'Useful Payments' US Investigators Crack Down on Daimler's Culture of Corruption

After corruption scandals involving engineering giant Siemens and truck manufacturer MAN, Daimler is now in the spotlight. The US is pressing charges against the carmaker over alleged bribery payments to foreign governments. The case will likely be settled out of court.

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Sometimes two letters are enough to tell an entire story. In this case, the two letters, which were printed on the labels of three files in a safe at the Mercedes-Benz office in Istanbul, were "N.A."

The German automaker produces busses in Turkey, which it sells in countries around the world, including North Korea, Latvia, Bulgaria, Romania and Russia. The company apparently paid €3.3 million ($4.4 million) in bribes to secure business in these countries.

This, at least, is the way the United States Securities and Exchange Commission (SEC) interprets the content of the files with the letters "N.A." -- an abbreviation for the words "Nützliche Aufwendungen" ("useful payments") -- printed on the label. It's another -- and very German -- way of saying "bribes."

The story behind the files is particularly dramatic, because it also involved the suicide of an executive. Rudi K., who worked for Mercedes-Benz's parent company Daimler in Nigeria, was apparently involved in the payments. He was faced with a difficult choice: report poor sales figures or risk a jail term.

American attorneys questioned K. for several days. He later told his wife that he was treated like a hardened criminal and was under "enormous pressure." Then K. committed suicide.

Good at Corruption?

The affair has proved to be extremely expensive for automaker Daimler, which is set to pay $185 million to settle a lawsuit in the United States. The case raises many questions. How could a respected global corporation like Daimler apparently have violated German and international law for years by paying bribes in at least 22 countries around the world? Could it be that the Daimler case is in fact typical for Germany, which until recently was the world's largest exporter? Are German companies as good at corruption as they are at exporting?

It hasn't been long since two other major German companies, electronics giant Siemens and the industrial group MAN, were found to have engaged in bribery on a large scale. Last Wednesday, prosecutors searched the headquarters of industrial services provider Ferrostaal. The company is suspected of having used secret payments to promote the sale of submarines and oceangoing tugs, and of having managed bribes for other companies.

The so-called "useful payments" known as "N.A." are payments to people who are expected to be of use to the company in the contract-awarding process, including government officials, cabinet ministers and heads of state, as well as their wives and children. Such payments were legal in Germany until 1998 and were even tax deductible.

But then Germany was forced to bow to US pressure. In 1977, the Foreign Corrupt Practices Act made it illegal for American companies to bribe foreign business contacts. Washington complained that US companies stood to lose billions in contracts because they, unlike companies in Germany and other countries, were barred from paying bribes. Germany, at the time the world's second-largest exporter after the US, responded by imposing its own ban on the bribing of foreign decision-makers.

Business as Usual

That was in 1999. Since then, foreign bribes have been banned by law in German companies. The Mercedes-Benz files in Istanbul were however discovered in 2006. The legal framework had changed, but the company's business practices apparently had not.

According to the complaint filed by the "United States of America" against "Daimler AG," Daimler had "an inadequate compliance structure" as well as "a corporate culture that tolerated and/or encouraged bribery."

Many of these payments were apparently based on a clearing system through which the bribes were processed, completely legally, during the period when the practice was still allowed under German law. For most of its foreign subsidiaries, the German parent company maintained so-called internal "third-party accounts" (TPAs).

These accounts were used, for example, to transfer discounts and commissions to which the subsidiaries were entitled when they sold the parent company's vehicles abroad. The foreign subsidiaries had access to these accounts, which, as an internal audit report states, were to be handled with "absolute confidentiality."

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ewulf 03/31/2010
1. Ethics code
The problem of corruption is not a new one.It will stay on ,as long as firms do not apply an ethic code for management practices.Firms take advantage of everything at their disposal ,to get business done.It does not work self regulation.Therefore, whether its is either a legal flaw about privilege information, weak ethics code, or wrong cultural values, it will be possible "useful ways" to get along with business, which otherwise could end up anywhere. Firms with no ethis code ,should be punish,as much as those firms who take advantage of it.-
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