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On November 15, 2006, more than 200 policemen descended on the Munich headquarters of Siemens AG, the German technology giant, and the homes and offices of 30 Siemens executives around Germany to comb the premises for incriminating documents. It was one of Europe’s dreaded “dawn raids,” a term that bears little relation to the time of day but usually denotes the start of a tiresome ballet between the government and a company suspected of wrongdoing. In the traditional European model of prosecution, corporations stonewall and fight to the bitter end. Siemens did not follow the script. Within weeks the company hired an American law firm to conduct an internal investigation, which led to a vast airing of its dirty laundry at staggering expense. Debevoise & Plimpton has uncovered ¤1.3 billion in “suspicious payments,” most likely bribes paid by Siemens to secure contracts around the world between 2000 and 2006. These disclosures will almost surely lead to a record-shattering U.S. fine even if the company wins leniency for its cooperation. But when the sticker shock fades, Siemens may be best remembered for spreading to Europe the U.S. method of outsourcing corruption prosecution to the private sector. In the United States, the use of internal investigations evolved in corporate fraud cases during the 1990s. In a typical case, a company’s audit committee hires a law firm to ferret out the facts of wrongdoing, while the company itself retains a separate law firm to negotiate a settlement. Internal investigations became the standard in both fraud and corruption cases after the Sarbanes-Oxley Act of 2002 boosted government caseloads. “It was a natural to transfer that model from fraud to corruption when corruption exploded at about the same time,” recalls Paul Berger of Debevoise, who directed corruption enforcement at the Securities and Exchange Commission from 2000 until 2006. The result has been a small bonanza for U.S. law firms that boast Foreign Corrupt Practices Act experience and global reach. Twelve of the 24 criminal FCPA proceedings brought by the U.S. Department of Justice against corporations since 2001 have targeted foreign companies, according to figures compiled by Shearman & Sterling. European law firms are rarely an option to handle investigations, because Europe’s white-collar lawyers mostly practice in small firms that lack either a U.S. or global presence. (The exception is Clifford Chance, which acquired a U.S. white-collar practice when it merged with Rogers & Wells, and built a global platform around the group.) The majority of Shearman’s corruption practice is for European clients, while Davis Polk & Wardwell estimates 30-70 percent, depending on the year. Other beneficiaries of the trend include Cadwalader, Wickersham & Taft; Covington & Burling; Mayer Brown; Paul, Hastings, Janofsky & Walker; Skadden, Arps, Slate, Meagher & Flom; Steptoe & Johnson; White & Case; and Wilmer Cutler Pickering Hale and Dorr. The magnitude of Debevoise’s work for Siemens puts it in a category all by itself. Siemens is one of the first European multinationals to employ the full-blown U.S. investigation model (with separate counsel for the compliance committee), and certainly the highest-profile. The company spent ¤474 million (about $650 million) on compliance fees for the 15 months ending December 2007, according to SEC filings. Informed sources estimate that about half of the total went to Siemens’s auditors at Deloitte Touche Tohmatsu and about 5 percent to its strategists at Davis Polk; marginal amounts went to employment counsel Gleiss Lutz, and witness counsel Baker & McKenzie. As investigating counsel, Debevoise earned at least ¤95 million (about $130 million at mean 2007 exchange rates), sources familiar with the investigation estimate. It is surely no coincidence that, in an average year for its peers, Debevoise’s revenue was up 23 percent ($135 million) in 2007, and profits were up 32 percent. Debevoise declined to discuss its investigation and points to its private equity practice for most of its bumper year. To date, Siemens has paid ¤239 million in German court fines stemming from the bribery scandal, and ¤520 million in tax charges. Cases against individual Siemens employees are still pending in Munich and around Germany. Half a dozen development banks and at least 16 countries-including notorious anticorruption laggards China, Indonesia, Japan, Nigeria, and Russia-have opened investigations into Siemens’s activities. Of greater significance, Siemens hasn’t settled yet with the U.S. agencies. American fines could reach $3-6 billion, according to the high guesses in the German media. The Debevoise investigation could chug along another year or two, running its tab past a quarter-billion dollars. Davis Polk will keep busy defending ancillary litigation. And the Justice Department will almost surely require Siemens to hire some other law firm to monitor its compliance, a job that could last three years and run up another $250 million bill. U.S. anticorruption lawyers might want to start picking up some German. Siemens’s web of deceit began to unravel five years ago, as two sets of investigators began to tug at two separate strands. In today’s interconnected world, it’s harder for corruption on a grand scale to evade detection. An in-house investigation by Italy’s state-controlled Enelpower SpA in 2003-04 uncovered bribes paid to Enel S.p.A. by Siemens to win a subcontract for gas turbines at