In a criminal complaint filed by the U.S. Department of Justice earlier this week, Daimler faced two counts, one for alleged conspiracy and the other relating to allegations of falsifying books, records and accounts of the publicly traded company.
Under the settlement, Daimler will pay $93.6 million to the Justice Department and $91.4 million to the Securities and Exchange Commission, according to a source. In a copy of the complaint filed with the U.S. District Court in Washington, D.C., Daimler is alleged to have committed these actions over the course of a decade beginning in 1998:
DAIMLER made hundreds of improper payments worth tens of millions of dollars to foreign officials in at least 22 countries - including China, Croatia, Egypt, Greece, Hungary, Indonesia, Iraq, Ivory Coast, Latvia, Nigeria, Russia, Serbia and Montenegro, Thailand, Turkey, Turkmenistan, Uzbekistan, Vietnam, and others - to assist in securing contracts with government customers for the purchase of DAIMLER vehicles valued at hundreds of millions of dollars. In some cases, DAIMLER wired these improper payments to U.S. bank accounts or to the foreign bank accounts of U.S. shell companies in order to transmit the bribe. In at least one instance, a U.S. shell company was incorporated for the specific purpose of entering into a sham consulting agreement with DAIMLER in order to conceal improper payments routed through the shell company to foreign government officials. Certain improper payments even continued as late as January 2008. In all cases, DAIMLER improperly recorded these payments in its corporate books and records.
The lawsuit further alleges that Daimler reaped $50 million in pre-tax profits from corrupt transactions with a territorial connection to the U.S.
Guilty Pleas Likely
Back in 1998, when Chrysler merged with Daimler-Benz, Daimler maintained over 200 internal "third-party accounts," according to the complaint. These accounts were booked as receivables and controlled by Daimler's own subsidiaries and affiliates, or by third parties outside the company. Payments from the accounts were allegedly used for gifts to foreign government officials and credited as price discounts, rebates and other means, the complaint states.
Daimler spokesman Han Tjan declined to comment on the case pending an April 1 court hearing. But according to a source, Daimler's Russian and German subsidiaries are expected to plead guilty to both counts of conspiracy and violation of the Foreign Corrupt Practices Act relating to its booking and records.
The parent company and its Chinese subsidiary, however, will avoid an indictment and be subject to a two-year deferred prosecution agreement, in which the parties will be monitored. If after two years there are no violations, the government will dismiss the charging document that would have otherwise been filed, says the source.
Daimler is the latest industry titan to find itself engulfed in allegations of corporate wrongdoing. But unlike Enron, hordes of investors aren't likely to be on the hook in this case. Daimler shares were down more than 2% to $45.73 in early trading on Wednesday.