WASHINGTON; FRANKFURT -- The U.S. Justice Department is pursuing a criminal investigation of allegations that DaimlerChrysler AG's Mercedes unit paid bribes in at least a dozen countries and that senior executives may have been aware of the practice.
The investigation is an escalation of a civil inquiry by the Securities and Exchange Commission that was disclosed late last year. That inquiry was triggered by a former Chrysler accountant in Detroit who alleged in a lawsuit last year that the company kept dozens of secret bank accounts to bribe foreign officials.
The investigation comes at a difficult time for DaimlerChrysler. Last week, chief executive officer Juergen Schrempp unexpectedly said he would retire at the end of this year, well ahead of the April, 2008, expiration of his contract, amid weak financial results and other setbacks at the company, the world's fifth-largest auto maker as measured by sales.
German federal authorities joined the investigation as well, people close to the case said, after the July 22 suicide of Rudi Kornmayer, managing director of the company's plant in Nigeria.
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The 53-year-old executive shot himself in a park in Esslingen, Germany, police said.
Investigators are reviewing a suicide note that refers to the bribery investigation, those close to the case said.
DaimlerChrysler operations in Latin America and Africa are among those under scrutiny, a person close to the case said, but the nature and purpose of the alleged payments hasn't been disclosed.
In financial disclosures on July 28, DaimlerChrysler reported it has identified "accounts, transactions and related payments that are subject to special scrutiny." The company said it is co-operating fully with investigators and "voluntarily sharing . . . information from its own internal investigation" in response to subpoenas from U.S. authorities.
A spokesman at DaimlerChrysler's Stuttgart, Germany, headquarters declined to amplify that statement or discuss the death of Mr. Kornmayer, who headed the company's Nigerian operations. A Justice Department spokesman declined to comment.
Historically, there has been recurring tension between the U.S. and foreign companies over enforcement of U.S. anti-corruption laws. Foreign bribes by companies or individuals were outlawed by the 1977 Foreign Corrupt Practices Act, and in recent years the U.S. has pushed other countries to adopt similar laws. But bribery remains common in parts of Africa and Latin America, and in many oil-producing nations.
Bribery is illegal across the European Union. But before passage of the Organization for Economic Co-operation and Development Anti-Bribery Convention in 1997, several European governments, including Germany's, openly allowed tax deductions for bribery overseas, according to Transparency International, a Berlin-based nonprofit group dedicated to fighting corruption. Germany's parliament ratified the convention in 1999.
The U.S. has stepped up enforcement of its anti-bribery law in recent years, and a growing number of companies have been disclosing possible foreign bribery in the wake of the 2002 Sarbanes-Oxley corporate accountability law. The largest such case to date was settled earlier this year, when Titan Corp. paid $28.5-million (U.S.) in fines and other penalties for paying an alleged $3.5-million bribe in the African nation of Benin. The investigation earlier had derailed a planned acquisition of the defence contractor by Lockheed Martin Corp.
The Daimler inquiry stems from a wrongful dismissal lawsuit filed in U.S. District Court in Detroit last year and settled last month. The plaintiff in that case, former Chrysler accountant David Bazzetta, alleged he was fired in part because he complained to superiors about secret bank accounts kept by the company's Mercedes unit.
Mr. Bazzetta said he first learned of the accounts at a corporate audit executive committee meeting in Stuttgart in July, 2001. At the time Mr. Bazzetta's allegations were disclosed, Dieter Zetsche, then-CEO of Chrysler Group, said in an interview with The Wall Street Journal that "there is no evidence supporting" the allegations.
Mr. Bazzetta also claimed, according to court filings, that a senior audit manager told the group that foreign bribery had once been a "common practice" and that Mercedes managers in a few countries were resisting efforts to "wind down" the practice to come into compliance with U.S. law. DaimlerBenz AG and Chrysler Corp. merged in 1998; the company is subject to U.S. bribery law because its shares are listed on the New York Stock Exchange.
Mr. Bazzetta said in his lawsuit that he was told by his supervisor to "forget what was said" and that "issues that arise in corporate audit must remain in corporate audit." He also said he was told that Mr. Schrempp and other executives had been briefed by a senior auditor on 40 secret accounts that still existed and that the money was "buried deep within [the] balance sheet." The accounts still existed, Mr. Bazzetta asserted in his lawsuit, "because the chief executives of the business units not only favoured this practice but believed it a necessary cost of doing business."
Terms of the settlement between Mr. Bazzetta and DaimlerChrysler are confidential, said his lawyer, Sue Ellen Eisenberg of law firm Eisenberg & Bogas, Bloomfield Hills, Mich. Mr. Bazzetta later met with investigators and provided further details of the 2001 meeting. She said Mr. Bazzetta would not comment. Mr. Bazzetta's suit doesn't say how the accounts were used by country managers or whether they still are in existence.
In its SEC filing last week, DaimlerChrysler said it "has not yet reached any definitive conclusions as to whether, or to what extent, these transactions and payments may constitute violations of applicable law." If the Justice Department or SEC find that violations have occurred, the company said, "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."
DaimlerChrysler also announced $17.8-million in adjustments to "certain payable accounts related to consolidated subsidiaries." The changes are insignificant given DaimlerChrysler's vast size, but may be a clue to the size of the alleged improper payments. Company officials declined to explain the accounting changes or detail how they relate to the bribery investigation.
The DaimlerChrysler investigation is unfolding amid numerous probes at other high-profile German companies that have put some of the country's traditional corporate practices under a microscope. German prosecutors are looking into allegations that a former Volkswagen AG executive set up phony businesses abroad to enrich himself at the expense of Volkswagen business partners, and that the company's personnel department gave top union leaders unrestricted access to a corporate travel account that paid for stays at plush hotels and other perks.
While allegations of corruption at Volkswagen and other companies have garnered widespread publicity in Germany recently, most corporations are more sensitive to perceptions of wrongdoing, and have tightened ethics codes.
Crackdown on bribes
Enforcement of the 1977 Foreign Corrupt Practices Act in the U.S., which bars bribery, has intensified in recent years.
Reported Justice Dept., SEC inquiries into violations of Foreign Corrupt Practices Act
2002: 7
2003: 11
2004: 18
Total new criminal prosecutions under FCPA, number of cases, 1990-2004*
Individuals: 10
U.S. corporations: 10
Foreign corporations: 1
Foreign/U.S. corporation: 1
Disposition of criminal cases, by individual or corporate defendant
Pleas of guilty: 27
Dismissals: 7
Acquittals: 5
Convictions: 4
Fugitives: 4
Non-prosecution agreements: 3
*Some cases involve more than one defendant
SOURCE: WALL STREET JOURNAL
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