iraqi ministries in connection with sales of power stations and equipment to Iraq under the United Nations Oil for Food Program.

         The SEC said that Siemens earned over $1.1 billion in profits on 14 categories of corporate transactions that it reviewed that involved 332 individual projects or individual sales.
 
According to court documents, beginning in the mid-1990s, Siemens AG engaged in systematic efforts to falsify its corporate books and records and knowingly failed to implement and circumvent existing internal controls.  As a result of Siemens AG’s knowing failures in and circumvention of internal controls, from the time of its listing on the New York Stock Exchange on March 12, 2001, through approximately 2007, Siemens AG made payments totaling approximately $1.36 billion through various mechanisms.  Of this amount, approximately $554.5 million was paid for unknown purposes, including approximately $341 million in direct payments to business consultants for unknown purposes.  The remaining $805.5 million of this amount was intended in whole or in part as corrupt payments to foreign officials through the payment mechanisms, which included cash desks and slush funds.
From 2000 to 2002, four Siemens AG subsidiaries – Siemens S.A.S. of France (Siemens France), Siemens Sanayi ve Ticaret A.S. of Turkey (Siemens Turkey), Osram Middle East FZE (Osram Middle East) and Gas Turbine Technologies S.p.A. (GTT) – each wholly owned by Siemens AG or one of its subsidiaries, were awarded 42 contracts with a combined value of more than $80 million with the Ministries of Electricity and Oil of the government of the Republic of Iraq under the United Nations Oil for Food Program.  To obtain these contracts, Siemens France, Siemens Turkey, Osram Middle East and GTT paid a total of at least $1,736,076 in kickbacks to the Iraqi government, and they collectively earned more $38 million in profits on those 42 contracts.  Siemens France, Siemens Turkey, Osram Middle East and GTT inflated the price of the contracts by approximately 10 percent before submitting them to the United Nations for approval and improperly characterized payments to purported business consultants, part of which were paid as kickbacks to the Iraqi government as “commissions.”

The U.S. Justice Department said corrupt practices pursued by Siemens executives included using off-the-books slush fund accounts and shell companies to facilitate bribes, making false entries on the company's books and records by, for example, falsely recording bribes as consulting fees; by accumulating profit reserves as a liability on company books, and then using these funds to facilitate bribe payments. These efforts also included short-changing audits that might have gotten too close to so-called "business consultants," who were in fact conduits for illicit payments; using removable post-it notes so as to hide the identity of executives who had authorized illicit payoffs; and last, the time-tested method of suitcases filled with cash.   More than $800 million in bribes were paid by Siemens and various of its entities over the course of 2001 to 2007.  

Linda Thomsen of the SEC noted, “In the SEC's action we alleged that Siemens paid a staggering $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East and the Americas.   The scope of the bribery scheme is astonishing, and the tone set at the top at Siemens was a corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company. The SEC portion of the Siemens settlement, $350 million in disgorgement, is by far the largest settlement amount ever obtained by the SEC under the "Foreign Corrupt Practices Act."   To put this in context, the largest prior SEC FCPA settlement was reached in 2007 and was for $33 million.   The SEC settlement with Siemens is more than 10 times that amount.”

The SEC said Siemens made at least 4,283 payments, totaling approximately $1.4 billion, to bribe government officials in return for business to Siemens around the world. In addition, Siemens made approximately 1,185 separate payments to third parties totaling approximately $391 million, which were not properly controlled and were used, at least in part, for such illicit purposes as commercial bribery and embezzlement.

The misconduct involved employees at all levels, including former senior management, and revealed a corporate culture long at odds with the FCPA. The SEC's complaint alleges that despite the company's knowledge of bribery at two of its largest groups — Communications and Power Generation — the tone at the top at Siemens was inconsistent with an effective FCPA compliance program and created a corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company. In November 2006, Siemens' current management began to implement reforms to the company's internal controls, which substantially reduced, but did not entirely eliminate, corrupt payments. All but $27.5 million of the corrupt payments occurred before Nov. 15, 2006.

