Zetsche Focuses on Bribery Scandal

March 12, 2006

DC Profits $3.4 Billion in 2005 by Joseph Szczesny (2/20/2006)
Chrysler Group gets nearly $2 billion in credit for the gains.

<[email protected]@[email protected]@>DaimlerChrysler's Dieter Zetsche has always been an excellent student of culture, popular and otherwise. Zetsche had no problem zeroing in on the notion that hip-hop could boost sales, for example. Zetsche may also sense that a current scandal could give him leverage in changing DaimlerChrysler, as reports from Germany this week suggest he's moving to put an end to a culture of corruption that seemed to have developed inside the company during Juergen Schrempp's tenure as chief executive.

While the discussions of the scandal's scope began last autumn, Zetsche has until now sidestepped questions and said he had plenty of confidence in the company's auditing practices.

However, with the release of DaimlerChrysler's annual report for 2005, Zetsche has taken the offensive. In the report, the company disclosed that in recent years a small number of the company's employees had paid or received bribes while conducting company business in various part of the world.

The U.S. Securities Exchange Commission had been investigating the bribery charges, the annual report noted. The SEC investigation was triggered by a lawsuit by a DaimlerChrysler employee based in Auburn Hills, who said he was fired after questioning the existence of accounts in various countries that were used to funnel payments to local officials. The lawsuit was settled but not before allegations that bribery was considered an accepted business practice in some countries in which Mercedes-Benz operated had found their way into print.

The charges also are being investigated by authorities inGermany. The case already has been a factor in the suicide of one of DaimlerChrysler's minor executives who had apparently worked for Mercedes-Benz in Africa. The suicide and allegations of misconduct followed on the heels of a separate investigation that had uncovered misconduct on the part of employees in the Mercedes-Benz sales organization in Germany.

DaimlerChrysler also was tagged by a third investigation - this one the highly publicized probe of the UN's oil-for-food program, a probe headed by Paul Volcker under the auspices of the United Nations. DaimlerChrysler was one of companies cited by Volcker for paying bribes to middlemen in return for contracts in Saddam Hussein's Iraq. Schrempp had publicly assured shareholders in 2004 that the business in Iraq was all legal.

DaimlerChrysler's annual report did not give an exact number of employees involved in the illicit conduct, but noted that 13 employees had been cited by the SEC for improper conduct related to the Iraq program.

<[email protected]@[email protected]@>"We are voluntarily sharing with the DOJ and the SEC information from our own internal investigation of certain accounts, transactions and payments, primarily relating to transactions involving government entities, and are providing the agencies with information pursuant to outstanding subpoenas," the report said. "In connection with our internal investigation, we have identified and self-reported potential tax liabilities to tax authorities in several jurisdictions. These tax liabilities of DaimlerChrysler AG and certain foreign affiliates result from misclassifications of, or the failure to record, commissions and other payments and expenses."

The changes were substantive enough that they actually required adjustments to the DaimlerChrysler balance sheet. "We are taking action to address and resolve the issues identified in the course of our investigation to safeguard against the recurrence of improper conduct," the report added. -Joe Szczesny

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