DCX probe spans globe

Internal probe reveals bribes; ex-FBI chief hired as monitor

David Shepardson / Detroit News Washington Bureau

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Bribery probe

People familiar with a two-year internal DCX probe into bribery by company officials say:

The company found multiple instances of bribes paid in foreign countries.

Ex-FBI director Louis Freeh was hired by DCX as internal monitor.

The investigation is costing the company tens of millions of dollars. .

DCX has turned over findings and documents to federal officials.

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WASHINGTON -- DaimlerChrysler AG has hired former FBI director Louis Freeh to serve as an outside monitor as it nears the end of a two-year internal investigation that has uncovered multiple instances of bribery by company employees, according to people familiar with the situation.

The massive internal investigation found employees at the automaker's Mercedes division bribed officials in Asia, Africa and Eastern Europe, the people said.

The bribery allegations, brought to light in 2004 by company whistle-blowers, also are the focus of a civil investigation by the Securities and Exchange Commission and a criminal probe by the Justice Department.

Company officials would not comment on the findings of the internal probe.

"The company is very determined to operate our business with the highest ethical standards. We take these matters very seriously," DaimlerChrysler spokesman Han Tjan said. "We're still conducting our investigation."

At its height, the internal investigation led by prominent Washington, D.C., attorney Robert Bennett involved 85 lawyers and nearly as many accountants reviewing millions of documents and conducting hundreds of interviews. The company's legal, accounting and consulting bills connected to the probe have topped tens of millions of dollars, a person familiar with the matter said.

Investigators traveled to 25 countries and interviewed dozens of people, including former DaimlerChrysler Chairman Juergen Schrempp and other executives, the people said. Investigators also uncovered evidence of secret bank accounts.

This fall, DaimlerChrysler hired Freeh as a consultant to monitor the company's compliance with anti-bribery regulations and to review its internal investigation. Freeh's hiring hasn't been announced publicly.

Efforts by The News to reach Freeh, who works as a consultant to companies facing legal issues, were unsuccessful.

DaimlerChrysler has been regularly debriefing the SEC and Justice Department on the findings of its investigation and has turned over interview summaries and documents.

The bribes were seen by some company officials as an accepted way of doing business in many countries, according to people familiar with the investigation. In some cases, the amount of bribes was based on how many Mercedes vehicles were sold in a given market, the people said. In certain instances, investigators struggled to follow the money trail because intermediaries were used.

While DaimlerChrysler's internal probe is nearing completion, federal officials aren't expected to complete their investigations until 2007. Serious settlement discussions aren't expected until early next year.

Aiming to minimize penalties

DaimlerChrysler is clearly aiming to minimize any fines or sanctions by hiring Freeh as an internal monitor and providing federal investigators with the findings of the exhaustive internal investigation.

DaimlerChrysler, which is based in Stuttgart, Germany, and controls the Auburn Hills-based Chrysler Group, could face charges under the Foreign Corrupt Practices Act, a 1977 law designed to prevent U.S. companies from acting unethically abroad, because its stock is listed on the New York Stock Exchange.

German companies could deduct certain types of bribes on their taxes until the late 1990s.

German prosecutors in Stuttgart also are investigating whether the company violated anti-bribery and disclosure laws.

In March, DaimlerChrysler revealed in its annual report that an undisclosed number of executives have been disciplined or fired as a result of the investigation and admitted that "improper payments" were made in Asia, Africa and Eastern Europe.

The company reduced 2005 net income by $84.5 million and 2005 operating profit by $21 million to account for the improper payments. It also faces the prospect of having to pay back taxes. Still unclear is how much senior executives knew of the arrangements.

No U.S.-based employees are believed to be involved.

Whistle-blower cases settled

On Dec. 6, the company settled the last of two 2004 whistle-blower suits filed in U.S. District Court in Detroit that prompted the probe. Christine Holtzmann had alleged the company ignored reports of accounting fraud and mishandled audits. She said she was fired in December 2003 after an 18-year career with the automaker after speaking up about the fraud.

In July 2005, DaimlerChrysler settled a 2004 wrongful-firing suit filed in U.S. District Court in Detroit by former Chrysler accountant David Bazzetta.

Bazzetta claimed he was fired in January 2004 in part because he talked to superiors about as many as 40 secret bank accounts maintained by the Mercedes unit to bribe foreign government officials.

He said in his lawsuit he learned of the bank accounts during a corporate audit committee meeting in July 2001 in Stuttgart. According to court filings, Bazzetta claimed a vice president of corporate audit, Hubertus Buderath, told a group "a common practice of Daimler Benz was the use of secret bank accounts to bribe government officials." Buderath allegedly told then-chairman Schrempp that 40 of those accounts still existed and "were buried deep in (the company's) balance sheet." Schrempp denied knowledge of any accounts.

SEC lawyers interviewed Bazzetta and Holtzmann.

Point man is powerful lawyer

The point man for DaimlerChrysler in the internal investigation is Bennett, a high-powered attorney who has represented Enron and KPMG in corporate scandals. He was President Clinton's personal attorney in the Paula Jones civil case and is a partner in Skadden, Arps, Slate, Meagher & Flom LLP.

Bennett declined to comment.

Skadden partner Colleen Mahoney, a former deputy director of enforcement at the SEC, who is also involved in the DaimlerChrysler internal investigation, could not be reached. Two other Skadden Arps partners, former assistant U.S. attorney Gary DiBianco and Mitchell Ettinger, a former chief prosecutor for the Air Force, also have been involved in the probe.

Mark F. Mendelsohn, deputy chief of the Justice Department's fraud section, and Frederic D. Firestone, an SEC associate director of enforcement, who are overseeing the government's investigations into DaimlerChrysler, also declined to comment.

Numerous German companies have faced bribery investigations -- Volkswagen AG for allegedly bribing union officials and most recently engineering giant Siemens AG for allegedly bribing customers using secret bank accounts.

Experts said the government's focus on DaimlerChrysler may be to send a message to the world's third-largest economy to take bribery more seriously.

"The U.S. government really wants to encourage the Germans to crack down," said Peter Henning, a Wayne State University law professor and former SEC attorney. "It's the principle here. The amounts are usually never that large. It's surprisingly cheap to bribe public officials in the Third World."

The SEC has ramped up enforcement of its anti-bribery laws recently, filing more than 100 cases in 2006.