On February 15,1999, the very day that Germany ratified the OECD Convention, the then-CEO of Siemens "expressed his concern at the number of criminal and other investigations into members of the Company," further noting that "the Board could possibly be held responsible for various offenses, it was important to take protective measures." However, bribery continued for years afterward.

Posted 12/16/2008

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Case Study: Auditing Russian Companies

UPDATE July 12, 2007...The Wall Street Journal reported PricewaterhouseCoopers won a Russian court case in which the auditing firm was accused of owing millions of dollars in back taxes.

PwC WITHDRAWS REPORTS FOR BANKRUPT YUKOS

Reuters reported on June 25, 2007 that PricewaterhouseCoopers' Russian unit confirmed that it had withdrawn its financial reports for bankrupt oil company Yukos for the years 1999-2004.  PwC wrote to the official liquidator of Yukos and stated that, “PwC decided to withdraw its audit opinions for Yukos when it became aware of new information which had it been known at the time may have affected Yukos's audit reports."

The major auditing company added that, "PwC's decision to withdraw the reports was influenced by the fact that some former shareholders and management of Yukos are continuing to encourage others to rely on PwC's audit reports."

Yukos was an exceptionally successful and dynamic oil giant that became Russia’s largest oil company. It was run by Mikhail Khodorkovsky, whose prominence triggered a host of criminal charges against him by the Russian public prosecutors.  These led to his being sentenced to serve an 8-year sentence in a Siberian prison for fraud and tax evasion, to the bankruptcy of Yukos and to the effective acquisition of many of its assets by Russian state-controlled enterprises. As Reuters noted, “The government's campaign against Yukos was widely viewed as politically motivated.”

Against this background the question arises: why has PwC now taken the extraordinary retrospective action of withdrawing its past financial reports for Yukos?

Reporting from Moscow on June 26, 2007, Catherine Belton of The Financial Times noted that the statement by PwC on Yukos, sent on June 15 to Yukos’s liquidator, came “following months of government pressure on the audit firm.”

The Wall Street Journal pointed out in a story from Moscow on June 25, 2007 that, “The move comes as PwC faces its own challenge from Russian tax authorities regarding Yukos. The accounting firm said its actions yesterday weren't related.”

PwC is currently fighting Russian tax authorities who allege that the auditor knowingly aided Yukos in what authorities charge was a massive tax-evasion scheme. PwC denies those allegations and appealed after it lost the first round in that court battle. The appeal is scheduled to be heard July 18 in Moscow. PwC also faced charges it underpaid taxes; the firm paid $14 million last year to settle those obligations.  The Journal stated that, “A PwC official said yesterday the decision to withdraw the audits wasn't related to the court case now under appeal, which PwC still plans to pursue.”

At issue in that litigation is whether PwC knew of illegal activity at the time of the audits, something PwC continues to deny. If PwC were found to have knowingly falsified audits, it could lose its license to operate in Russia, where it is one of the largest auditors.

The Reuters story noted that analysts in Moscow say that the Kremlin is keen to present Yukos’s collapse as an Enron-style tale of corporate corruption.  Reuters noted that recently, PwC lost contracts for Russia's pipeline monopoly Transneft and its top carmaker AvtoVAZ, both state-controlled. A Russian court fined PwC about $500,000 in April for producing false reports for Yukos and helping it to evade tax. PwC has been presented with a separate $11 million back-tax claim and Interior Ministry officials searched its offices, taking documents that the firm said went well beyond the tax claim. But, Reuters noted, it survived a threatened withdrawal of its license and has renewed its contract as auditor for gas monopoly Gazprom. Its clients also include top bank Sberbank, former power monopoly UES and Russia's central bank.

Former Officials Challenge PwC
Reuters also reported, however, that a spokeswoman for the former management of the firm said in an emailed statement that the former chief executive Steven Theede and chief financial officer Bruce Misamore believed they had provided PwC with information that was complete and correct. "To the best of their knowledge everything required by PwC was shared with PWC," the statement said. "Furthermore, PwC had full access to the company and its subsidiaries and regularly completed their own due diligence and audited their own work.  It is inconceivable that there is any 'new information' that PwC did not have already or had access to because they had full access to everything available to the management of the company."

