Siemens AG's $1.6 Billion Penalty for Bribing Foreign Officials is a Warning to the International Energy Industry

Via Renewable Energy World:
Seattle, WA and Boise, ID
6 January 2009

For over 30 years, companies operating in the global energy arena have had to comply with the U.S. Foreign Corrupt Practices Act ("FCPA"). During the past 10 years, other countries have enacted their own versions of the FCPA. International energy companies that have thus far discounted or ignored these anti-corruption laws recently received a $1.6 billion warning from the U.S. and German governments.

The FCPA prohibits companies (both private and publicly traded) and individuals from paying or promising to pay foreign officials (defined broadly), directly or indirectly, anything of value with the corrupt intent of obtaining or retaining business. The FCPA also mandates internal accounting controls and record-keeping practices aimed at preventing and detecting illegal bribes. The penalties for FCPA violations are stiff. Companies may face criminal fines of up to $2 million per violation, civil penalties of up to $10,000 per violation, and disgorgement of any benefit the company received by the violation. Individuals face criminal fines of up to $100,000 or imprisonment for not more than five years, or both, per violation, and civil penalties of up to $10,000 per violation. Companies may also be prevented from participating in U.S. government procurement and contracting programs. On December 15, 2008, Siemens AG, a German conglomerate company, and three of its subsidiaries ("Siemens"), pled guilty in U.S. federal court to violating the FCPA. As part of its settlement with the U.S. Department of Justice ("DOJ") and the U.S. Securities and Exchange Commission ("SEC"), Siemens agreed to pay a $450 million criminal penalty and to disgorge $350 million in wrongful profits. On the same day, Siemens announced an agreement with German prosecutors to pay a €395 million ($569 million) fine for violating Germany’s anticorruption laws, adding to the €201 million ($285 million) that a Munich court sentenced Siemens to pay in October 2007. The $1.6 billion penalty Siemens must pay U.S. and German authorities is roughly 35 times larger than any previous anticorruption settlement. This staggering figure does not include the €850 million ($1.2 billion) Siemens has reportedly paid to attorneys, accountants, and other service providers to deal with its global bribery scandal since late 2006. Nor does it include the significant sums Siemens must pay an outside FCPA compliance monitor for the next four years as part of its settlement with the DOJ and the SEC. Wakeup Call for the Global Energy IndustryU.S. authorities estimate that Siemens paid $1.4 billion in bribes to foreign officials in Asia, Africa, Europe, the Middle East, and the Americas, and that a significant portion of this illegal activity occurred in the energy industry. Indeed, starting in 2001, Siemens’ Power Generation and Power Transmission and Distribution divisions paid at least $356.9 million in bribes to foreign officials in multiple countries. In recent years, once the DOJ and the SEC have learned of one company’s violation of the FCPA, they have increasingly expanded the scope of their investigation to include other players operating in that industry. The business of energy companies is highly dependent on the discretion of governmental agencies (including development banks, which qualify as "foreign officials" under the FCPA). Siting, permitting, environmental review and enforcement, local community support, responding to RFPs, negotiating and performing under power purchase agreements, conducting project build-out, establishing generation interconnections and transmission tie-ins, obtaining transmission services, obtaining subsidies or tax advantages, and complying with safety and antitrust requirements: all of these aspects of an international energy company’s business, as well as other operations, often involve the discretion of a foreign official. Some of these officials expect bribes from companies (or third parties engaged by companies) in exchange for favorable treatment. The DOJ’s and the SEC’s discovery of Siemens’ corrupt activities has cast a bright spotlight over the global energy industry, making it especially fertile territory for industrywide FCPA dragnets. Lessons Learned from the Siemens Case Siemens paid massive fines for violating the FCPA’s accounting and record-keeping provisions, demonstrating the importance of a robust compliance program. The Siemens settlement provides many additional lessons and reminders for energy companies, including:

