07.03.2024

Cooperation pays off – Penalty reduction for SAP

SAP received penalty reduction for extensive cooperation with US authorities

In January 2024, the German software company SAP SE reached an agreement with the US Department of Justice and the US Securities and Exchange Commission to settle the official investigations against the company into violations of the Foreign Corrupt Practices Act. The case illustrates how companies can benefit from cooperating in the investigation and remediation of such violations and from the DOJ’s Compensation Incentives and Clawbacks Pilot Program.

Background on the Deferred Prosecution Agreement

Following an extensive investigation into violations of the Foreign Corrupt Practices Act (“FCPA”), SAP, headquartered in Walldorf, Germany, entered into a three-year Deferred Prosecution Agreement (“DPA”) with the US Department of Justice (“DOJ”) on January 10, 2024. In the DPA, SAP admitted the allegations against it and agreed to pay a total fine of approximately USD 220 million and to forfeit an additional USD 103 million. In addition, SAP agreed to continue to cooperate with the authorities in all ongoing investigations.

In particular, the listed software company was accused of paying bribes to government officials in South Africa, Indonesia and other countries between 2013 and 2018. At the same time, the US Securities and Exchange Commission (“SEC”) investigated violations of the Securities Exchange Act in connection with bribery practices in South Africa, Malawi, Kenya, Tanzania, Ghana and Indonesia as well as improper gifts to government officials in Azerbaijan. SAP has since reached an agreement with the SEC to pay a fine of USD 85 million, which will be offset against the DOJ fine. The fines paid to the South African authorities will also be offset.

Withholding compensation and extensive cooperation

The case demonstrates that timely remediation by companies accused of FCPA violations in particular pays off: Applying the Compensation Incentives and Clawbacks Pilot Program introduced in March 2023 (see our blog post from March 15, 2023), the authorities credited almost USD 110,000 for compensation incentives that SAP had withheld or clawed back from employees who were involved in the alleged misconduct or who knew of their employees’ misconduct and intentionally ignored it. Even more significant than the reduction for compensation withheld by SAP is the credit for the fine imposed by the DOJ: In recognition of its prompt and extensive cooperation with the authorities, the DOJ granted SAP a 40% reduction in the fine. In particular, the DOJ acknowledged that SAP provided regular and detailed updates to the US authorities about the results of its own internal investigation, produced relevant documents, made employees available for interviews, analysed complex financial information, translated foreign-language documents, and secured mobile phone data – in particular those from messaging services – at an early stage. However, the DOJ emphasised that it could not grant a higher reduction because SAP reported the violations only after they had been reported in the media.

DOJ Pilot Program provides incentives

The SAP case not only demonstrates the international efforts of the US authorities to combat corruption and to coordinate with foreign authorities, but also emphasizes the incentives for companies to cooperate with official investigations and to take remedial action that can ultimately reduce the amount of a fine. As in the case of the US chemical company Albemarle, which received a 45% reduction in its fine in recognition of its extensive cooperation and remediation efforts, the DOJ has demonstrated that the Compensation Incentives and Clawbacks Pilot Program is being in practice by the authorities and that companies accused of FCPA violations can benefit significantly from it.

Broad application in substance, limited impact in amount

As shown, the DOJ took into account SAP’s recovery of compensation already paid to employees involved in the violations. In addition, the DOJ also took into account bonuses to be withheld in the future. In this respect, the DOJ’s understanding is likely to be broad. Nevertheless, it should be noted that the amount of the reclaimed remuneration of just under USD 110,000 is rather modest. It should also be noted that a company’s compensation and bonus system is subject to local labour law and that the recovery or withholding of compensation components is not always legally permissible or successful.

Exceptionally high discount for cooperation

SAP’s proactive approach and cooperation before and during the investigation resulted in a significantly higher credit. In particular, the DOJ acknowledged the following aspects of SAP’s cooperation:

• Thorough internal investigation: SAP conducted an internal investigation of the misconduct and shared its findings with the DOJ. The resulting transparency, access to relevant information, and regular, timely and detailed reporting to the authorities were key elements of the cooperation.
• Cooperation with foreign authorities: From the outset, SAP also cooperated with other foreign authorities in their investigations, demonstrating its commitment to resolving the violations worldwide.
• Facilitating witness interviews: SAP made employees who had material information about the matters under investigation available for interviews, either voluntarily or at the request of the authorities. SAP also took steps to facilitate the interviews while time taking into account the witnesses’ safety concerns. In some cases, this enabled the authorities to gain access to individual witnesses for the first time.
• Timely provision of information, analyses and translations: SAP provided prompt and complete information and documents from a variety of countries to support the official investigation. The company also analysed complex financial information and translated extensive foreign-language documents to simplify and accelerate the official investigation.
• Securing and analysing phones: SAP secured the phones of relevant individuals at the beginning of the internal investigation to provide relevant and probative data and business communications via mobile messaging applications.
• Remediation: SAP continued to take remedial actions to address the issues related to the breaches and to prevent similar breaches in the future, including enhancing internal controls and compliance programs.

Overall, SAP’s proactive approach and remediation efforts were key factors in the DOJ’s recognition of the cooperation and reduction of the fine. In contract, SAP did not receive credit for voluntarily disclosing the misconduct because the violations in question were not disclosed to the DOJ until after they had been reported in the press.

Actions that companies can take to prevent violations

Notwithstanding this specific case, companies in similar situations can take a number of remedial actions to prevent similar breaches in the future, such as:

• Review and enhance compliance programs: Companies should continually improve their compliance programs to ensure that they are robust and effective in preventing and detecting FCPA violations.
• Establish controls: Companies should have effective internal controls and mechanisms in place to reduce the risk of unauthorised payments.
• Conduct third party due diligence: Companies should implement appropriate due diligence processes for third party intermediaries and business partners to ensure that they comply with anti-corruption standards. If gaps are identified, these processes should be strengthened and reviewed for effectiveness.
• Raise awareness: Companies should provide their employees and key stakeholders with understandable and company-specific anti-corruption training and education to raise awareness of FCPA requirements and ethical standards.
• Implement monitoring and audits: Companies should implement regular monitoring and auditing procedures to detect and remediate potential violations.
• Establish reporting mechanisms: Companies should establish mechanisms for employees, business partners, customers and other stakeholders to report suspected unethical or illegal behaviour confidentially and without fear of retaliation. This is the only way for companies to become aware of a suspicion in the first place, investigate it and resolve the misconduct.
• Cooperate with authorities: Companies should cooperate to the best of their ability with US and other law enforcement authorities around the world and continue to do so even after formal proceedings have been initiated. This will expedite the official investigation and help resolve the matter. It also demonstrates the company’s willingness to clarify the misconduct quickly and comprehensively, which – as the SAP case shows – may result in a reduction of the fine.

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