Good News for the Kremlin
An article in The Economist (June 28, 2007 edition) under the title of “A Settling of Accounts,” starts with the acclamation: “GOOD news for the Kremlin: no longer must it work so hard to justify the destruction of Yukos, a bankrupt oil firm.”

It said the PwC’s statement bolsters the Kremlin’s efforts to portray the Yukos affair as Russia’s Enron.  The magazine commented that the “Withdrawal of an audit, let alone a decade's worth of them, is a rarity. Like anybody connected with Yukos, PwC had been under enormous pressure.”

Indeed, The Economist pointed out, that Mike Kubena, PwC’s Central and Eastern Europe Regional Manager was saying just six months ago that “This case challenges the basic role of the auditor, which represents a key element in the development of a normal, functioning economy.” Now, noted the Economist, “He stoutly maintains that PwC revised its opinion not because of the threats, but in the light of new information—although he will not say what that information is, only that it came from Russian prosecutors, who hailed PwC's decision.”

The Economist added that PwC’s action, “Will strengthen the case against Mikhail Khodorkovsky, an ostracized oligarch and former boss of Yukos, who may now stay in prison well beyond his present eight-year sentence.”

The media has reported that Russian prosecutors are pursuing a second case against Mr. Khodorkovsky, accusing him and his colleagues of fraud and money laundering at Yukos.

Posted 6/29/07

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Enron's Last Mystery

A Business Week article raises questions about the complicity of
Vinson and Elkins, the collapsed energy giant's thus far unscathed law firm.

While all other Enron consultants and external business partners, including the fallen accounting firm Arthur Andersen, a handful of major banks, and JP Morgan Chase and Co., have suffered serious financial damage from the scandal, Enron’s former law firm, Vinson & Elkins (V&E), which provided legal advise and signed off on several major, and highly risky, transactions remains almost untouched. According to an article the June 12, 2006 issue of Business Week, not a single V&E lawyer has been charged with professional misconduct charges by the Texas bar, the firm has paid no damages, Joseph C. Dilg, the partner who directed the Enron account, is now managing partner, and in 2005 the firm became the first Texas law firm to pay its partners an average compensation over $1 million.

According to the article, lawyers are often the most difficult to incriminate in cases of corporate misconduct. As a matter of public policy, lawyers enjoy a great deal of leeway in voicing their qualms about clients without fearing future retaliations for their statements, a protection which has thus far proven critical to V&E’s survival.  

However, according to Business Week, Enron’s bankruptcy trustee is working to settle claims with V&E for $30 million. The deal would require the firm to abandon claims for $3.9 million in legal fees it billed the company in its final days (this is a tiny proportion of the $162 million Enron paid the firm from 1997-2001). Meanwhile the Securities and Exchange Commission is examining the advice that V&E gave Enron. Finally, lawyers from a class action suit which went after Enron’s banks, are preparing to unleash a slew of evidence against V&E on June 13, in an attempt to make V&E liable for some of the $40 billion in investor losses created by Enron’s bankruptcy.

So far the firms has maintained it innocence, a claim that has been difficult to verify as very few of V&E records have been made public. Business Week, however reports that several documents, including emails and notes of strong disapproval, allegedly indicate that V&E’s attorneys had reservations about the soundness of Enron’s business practices, or at least knew of the nature of Enron’s now famous “mark-to-market” accounting. Moreover, new evidence has arisen that Dilg himself had questions about a key opinion letter from the firm, which was instrumental in Enron’s completion of a series of suspect transactions. 