	•	Vicarious Liability for Third Parties: Siemens’ foreign business consultants played a significant role in bribing foreign officials to secure business advantages in the energy industry. The FCPA can leave companies and individuals vicariously liable for the conduct of third parties, like consultants, distributors, and sales agents, even if the company lacks actual knowledge of their wrongdoing. Accordingly, the mere failure to recognize and investigate a foreign business consultant’s suspicious activities may expose a company to FCPA liability. Such vicarious liability makes it especially important for companies to (1) conduct due diligence on their potential business consultants; (2) include FCPA-specific representations, warranties, covenants, audit rights, and termination rights in all business consultant contracts; and (3) train employees on how to recognize the red flags associated with business consultants’ unsavory activities and report these red flags to management. Even compliance-conscious energy companies can become entangled in FCPA enforcement actions if they do not have robust compliance programs that are tailored to specific industries and geographic locales.
	•	Tone at the Top: The DOJ and the SEC have publicly criticized Siemens’ senior management for tacitly condoning bribery of foreign officials as a legitimate business strategy. Both agencies have also acknowledged an intention to pursue FCPA criminal penalties (which could include jail time) against Siemens executives, employees, and consultants who participated in the bribery schemes. In short, Siemens lacked the necessary "tone at the top" to foster a culture of FCPA compliance within the company. Companies can take a crucial first step toward avoiding this scenario by working with their attorneys to draft a clearly articulated policy against FCPA violations. This policy should highlight prohibited behavior, accommodate employees who blow the whistle on compliance violations, and set forth disciplinary procedures to address such violations.
	•	Internal Accounting Controls: The DOJ and the SEC based their charges against Siemens almost exclusively on the FCPA’s accounting and record-keeping provisions. Siemens’ subsidiaries attempted to cover up bribes by routing the money through slush funds or intercompany accounts and recording the illegal payments with misleading labels like "commissions." To avoid illegal accounting tactics, businesses should centralize their accounting systems to ensure corporate headquarters review all foreign financial transactions. Careful analysis of the financial records of employees and business partners abroad can enable businesses to quickly detect and eliminate conduct prohibited under the FCPA.
	•	FCPA’s Jurisdictional Scope: Siemens is a German corporation with its principal place of business in Germany, and many of the bribes it paid abroad did not implicate U.S. territory in any way. Nevertheless, Siemens is subject to the FCPA because it has listed its securities on the New York Stock Exchange since 2001 and, therefore, qualifies as an "issuer" under the FCPA. Moreover, in many instances, Siemens routed bribes through U.S.-based banks, providing the U.S. government with an additional jurisdictional basis for pursuing Siemens under the FCPA. These facts serve as a reminder of the FCPA’s sweeping jurisdictional reach. All U.S. companies with international operations—and many non-U.S. companies—have FCPA liability exposure.
	•	Cross-Border Enforcement: The cooperation exhibited in the Siemens case between the DOJ and the SEC, on the one hand, and the German enforcement agencies, on the other, is a noteworthy development in cross-border FCPA enforcement. Companies should recognize that the DOJ, the SEC, and their foreign counterparts share FCPA-related information about the non-U.S. operations of companies subject to the FCPA.
	•	Cooperation with Government Investigations: The DOJ and the SEC have indicated that Siemens’ total FCPA penalty could have been considerably larger than $800 million. Indeed, application of the Federal Sentencing Guidelines would have resulted in an FCPA criminal fine of between $1.35 and $2.7 billion. Due to Siemens’ "exceptional" cooperation with the U.S. government’s investigation and demonstrated commitment to remediating its operations, however, the DOJ and the SEC exhibited leniency. Siemens’ strategy of cooperating with authorities, rather than attempting to stonewall them, provides a model for future targets of FCPA enforcement actions. For more information, contact Ashley Henry, Energy Industry Liaison, 503-294-9506, ahenry@stoel.com

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A Stimulus Package for Renewable Energy Would Benefit Economy and Climate, Says German Study

Via Renewable Energy World:

by Jane Burgermeister, European Correspondent

Berlin, Germany [RenewableEnergyWorld.com
24 November 2008

The solution to the world's two biggest crisis -- the economic and the global warming crisis -- is exactly the same: a huge government investment plan in renewable energy will not only help kick start economies, but it will also help fight global warming, according to a report by Deutsche Bank

Faced with the worst economic crisis since 1931, governments in Germany and the UK as well as the US and China are planning to use deficit spending to avert a dramatic economic slowdown.

The study by Deutsche Asset Management (DeAM), a member of the Deutsche Bank group, argues that directing any stimulus package towards the renewable energy would benefit not just the economy by boosting jobs and growth but also accelerate the creation of a booming new clean tech industry, so helping to slash greenhouse gases.

Massive investment in renewable energy would also have the advantage of establishing energy independence for countries such as US, China, Germany and the UK from oil and gas imports from crisis-hit regions.

"The current crisis is making the necessity of tackling climate change an opportunity to stimulate growth through investment opportunities," said Mark Fulton, DeAM's Global Head of Climate Change Investment Research.

Investments in new improved energy efficiency technologies are especially likely to benefit recession-hit economies by reducing the burden of high fuel costs, the study argues.

Additional measures to stimulate investment in "green" infrastructure and industry, such as smart electricity grids, solar thermal and geothermal power plants, could pay dividends by creating jobs in long-term growth industries.

Investment in renewable energy would also help accelerate "grid parity," the point when electricity generated by solar, wind and other sources becomes cost competitive with power from conventional fossil fuels.

Though wind power in some locations is already cost competitive, government investment in renewable energy as part of a stimulus package would provide much needed funds to bring down the cost of all types of renewable energy.

Also, the Deutsche Bank experts are urging governments to change laws to help steer private investment into the clean energy.

Moreover, a recent report by Greenpeace in Germany and the European Renewable Energy Council (EREC) argues that investment in renewable energy would not represent an additional cost, but would pay for itself out of savings to be made on oil, coal and gas expenditures.