Enel plants in Abu Dhabi, Oman, and Qatar. A Milan court debarred Siemens from selling turbines to the Italian state for a year and-even more significantly-found that Siemens’s corruption problem was systemic. In May 2007, a German court in Darmstadt, picking up the thread, convicted the ex-finance chief of Siemens’s power unit and ordered Siemens to disgorge ¤38 million in profits. In parallel, a group of Liechtenstein bank auditors tracing laundered assets on suspicion of terrorist financing discovered a money trail leading to Siemens’s telecom division. In October 2007 a Munich court fined Siemens ¤201 million, based on the charge that Siemens telecom executives had paid multiple bribes to officials in Russia, Nigeria, and Libya between 2001 and 2004. This sum, which included ¤200 million in disgorged profits, represented a 100-fold leap over Germany’s largest prior corruption fine. “Siemens will definitely be remembered as the case that woke up corruption enforcement in Europe,” says Nicola Bonucci, Director of Legal Affairs at the Organisation for Economic Cooperation and Development in Paris. Even so, U.S. enforcement remained the dominant focus of Siemens leadership. The ¤201 million fine ordered by the Munich court was based on just 1 percent of the suspicious payments. How much might the traditionally tougher U.S. agencies demand to settle the other 99 percent of the problem? And as bad as a ten-figure U.S. fine would be, it would pale in comparison to the impact of Siemens being debarred from contracts in the U.S., where Siemens earns $27 billion in annual revenues. “We are a major player in the U.S. market,” says current compliance chief Andreas Pohlmann. “We must respect the U.S. legal system.” That meant hiring a law firm to conduct an investigation. Why Debevoise? “[The firm] had to be global with expertise in large corruption investigations,” says Pohlmann, explaining the company’s considerations in making its pick. “And it had to have no conflicts with Siemens.” Ironically, Debevoise’s token presence in Germany-it has five partners in Frankfurt-probably played in its favor, decreasing the likelihood of conflicts. At the same time, Debevoise had built a reputation in Europe from afar. Of the 20 FCPA investigations Debevoise has conducted over the past five years, a dozen had a connection to Europe. In its most prominent European role, Debevoise counseled Royal Dutch/Shell Group in a fraud settlement with the SEC over its massive oil reserves overstatement in 2004. Davis Polk, which had conducted the Shell investigation, swapped roles with Debevoise and has been Siemens’s strategist in the current scandal. Debevoise has dedicated a team of 50 lawyers across the globe to Siemens, says Pohlmann, a number that has spiked up to 100 lawyers on occasion. The team is headed by Bruce Yannett, a member of Debevoise’s management committee and cochair of its white-collar group, who cut his teeth as an attorney on the independent counsel team that investigated the Iran-Contra scandal. Since December 2006, the firm has conducted approximately 1,000 interviews and searched tens of millions of document pages, according to Pohlmann. The investigation has touched directly on 65 countries and indirectly on 190, but nothing has been farmed out. Debevoise lawyers fly wherever they are needed when they are needed. “I’ve never seen such a thing before,” says Pohlmann. “They needed to get quickly up to speed and understand our business and culture. What I’ve seen is astonishing.” All the same, Debevoise met with limited cooperation inside Siemens at the start, encountering both puzzlement and hostility. “The concept [of internal investigation] is totally weird for Europeans,” says one lawyer close to the case. “It takes a lot of explaining over and over.” Burkard Göpfert of Gleiss Lutz in Munich, describes the mind-set of many Siemens staff members: ” ‘This was the best company you could work for in Germany. . . . I gave everything for 30 years, and now I’m fired because I was once asked to drop off two envelopes.’ “ That the investigators were American added insult to injury. Popular resentment of America over the Iraq war and corporate downsizing mixes with business resentment of America over class actions, hostile takeovers, even antidiscrimination laws. “There is a general uneasiness accepting big ideas from across the Atlantic,” says Göpfert, who is personally an advocate of anticorruption compliance. “Now U.S. law firms are coming in and laying the proudest companies in Germany open to attack.” A changing of the guard helped clear the way for Debevoise to progress. CEO Klaus Kleinfeld and chair Heinrich von Pierer resigned in April 2007-the very month when the company announced that it was officially under investigation by the Justice Department and SEC. The new management team at Siemens has a distinctly American tinge. Although CEO Peter Löscher is an Austrian, he has served as CEO of GE Healthcare. The new general counsel is American-born, American-educated Peter Solmssen, a former Morgan, Lewis & Bockius partner who spent a decade as general counsel of various GE divisions. And the new compliance chief Pohlmann, who joined the company in September 2007, is a German lawyer who spent the last few years in Dallas overseeing both the legal and compliance groups at Celanese Corporation. “To find people with the right [compliance] skills, Siemens had to look in American corporations,” says Bruno Cova of Paul, Hastings in Milan, who played key roles in cleaning