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Automotive Industry

From its earliest days, the automotive industry has transacted across international borders whether as a local manufacturer or distributor.

Today’s auto manufacturers possess global networks of suppliers, vendors, manufacturing plants and sales distributors. Compliance risks are highest in areas relating to international sales alignments, channel marketing, and vendor and supplier contracts.

In instances where certain technologies cannot be manufactured in the host country, it’s necessary to bring these from elsewhere. Problems usually arise though, when having to deal with the host countries protectionist tariffs. Traditionally, manufacturers would hire agents who specialized in dealing with customs officials and the regulations governing imports. However this practice is coming under increased scrutiny because of the inherent risk of bribery to speed up the importation process.

As underscored by recent enforcement actions, violations of the Foreign Corrupt Practices Act have the ability to impact not only a transaction’s timing and successful completion, but also its ultimate price In some cases, infractions can result in significant penalties, with costs being borne by the acquiring company. In these instances, there is often no recourse to acquisition agreement attestations, recoveries, or setoffs.

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Case Study

Company: Daimler AG
Charges: Bribery of government officials
Penalty:

$185 million


German-based Daimler AG is the thirteenth-largest car manufacturer and second-largest truck maker in the world. Daimler also manufactures buses, and provides financial services through Daimler Financial Services.

On April 1, 2010, the SEC charged Daimler with paying at least $56 million in bribes to foreign government officials in order to secure business. The payments, which took place over a period of more than 10 years, were widespread, involving more than 200 transactions in at least 22 countries. According to the SEC, Daimler earned $1.9 billion in revenue and at least $90 million in illegal profits through these transactions, which involved the sale of more than 6,300 commercial vehicles and 500 passenger cars.Daimler also paid kickbacks to Iraqi ministries in connection with direct and indirect sales of motor vehicles and spare parts under the U.N. Oil for Food Program.

"It is no exaggeration to describe corruption and bribe-paying at Daimler as a standard business practice," said Robert Khuzami, Director of the SEC's Division of Enforcement. "The financial and reputational costs incurred by Daimler as a result are a lesson that should be studied closely by all companies."

Daimler agreed to pay $91.4 million in disgorgement to settle the SEC's charges, as well as $93.6 million in fines to settle charges in separate criminal proceedings.

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