Risk & Compliance

DaimlerChrysler Bribery Charges Probed

U.S. Justice Department investigators and German federal authorities are looking into allegations that the automaker's Mercedes unit paid bribes in...
Stephen TaubAugust 5, 2005

DaimlerChrysler is reportedly being investigated by several regulators in at least two countries.

The U.S. Justice Department is probing charges that members of the automaker’s embattled Mercedes unit paid bribes in at least 12 countries and that senior executives may have been aware of the practice, according to The Wall Street Journal.

German federal authorities joined the investigation after the July 22 suicide of Rudi Kornmayer, managing director of the company’s plant in Nigeria, according to the report. The paper’s sources say investigators are looking at a suicide note that refers to the bribery inquiry.

Although DaimlerChrysler’s operations in Latin America and Africa are also being probed, the nature and purpose of the alleged payments haven’t been disclosed, according to the Journal.

In late July, the company disclosed that it identified “accounts, transactions and related payments that are subject to special scrutiny,” according to the newspaper. DaimlerChrysler reportedly stated that it’s cooperating fully with the investigation and “voluntarily sharing…information from its own internal investigation” with U.S. authorities in response to their subpoenas.

Last November, the Securities and Exchange Commission investigated charges made by a former employee in DaimlerChrysler’s audit department that the automaker used secret bank accounts to bribe government officials.

The company said at the time that the SEC had opened an investigation concerning DaimlerChrysler’s compliance with the U.S. Foreign Corrupt Practices Act (FCPA). The act bars U.S. public companies and foreign issuers here from bribing foreign officials to gain business and from setting up slush funds to fund such bribery.

Bribery has become a critical issue for multinationals, including those that have engaged in the practice and those mulling a deal with violators. Late last year, a number of companies consulted with the Justice Department about possible bribery lapses before moving forward with cross-border acquisitions, according to a report in the Journal.

Besides reducing their financial risk, prospective acquirers are looking into whether target companies have violated the FCPA. The exercise has actually slowed down deals and even killed some altogether, the paper reported at the time.

Meanwhile, the news about the bribery probes comes at a tough time for DaimlerChrysler. In late July, the company’s chief executive officer, Jürgen Schrempp, announced he would resign at the end of this year. The Journal later reported that German financial supervisor BaFin launched an investigation into possible insider trading in DaimlerChrysler’s stock. The probe reportedly stems from suspicious trading activity in the hours preceding the official announcement of Schrempp’s resignation. BaFin is investigating whether DaimlerChrysler fulfilled its obligations under the stock-exchange disclosure requirements, the newspaper added.

“We are looking at potential insider trading ahead of the announcement of the resignation of Jürgen Schrempp,” a BaFin spokeswoman said, according to the newspaper. “There are signs of increased trading ahead of the official announcement. All trading related to DaimlerChrysler stock is under scrutiny. Every trade will be examined in connection with a potential insider-trading probe.”

The Journal later reported that at least six more high-ranking DaimlerChrysler executives cashed in stock options following Schrempp’s resignation announcement.