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The Enron Verdict – Opinions and Analysis

On May 24th, 2004, Jeffrey Skilling, former CEO of the collapsed U.S. energy giant, Enron, and Kenneth Lay, Enron’s former Chairman, were convicted in  a Houston court of fraud and conspiracy nearly bringing to end a four-year legal battle against the disgraced executives. The long-awaited verdict is likely to stimulate intense debate and strong opinions about Enron’s collapse and its influence on corporate America. The following is a selection of quotes from the editorials of major newspapers:

The Wall Street Journal

“…Skilling and Lay may have lost their case from the start when they hung their defense on the dubious assertion that Enron was a fundamentally sound company tripped up only because speculators were abetted by critical articles on the front page of this newspaper…..In the end, jurors clearly understood that companies with real assets and sound balance sheets don't just go poof as the result of a little bad press. We appreciate the free advertising, but the Journal isn't that powerful.

…….We think these convictions of individuals -- some 30 in the Enron case alone -- will do more to deter future corporate crime than anything in Sarbanes-Oxley. At the same time, the U.S. economy has snapped back nicely, meaning that assertions of widespread corporate fraud back in 2001 and 2002 were way overblown. The Enron verdicts are proof, if more were needed, that lying to employees, shareholders and the public about corporate finances is a serious crime that will be punished.”

“The government's prosecutors, who were up against a defense team that cost almost $70 million, deserve credit. The criminals' victims -- investors who lost savings, and workers who lost both their jobs and their savings because their retirement plans were invested in Enron stock -- may now feel some emotional redress. Meanwhile, many plan to sue for financial redress as well.

There is a danger in this verdict, however. In the wake of Enron's bankruptcy, some argued that the problems of corporate America were the work of a few bad apples. That argument lost, for the good reason that fully 250 U.S. public companies had to restate their accounts in 2002, up from 92 five years earlier. Corporate America's problems reflected lax oversight of auditors, conflicts of interest at audit companies, accounting rules with too many inviting loopholes and so on. The Sarbanes-Oxley Act, passed in 2002 to fix these systemic weaknesses, now faces a backlash from firms that complain of stiff compliance costs. Although some tweaks in the way the law is implemented may be justified, the welcome Enron verdict should not color the regulatory question. This decade's business scandals were not just about bad apples, and putting those apples in jail is not going to change that.”

“We as a society have a destructive tendency to think of crimes like holding up a convenience store or selling drugs as very serious and destructive to the social fabric, while looking more tolerantly at corporate malfeasance as simply businessmen being a little overzealous. Just because there isn't a gun doesn't mean there isn't a crime…. At the same time, white-collar criminal cases can be difficult, paper intensive and hard to explain to juries. We expect the verdict in the Enron case to encourage prosecutors to pursue them.”

Houston Chronicle

 “What do the sweeping judgments mean? They signal a victory for two key systems in American society: business and justice.

The nature of free enterprise drives business to innovate, both in products and management. It also can lead to excesses that cross the boundaries of legality, such as the fraudulent off-the-books accounting techniques Enron executives used to hide losses and inflate profits. Verdicts such as this one serve as a corrective to such abusive business practices. They also put executives on unmistakable notice that they are responsible for what goes on inside their offices and that protestations of ignorance will provide an unconvincing defense.

Thursday's verdicts also testify to the ability of a judge and jury to sort through a maze of complicated accounting transactions and contradictory testimony to reach a credible judgment that accurately weighs facts but doesn't get lost in overanalysis. As several Enron jurors stated after the verdict was read, they kept their focus throughout the trial on the personal harm done to thousands of people when Enron spiraled into bankruptcy. Several jurors, including a young mother and a school principal, spoke eloquently of the personal hardship they endured over the course of the lengthy trial.

…Had the jury found Lay and Skilling innocent, it would have maintained the accommodating myth that nothing's wrong with the way the corporation did business. Such "creative" accounting might continue to be an option for corporate executives. Instead, they now know such maneuvers can result in an extended stay in federal prison.”

“…even though bosses of these companies perpetrated spectacular financial crimes, they were, in the phrase much-ridiculed by crusaders against corporate fraud at the time, “a few bad apples”. The rest of the barrel had its bruises, of course – poor corporate governance, lack of accountability, lax internal controls, and excessive compensation of imperial chief executives among them. But these flaws were and are best treated not by the blanket enforcement of hastily enacted rules, but by more activism in the boardroom and in shareholder meetings.