Furthermore, investment in clean energy would reduce the huge bill that the world is likely to have to face from damage caused by global warming in the future, which could be as high as 20 percent of the world's GDP a year, according to Greenpeace.

Sigmar Gabriel, Germany's Environment Minister, recently affirmed the government's commitment to the renewable energy sector, saying that 500,000 new jobs could be generated in the green sector by 2020 in Germany.

In spite of the government's pledge to support the green energy sector, few additional funds, however, were made available in this month's stimulus package from Berlin, which amounted to €50 billion [US $63.1 billion].

To succeed in the new energy revolution, analysts say the German government will have to reverse years of low investment in new renewable energy technology and energy efficiency research.

For example, the Technical University of Munich, one of Germany's leading universities with 22,000 students and 6,500 employees, spends only €10-15 million [US $12.6 to 19 million] out of a total budget of €769 million [US $971 million] on renewable energy research, which is furthermore, splintered over several institutes.

The German government's role in financing renewable energy projects is set to become all the more critical as banks are less likely to lend funds in the financial crisis.

The economic uncertainty is already clouding a series of renewable energy projects in Germany.

Doubts have grown over the Blackstone-financed project announced in July this year to build an offshore wind park of 80 wind turbines generating 400 megawatts (MW) of electricity off Helgoland by 2012, according to the German newspaper Handelsblatt. RenewableEnergyWorld.com's Eize de Vries alluded to that project last week in his story, 5-MW BARD Near-shore Wind Turbine Erected in Germany.

Capital from the private sector will be needed if the German government is to meet its ambitious target of building 10,000 MW of offshore wind power by 2020.

Building wind parks 20, 30 or even 40 kilometers off the north German coast and anchoring turbines 20 to 30 meters below the sea surface will require substantially more money than constructing equivalent wind parks on land. Without additional government funding, experts think the country's wind power plans could now have to be scaled back.

More crucially, Germany could fall behind in the race to create a thriving, strong new clean tech economy and an export world leader by the government's failure to include green energy funds in its stimulus package to revive the economy this month.

"Major investment in renewable power and energy efficiency could create an industry a 360 billion-dollar industry, provide half of the world's electricity, and reduce the hefty 18 trillion-dollar bill expected to for future fossil fuel costs, according to Oliver Schäfer from the EREC.

"Currently, the renewable energy market is worth US $70 billion and doubling in size every three years," he said. "The global market for renewable energy can grow at double digit rates until 2050, and overtake the size of today's fossil fuel industry.

Governments that include green energy incentives into their stimulus package will not only create jobs, stabilize the economy and protect the environment, but they will also help ensure that their country is well placed to come out of the recession as a world leader in green technology, which is set to dominate the energy market of the future.

With countries such as Germany and the UK so far having failed to seize the opportunities hidden in the current economic crisis, all eyes are on the US to see whether the new Obama administration grasps the chance to invest in green energy to revive the recession-hit economy and catapult America to the front of the world energy leaders.

Duke Study Looks Into Green Job Growth in US

Via Renewable Energy World:

21 November 2008

North Carolina, United States [RenewableEnergyWorld.com]

Green collar present the next frontier for U.S. manufacturing, says a new report from Duke University. Highlighting the direct linkages between low-carbon technologies and U.S. jobs, Duke researchers say U.S. manufacturing is poised to grow in a low-carbon economy. Their report, "Manufacturing Climate Solutions," provides a detailed look at the manufacturing jobs that already exist and would be created when the U.S. takes action to limit global-warming pollution.

"Until now, there was no tangible evidence of what the jobs are, how they are created and what it means for U.S. workers. We are providing that here," said Gary Gereffi, a Duke professor of sociology and lead author of the report. "We don't guess where the jobs are; we name them. Our report uses value chains to show that clean technology jobs are also real economy jobs."

Researchers from Duke's Center on Globalization, Governance & Competitiveness (CGGC) looked at five carbon-reducing technologies with potential for future green job creation:

• concentrating solar power
• LED lighting
• high-performance windows
• auxiliary power units for long-haul trucks
• Super Soil Systems (a new method for treating hog wastes)

According to the report's finding there are hidden economic opportunities that exist within the supply chains that provide parts and labor for these five industries. The report includes a detailed breakdown of the supply chains and maps highlighting the location of companies positioned to support green jobs. States that stand to benefit most from jobs in these sectors include Pennsylvania, Ohio, Indiana, North Carolina, New Mexico, Arizona, Nevada and California.

"This report shows that each climate solution creates significant positive ripple effects throughout the economy in the labor and materials needed to supply low carbon technologies and products," said Abraham Breehey, director of legislative affairs for the International Brotherhood of Boilermakers. "It demonstrates the real economic opportunity in the solutions to the climate crisis."

A copy of the study can be downloaded from Duke University.