house as an in-house counsel at ENI during the 1990s and as an adviser to Parmalat Finanziaria SpA earlier this decade. “Most European corporations are not yet equipped to deal with compliance.” The new team brought an entirely new attitude. When Pohlmann encounters skepticism about the internal investigation, he says, “We tell them it’s not the U.S. system that’s the problem. . . . It was Siemens that was the problem.” Solmssen and Pohlmann made an aggressive effort to jump-start the investigation. Solmssen’s first innovation-inspired by antitrust practice-was to offer cooperating junior employees amnesty from being fired or sued by Siemens. From December 2007 through February 2008, 130 people applied. “Amnesty was a brilliant idea,” says Sabine Stetter, a criminal attorney at Peters, Schönberger & Partner in Munich who represents seven amnesty applicants. One Siemens employee had little to tell Debevoise in an initial interview but suddenly, post-amnesty, volunteered the existence of an undocumented Swiss slush fund. “Clearly the amnesty was crucial,” Stetter says. The other key step was to win the cooperation of Albrecht Schäfer, a venerable attorney who served as Pohlmann’s predecessor in compliance and for many years as general counsel. Siemens fired Schäfer in August 2007, and Schäfer sued to clear his name. In a December 2007 settlement, Siemens took Schäfer back into the fold, and he began to cooperate on a voluntary basis. (Schäfer says that he was willing to cooperate all along, but that Siemens had initially rejected his offer.) In the estimation of one insider: “One hundred and thirty amnesties is not that many [in a company of 475,000 employees]. Turning Schäfer was at least as crucial. Schäfer was at the heart of the information flow. . . . He’s smart, and he’s a lawyer. He’s the perfect source.” Thanks to one tactic or the other, Debevoise did achieve a breakthrough, although the details are still not public. In January Debevoise issued a statement: “Since Nov. 28, 2007, we have obtained significant new information and developed very substantial leads from participants in Siemens’ amnesty program, as well as other sources. . . . In particular, certain of this new information pertains to the conduct and knowledge of a number of individuals who have served on the Managing Board.” Shareholders at the January general meeting took the hint and did not ratify the actions of the previous board and chair-in effect reserving the option of suing them. The investigation continues. As Debevoise discovered, transplanting the U.S. style of investigation outside the U.S. is not easy. Latent anti-Americanism among potential witnesses isn’t the only obstacle. In several key ways, the U.S. business and legal culture remains unique, so tactics developed in that environment don’t always work abroad. American investigators are less likely to have to deal with any unions, let alone strong ones. American employees can be fired far more easily than European workers, and investigators can disregard their feelings with near impunity. At the other extreme, German unions have seats on the board; so as one U.S. investigator notes, “You don’t want to piss them off.” Another big difference: The U.S. lacks a data protection law. Around the world, data privacy rules vary from company to company, country to country, and province to province, especially for encrypted data. Among the tougher jurisdictions are China, France, Hungary, Greece, Russia, and Southern Bavaria, where Munich is located. “An enormous amount of time and effort goes into how and where and by whom data can be reviewed,” says Angela Bellizzi Burgess, who is among Siemens’s counsel at Davis Polk. Outside the U.S., employees often have a right to privacy at their desktop. Lucinda Low of Steptoe & Johnson recalls an experience she had while investigating an Italian manufacturer. One of her targets managed to elude investigation by calling in sick and keeping his computer home. “We didn’t think he was sick,” she says drily. “It can be fairly frustrating.” While labor relations and data privacy present diplomatic or bureaucratic obstacles, these can be overcome by careful lawyers. The main barrier to the development of internal investigations in Europe is the enforcement culture. In some civil law countries, such as France, prosecutors generally have no discretion to settle-which removes the incentives to cooperation. “If we cannot plea bargain, then what is the incentive to go for an internal investigation and turn it over to the prosecution?” asks Stefane Bonifassi of Paris’s Lebray & Associés. Even where leniency is permitted, as in Germany, dawn raids promote antagonism; and a sharp divide between public and private sectors breeds distrust. In Europe there is generally no revolving door between law firms and the prosecutors’ corps. By contrast, U.S. prosecutors see settlement as an art form-and they see defense counsel as past and future colleagues. William Jacobson, who is assistant chief of the fraud section at Justice’s criminal division, argues that a revolving door culture helps to build the trust necessary for prosecutors to deputize private lawyers. As a former Kirkland & Ellis partner, he ought to know. “We have learned to appreciate the benefits of voluntary disclosure from attorneys we can trust,” says Jacobson. “In Europe they’re just at the start of that process.” The man behind Siemens’s record ¤201 million fine-senior prosecutor Günther Puhm of the Munich prosecutor general’s office-doesn’t think Germany lags in anticorruption. Puhm makes a proud affirmative case for his nation’s old-fashioned method of public prosecution. Repeating a reporter’s question, he asks: ” ‘Are we the leader in Europe?’ Why not in the world? Your question implies that enforcement in America is better, and in that I cannot agree. When you ask how mature is anticorruption in Germany, it sounds a little bit conceited.” As a further example of American chauvinism, Puhm pulls out a 2002 Newsweek cover story on corruption, which classified the U.S. as “clean” and Germany as “not-so-clean,” on the basis of a Transparency International survey in which the two nations virtually tied. Puhm’s office certainly has bragging rights. Munich has conducted 22,000 corruption proceedings since 1994; most of them were domestic, but thousands were international. Puhm believes that Americans conceive of the problem too narrowly, through the lens of the Foreign Corrupt Practices Act, which is concerned only with foreign official corruption-bribes paid to overseas officials by U.S. companies or foreign companies with a U.S. connection. In Puhm’s view, corruption is equally domestic and foreign, public and private. And in enforcement of domestic and private corruption, many U.S. states lag Bavaria. Certainly the German foreign bribery statute outstrips the FCPA in banning private-to-private bribery abroad. And until U.S. authorities top him in the Siemens case, Puhm’s ¤201 million fine blows away the current FCPA record of $44 million-around ¤32 million-levied in 2007 against the Houston-based oil services firm Baker Hughes Incorporated. Puhm is philosophically opposed to U.S.-style investigations. “Outsourcing prosecution goes too far,” he says. “Public duties are best left to public authorities.” Puhm is skeptical that lawyers at firms can subordinate their loyalty to paying clients. And he is doubtful that defendants can constitutionally be forced to pay (extravagantly) for their own conviction. Intriguingly, there is no such objection from the company that is doing the paying. Siemens’s Pohlmann dismisses the German prosecutor’s attitude as “thinking in a box.” A private-sector investigation, he insists, is the only tool that can achieve global compliance. “Debevoise has much more advanced forensic and interview techniques,” Pohlmann says, citing, for instance, the firm’s technology for searching electronic documents. “They have more people and their scope is international. As an international company, we need to construct an overall picture of what happened around the world. If you have a Munich prosecutor and a London prosecutor and an Athens prosecutor, you only see fragments of the picture.” In terms of team size, Munich dedicates to Siemens half of the dozen corruption prosecutors that Puhm supervises, with the support of more than 20 police officers and tax auditors. An impressive commitment, but no match for the 200-plus lawyers and auditors that Debevoise and Deloitte can muster. Michael Wiehen, president emeritus of Transparency International in Germany, agrees that a fragmented national system is inadequate. While the Munich office has a proud record, Germany has more than 25 regional prosecution offices, and many are limited in experience, resources, and language skills. The Siemens fine is an outlier, more than 100 times the previous German record for corruption. Unlike U.S. authorities, German prosecutors cannot debar Siemens from contracts, dictate internal controls, or impose a monitor. Siemens’s reaction to its crisis “is probably a model for the world,” says Wiehen. “But if there were no SEC, Siemens would probably not have hired Solmssen and Pohlmann, and the company would have a different attitude. I wish they were a little more scared of German prosecutors.” The ultimate triumph of U.S.-style investigations would be their embrace by European prosecutors in purely European cases. Heiner Hugger of Clifford Chance in Frankfurt sees the beginning of such a trend in the most complex white-collar criminal cases, including corruption cases. “Over the last two years or so,” he says, “German prosecutors have increasingly approached corporate counsel and hinted that they could carry out a dawn raid, but that this would be a lot of work for them and not really improving the clients’ image with the general public. They say, ‘Look, you can avoid this by carrying out an internal investigation and cooperating.’ It’s a current development.” Perhaps this is a glimpse of the future. But other European attorneys interviewed for this article have not seen such a phenomenon, and don’t expect to see it, because-as Puhm demonstrates-the culture is unreceptive. “It’s a dream,” says Burkard Göpfert of Gleiss Lutz. “Internal investigation will never be an alternative to domestic German prosecution.” So long as U.S. regulators set the agenda in multinational boardrooms, that may not much matter. Everyone interviewed expects to see more international investigations of multinational companies driven by U.S. prosecution. And European companies are sure to be targets. A recent PricewaterhouseCoopers International Limited study shows that only 61 percent of German companies have ethical guidelines, compared with 91 percent of North American companies. “European corporations are slow in adapting to a changed legal landscape,” says Bruno Cova of Paul, Hastings. “Siemens will not be the only case of noncompliance.” E-mail: [email protected].

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