…the Sarbanes-Oxley act is not a silver bullet for malfeasance. Manipulation of earnings at HealthSouth, the healthcare company, started before Sarbanes-Oxley and continued afterwards. Refco, the futures trader, collapsed last year as a result of fraud that went unnoticed by those with a mandate to track it down. There will be more such debacles.

It therefore makes sense to use the period following the Enron verdicts to reflect on how to restore a sense of balance to the regulation of companies. That does not mean repealing Sarbanes-Oxley, as some have suggested, or lifting the pressure on US companies to improve corporate governance. First, there should be a more nuanced application of corporate regulation to relieve smaller businesses, in particular, of the weight of bureaucracy imposed by disclosure rules. Second, directors need to continue to develop their power to stand up to overweening chief executives. Third, regulators should address the lack of corporate accountability to investors. Fourth, shareholders themselves should press more actively for change at their companies where needed.

…America’s corporate scandals burst into the open not when the equity bubble was at full stretch but 18 months to two years later. According to that timescale, even though one five-year push against ­corporate fraud is coming to an end, a new period of vigilance is just ­beginning.”

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 Top Corruption Investigations of 2006

Rarely before has there been as many corruption cases under investigation and/or ready for trial as there is at the outset of 2006. The following are just some of the stories that www.Ethicsworld.com will be following in coming weeks and months:

• U.S.: Former Enron Chairman and CEO Ken Lay goes on trial at the end of January with an increasing number of former senior employees having agreed to testify against him. Recently he declared: “We must create our own wave of truth. I believe the return to sanity has begun.” 
  
  

• Brazil:  This is election year for Brazil and overshadowing much of the political debate will be the major series of investigations into political corruption, that have already forced the resignations from the top offices of several key leaders.  Can President Lula stay above the morass?
  
  

• Iraq: Expect more revelations of massive corruption  - the new Government’s survival may depend on its ability to contain the corruption cancer.  A range of investigations are underway by U.S. authorities into corruption related to reconstruction funds for Iraq.
  
  

• Nigeria: President Obasanjo is likely to broaden his attacks on domestic corruption in 2006 . If he succeeds he could have a major impact on governance across Africa.  Major trials are set.
   

• China:  Authorities are declaring ever more frequently that they are clamping down on corruption. Recently Lu Wanli, former director of the Communications and Transportation Department in the central Chinese province of Guizou, was executed for corruption charges. More arrests and trials are likely.
  
  

• Italy:  Central Bank Governor Antonio Fazio was forced to resign and investigations are being pursued into “insider trading” and corruption between the central bank and leading banks. This scandal follows others and may have a profound impact in this election year for President Berlusconi.
  
  

• Chile: Will there be a trial? Former Chilean President Augusto Pinochet, 90, has been charged with corruption and tax evasion, but his defense lawyers continue to claim that he is too ill to face trial.
  
  

• US: Former House Republican Leader Tom DeLay of Texas is one of the major players to lose his position as a vast lobbying scandal rips across the U.S. Congress and the Republican Party. Trials and more investigations are likely in coming months and may well influence the Congressional elections in November. Lobbyist Jack Abramoff, who is at the center of several of the scandals, has agreed to cooperate with prosecutors.
  
  

• India: The government faces a rising number of corruption cases. For example, 9 Indian Members of Parliament were suspended in December after having been caught on video receiving payments in return for their asking questions in Parliament.  Moreover, investigations are set into former External Affairs Minister K. Natwar Singh, who has been mentioned in alleged bribery in the Volcker Report on the UN’s oil-for-food program in Iraq.
  
  

• Canada: A prime issue in the current election campaign is corruption – the legacy of years past is haunting Prime Minister Martin.
  

• Kenya:  Charges and counter-charges of corruption continue to be prominent in and around the Government of Kenya. Resolving some of the most critical issues, ranging from allegations of major bribery in public procurement, to widespread police corruption, will be important for the Government’s survival.
  
