ATM maker Diebold dispensed cash and posh travel to foreign officials, pays DOJ and SEC penalties

For years, Diebold’s automatic teller machines (ATMs) have dispensed cash to millions of customers in 90 countries. Now it appears the Ohio-based company also has been dispensing a lot of money on its own without the benefit of its vaunted machines, dispensing money and other favors to public officials in China, Indonesia and Russia to obtain business advantages.
Last week, the company admitted to making dozens of improper payments and expensive favors to far public officials and violating the US Foreign Corrupt Practices Act (FCPA). It will pay nearly $23 million in civil penalties to the Securities and Exchange Commission. And, it will pay an additional $25 million to resolve a case brought by the US Dept. of Justice under the FCPA.

Catering to vacation travel whims of foreign public officials

To secure business in China and Indonesia, Diebold treated officials to lavish trips in the US, Europe, Australia, New Zealand and Bali, the SEC complaint said. In one case, eight officials of a government-owned bank in China enjoyed a two-week trip at Diebold’s expense that included stays in Paris, Brussels, Amsterdam, Cologne, Frankfurt, Munich, Salzburg, Vienna, Klagenfurt, Venice, Florence, and Rome.

Diebold also fostered tourism by these and other public officials in the United States, regaling them with stops at the Grand Canyon and Napa Valley, Disneyland and Universal Studios. Las Vegas, New York, Chicago, Washington D.C., and Hawaii were also part of some itineraries of the favored public officials, the SEC said.

In Russia, the SEC said Diebold’s Russian subsidiary bribed officials of private banks that were considering the purchase of ATM machines. The bribes were funneled through a distributor in Russia who used false service contracts to hide and record the payments as legitimate business expenses.

Two regulators enforce the FCPA

The FCPA, which was enacted in 1977, prohibits US entities and individuals from making corrupt payments to foreign officials for the purpose of obtaining business benefits. Enforcement of the law has increased dramatically in the past five years. In addition to prohibiting corrupt payments to public officials, the law also requires the maintenance of accurate and complete records and accounting procedures. The latter provisions are enforced by the SEC.
DOJ signs Deferred Prosecution Agreement with Diebold

The Justice Department’s criminal information against Diebold was coupled with a Deferred Prosecution Agreement, which were filed on October 22, 2013 in the US District Court for the Northern District of Ohio. The FCPA anti-bribery and so-called books and records provisions are found at Title 15, US Code Sections 78dd-1, 78m(b)(2) and (5), and 78ff(a).

Diebold attempted to disguise the payments and favors by various means, according to the Justice Department’s criminal information. They included payments through third parties that had been designated by the favored officials at the subject banks and by the false recording of leisure trips for bank officials as “training.”

The court papers also state that from 2005 to 2009, Diebold created and entered into false contracts with a distributor in Russia for services the distributor was not performing. The distributor used the money that Diebold paid to bribe employees of Diebold’s bank customers in Russia in order to obtain and retain ATM contracts.

Diebold must implement new internal controls under settlement

Diebold must also implement rigorous internal controls, cooperate fully with the Justice Department, and retain a compliance monitor for 18 months. The department agreed to defer prosecution for three years. If Diebold abides by the terms of the deferred prosecution agreement, the criminal information will be dismissed.

The agreement acknowledges Diebold’s voluntary disclosure and extensive internal investigation and cooperation.

SEC complaint details amounts of bribes in China and Indonesia

The SEC also documents the false recording of expenditures by Diebold in order to hide the corrupt payments to foreign public officials. It says the company’s books and records recorded the bribes as legitimate training expenses. The improper payments included dozens of small annual cash gifts ranging from less than $100 to more than $600.

SEC focused on lack of internal controls, false accounting and records

The SEC also accused Diebold of failing to have internal controls in place to detect and prevent the improper payments and falsely recording the improper payments as legitimate business expenses in the company’s books.

Diebold officials did not return calls or email seeking comment.

Click to see the following documents:

Diebold Deferred Prosecution Agreement

Diebold SEC