Green-based ATM maker has agreed to pay $48 million — including a $25 million criminal penalty
Diebold has agreed to pay $48 million — including a $25 million criminal penalty — to resolve allegations that it bribed foreign banking officials with money, globe-trotting trips and gifts to advance its ATM business.
The settlement was outlined in documents filed Tuesday in the U.S. District Court for the Northern District of Ohio. It requires Diebold to strengthen internal controls, cooperate fully with the U.S. Department of Justice and retain a compliance monitor for 18 months.
In addition to the criminal penalty, the company will pay nearly $23 million in a settlement with the Securities and Exchange Commission.
If Diebold abides by the agreement for three years, federal prosecutors will seek to dismiss charges that the company violated the Foreign Corrupt Practices Act.
“It sends, hopefully, a pretty clear message that bribery, whether it’s bribery here at home or bribery abroad, is against the law and that there’s going to be a very steep price to pay for individuals and companies that allow that kind of conduct to occur,” said Steven M. Dettelbach, U.S. Attorney for the Northern District of Ohio.
The announcement wasn’t a total surprise. In August, Diebold told analysts that it was settling a corruption case that would cost the company $48 million.
“It’s imperative for us to recognize these issues head-on, acknowledge responsibility and just put the FCPA investigation behind us, so we can get on with the business of managing the company,” Diebold spokesman Mike Jacobsen said.
TRIPS AND GIFTS
The Justice Department and the SEC said Diebold falsified records and bribed banking officials in China, Indonesia and Russia. The company voluntarily disclosed the conduct to the SEC in 2010, Jacobsen said.
In China, Diebold spent approximately $1.6 million on trips, entertainment and gifts for officials at six government banks between 2005 and 2010. Numerous bank employees went on trips to destinations such as Paris, Amsterdam, Rome, Australia, Las Vegas, Disneyland and the Grand Canyon, according to the SEC complaint.
Diebold’s former executive vice president for International Operations and former vice president for the Asia Pacific region personally approved the payments and accompanied Chinese officials on trips. The bribes were disguised by making payments through third parties and recording the trips as training expenses. During the same time, Diebold saw approximately $265 million in sales to banks whose officials received bribes, according to the SEC complaint.
The conduct was similar in Indonesia, where the company spent $147,000 on trips and entertainment for officials at three government banks. Diebold generated $16 million in sales to the same banks from 2005 to 2010, according to the SEC complaint.
In Russia, Diebold used phony contracts with an ATM distributor to funnel $1.2 million in bribes to employees of privately held banks between 2005 and 2008.
Although clues to possible corruption surfaced as early as 2007 in both China and Russia, the company didn’t initiate a global compliance review until 2010, when evidence surfaced regarding the Russian bribes.
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Jacobsen said Diebold has worked hard to establish policies and training programs to help its global employees comply with the law.
“We’re confident given the experience we’ve gained working through this investigation that we can manage ethics-related issues as they arise,” he said.
The company also has put aside the money needed to pay the financial penalties.
Jacobsen said Diebold’s decision in August to offer early retirement to 1,200 workers — including 350 in Northeast Ohio — and to freeze the pensions of 3,000 other employees, was part of a general effort to cut expenses, and not directly related to paying this settlement.
Dettelbach said he doesn’t anticipate more charges being filed “in the foreseeable future.”
Much of the conduct occurred in Diebold offices abroad and the individuals involved are not U.S. nationals, he said.
The SEC complaint identifies the executives who approved the Chinese bribes as Taiwanese citizens living in China. They resigned from Diebold in December 2011.
That the company self-reported the violations shouldn’t be overlooked, the prosecutor said.
“That is something that is extremely important,” Dettelbach said. “They rightfully deserve and have received credit for that, and it also, I think, gives significant cause for hope that Diebold is going to use this unfortunate chapter as a way to make sure that these kinds of things never happen again.”
Diebold stock closed at $29.92, up 20 cents from Tuesday’s open.