  

• Peru: Overshadowing Peru’s election this year may be the efforts of former President Alberto Fujimori to return to his country (where he faces a warrant for his arrest on multiple corruption charges). He is currently under arrest in Chile.
  
  

• Palestine: Key elections are soon to take place – a major theme is alleged corruption by the “old guard” of colleagues and cronies of Chairman Arafat. For aid donors, both in other Arab countries and beyond, evidence of anti-corruption actions by the authority in Palestine will be important for aid payments.   
  
  

• U.S.: Libby (not corruption in the strict sense, but certainly likely to add to the ethics image damage of the White House).  The trial will get underway of former White House top official Scooter Libby, which may prompt President Bush to order another set of “ethics classes” for all White House staff.
  
  

• Germany: Former German Chancellor’s acceptance of a top post at Russia’s Gazprom will continue to add to corruption stories, while several major corporations are being investigated by the authorities on foreign bribery and money-laundering allegations – one or more major cases seem probable.
  
  

• U.S.: Vietnam war hero Republican US Congressman Randy Cunningham, 63, will face sentencing in California after admitting he took $2.4 million from contractors. Further revelations likely on corrupt contract awards from the Pentagon that may involve other members of Congress.
  
  
• South Africa: President Thabo Mbeki is likely to heighten anti-corruption efforts, with the issue winning a very high profile as actions move ahead against former deputy leader Jacob Zuma, who has been accused of major bribery.
  
  

• Russia: President Putin promotes new law to curb civil society and effectively give the State the right to close organizations that it does not like – this could impact disclosures of continuing array of major corruption scandals.
  
  

• Serbia: The Government faces a challenge to clean up its judiciary after 40 judges were charged in November with corruption.  The clean up is important in part because of the Serbian efforts to develop closer ties to the European Union - EU officials have left no doubt that cleaning out corruption is a critical requirement.
  
  

• Israel: Israeli Prime Minister Ariel Sharon's eldest son, Omri Sharon, a member of parliament, awaits sentencing on corruption charges. He pleaded guilty in November to illegal fund-raising charges stemming from his father's 1999 election campaign. The charges carry a maximum of five years in prison.
  
  

• France: Investigations into foreign bribery by defense firms is likely to expand – in late December French judges searched the headquarters of Thales SA the defense electronics firm, which has been accused of multi-million dollar bribery.
  
  

• Bangladesh:  Again ranked last in the Transparency International Corruption Perceptions Index – scandals abound and the media reports fiercely on the issue. Will the country do better in the rankings this year?
  
  

• Japan: Authorities will be taking actions following a major scandal where it was disclosed that Hidetsugu Aneha, architect of 21 prominent buildings, may have been involved in pay-offs that enabled his firm to circumvent earthquake security regulations in the construction of a number of these buildings, including seven hotels.
  
  

• Romania: Is to move ahead with efforts, assisted by the UK  Crown Agents, to root out corruption in its customs authority. This is a requirement set by the European Union as part of Romania’s efforts to move towards eventual membership with the EU.
  
  

• Latin America: Elections in Mexico and numerous other countries this year will be dominated, above all, by hot debates about cleaning up corruption.
  
  

• Africa:  Actions by the international community in 2005 pave the way for major rises in aid (or debt relief) in 2006 – but key will be demonstrations of good governance – a euphemism for anti-corruption actions. Few countries have major credible programs in place at this time.
  
  
• World Bank: The Bank faces difficult decisions as evidence mounts that the Chad Government may be subverting an agreement that ensured that revenues from the Chad-Cameroon pipeline (Exxon is the major contractor) go towards supporting anti-poverty programs as was agreed. The Bank has suspended funding, but it needs to make some clear decisions before too long on how to resolve this issue in particular and act on major natural resources’ lending in the future.
  
  

• United Nations: From Australia and India to the U.K. and the U.S. (at the United Nations itself)  --- there will be follow-up to the disclosures in the final report of the Paul Volcker Commission on the United Nations oil-for-food program. Some 2,253 companies allegedly were involved in bribery deals with Saddam Hussein’s regime. The volume of bribes could well have exceeded $1.7 billion.
  
  

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