Diebold FCPA Settlement Highlights the Significance of Enforcement Regimes Outside the US

Diebold FCPA Settlement Highlights the Significance of Enforcement Regimes Outside the US

October, 2013
by Timothy Peterson, Robertson Park

On October 22, the SEC and DOJ announced that they had settled a joint FCPA enforcement action against Diebold Inc., the Ohio-based global provider of ATMs and bank security systems. The settlement comes almost three years after Diebold first announced that it was the subject of such an investigation. The SEC and DOJ settlements concern allegedly illicit business activities in China, Indonesia, and Russia. In settling the matter, Diebold agreed to (i) pay approximately $48 million to the US government, (ii) appoint an independent compliance monitor for eighteen months, and (iii) continue to implement a compliance and ethics program designed to prevent and identify violations of the FCPA. The SEC and DOJ claimed that Diebold violated the anti-bribery, books and records, and internal control provisions of the FCPA. More specifically, they alleged that Diebold, through its agents and subsidiaries, paid for international leisure trips, entertainment, and provided other improper gifts to foreign officials in order to obtain and retain business with government owned banks in China and Indonesia. In addition, the government alleged that Diebold paid money to a Russian company that distributed Diebold’s ATMs to private banks in Russia. The Russian distributor, in turn, allegedly used the money from Diebold to bribe the Russian banks to obtain and retain business. According to the SEC and DOJ, Diebold falsely recorded in its books and records that the payments made to the foreign officials and Russian distributors were for training and other legitimate business expenses. Diebold executives allegedly knew about and approved the improper activities and received company-sponsored FCPA training in 2007, but continued to conceal the illicit activities. 

One aspect of the matter highlights a growing issue in anti-corruption compliance – the emerging role of enforcement regimes outside the US, and the significance assigned to such regimes by the US government. According to the SEC’s complaint, a regional government agency in China raided a Diebold field office in 2007 as part of a corruption investigation. The agency, the Chengdu Administration of Industry & Commerce (CDAIC), was investigating corrupt payments allegedly made by Diebold to Chinese bank officials. Although Diebold settled the matter with the CDAIC without the imposition of corruption charges, the SEC alleged that the matter should have put Diebold on notice as to potential corruption issues, and that Diebold failed to investigate and rectify any such issues. The prominence of an investigation by a Chinese regional agency in the SEC’s complaint highlights the impact that non-US enforcement regimes are beginning to have in anti-corruption enforcement.

Companies with operations in jurisdictions that historically have not seen significant local enforcement activity should be mindful of the relevant local anti-corruption laws, in addition to the FCPA.

The Diebold action has several additional implications important to anti-corruption compliance. First, it reflects the continued vitality of FCPA enforcement following a modest cyclical dip. Second, while the DOJ’s and SEC’s use of independent compliance monitors has waned, this action demonstrates that monitors will still be used when corporate compliance programs are found to be materially wanting. Finally, it is worth noting that the action is consistent with SEC Commissioner Mary Jo White’s initiative to target illegal activity in China, and it could be one of many actions to come concerning business operations in China. 

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