Corporate Monitoring The Enforcers

Following Volkswagen's decision to appoint an external monitor as part of its Dieselgate settlement, former FBI chief Louis Freeh, who once did a similar job for Daimler, discusses how best to carry out compliance with Bilfinger Chief Compliance Officer Olaf Schneider.
Former FBI director Louis Freeh (left) and Bilfinger's Chief Compliance Officer Olaf Schneider offer their thoughts on corporate compliance. Photo: Bert Bostelmann for HB

Volkswagen appears to have no shortage of heavyweight compliance specialists ready to offer advice for revamping its corporate culture.

Louis Freeh, former head of the U.S. Federal Bureau of Investigation, said he would consider working as a Volkswagen compliance monitor in the wake of the carmaker’s settlement with the U.S. Justice Department.

“I would certainly think it over if asked. I’d surely want to speak with a lot of people about it before making any decisions,” Mr. Freeh told Handelsblatt in an interview.

The former FBI chief has past experience monitoring a German automaker's settlement with U.S. authorities. In 2010, he was appointed by a U.S. court to monitor Daimler's compliance with a $185-million settlement for corruption charges. At the time, Mr. Freeh was known as an effective and strict enforcer of rules, which included monitoring telephone calls and establishing an internal system for whistleblowers.

For Mr. Freeh, VW now needs to do everything it can to meet its monitoring obligations.

VW recently reached a $4.3-billion settlement with the Justice Department in January over the diesel emissions scandal. As part of the settlement, the company will be on probation for three years and subject to oversight by an independent monitor.

Our whole idea of how we regulate financial institutions and foreign companies has to be reconsidered. The way we’re doing it today goes beyond a valid interest of U.S. authorities in companies. Louis Freeh, former FBI chief

Mr. Freeh acknowledged that he held discussions with VW’s former legal chief, Christine Hohmann-Dennhardt, in January 2016, but he wouldn’t confirm rumors that he was asked to work for the automaker as a consultant.

Ms. Hohmann-Dennhardt, a former German Supreme Court judge, had previously worked together with Mr. Freeh on Daimler's monitoring in 2010. After joining VW's supervisory board last year to help the company improve its corporate culture, Ms. Hohmann-Dennhardt left the company last month. Her surprise departure had many observers questioning VW's commitment to reform.

Reflecting on his experience wading through Daimler's bribery issues, Mr. Freeh emphasized that the system can work well if the company being monitored accepts it needs to change and cooperates. During his time at Daimler, he said, disputes between himself and the company were resolved without having to go back to the government for mediation.

Car makers are not the only companies to have been ordered to take on a U.S. monitor. The services group giant Bilfinger had a monitor imposed on it after being accused of corruption in Africa. The company agreed at the end of last year to extend the monitoring until 2018 citing a need to make more progress.

Olaf Schneider, the man in charge of compliance at Bilfinger , said that changes to the culture of the company have to come from the top and insisted Bilfinger was going in the right direction. “We are making discernible progress. Change is happening at all levels,” he said.

Mr. Schneider cited the company's willingness towards new forms of compliance. This included being open about releasing its annual number of whistleblowers, compliance cases, disciplinary measures and employee calls to the compliance help desk.

These and other measures are estimated to cost Bilfinger well over €50 million from 2015 to 2019, but Mr. Schneider insists the company has recouped the cost in other ways. For example, it recently pulled back on a planned takeover due to the fact that the company to be purchased was involved in a bribery scandal and had allegedly received compensation from a DAX company accused of running a cartel.

Nevertheless, both Mr. Schneider and Mr. Freeh agree that there are dangers to state imposed over-monitoring.

Mr. Freeh in particular is critical of how U.S. authorities have pursued companies in recent years. He said “the pendulum has swung too far” when it comes to compliance. The former FBI chief believes the Trump administration will roll back regulations and said he would welcome the change.

“But I think our whole idea of how we regulate financial institutions and foreign companies has to be reconsidered,” Mr. Freeh said. “The way we’re doing it today goes beyond a valid interest of U.S. authorities in companies.”

For Mr. Freeh, the U.S. government tendency has been to hit shareholders for a company’s wrong doing. In contrast, he insisted a focus on the individuals who have broken the law would be more beneficial. The latter is a strategy that had been previously outlined by former Justice Department federal prosecutor Sally Yates in the so-called "Yates Memo" from 2015, which called for the prosecution of executives in corporate misconduct investigations. "After all, it's human beings that break laws," Mr. Freeh stressed.

Ultimately, both Mr. Freeh and Mr. Schneider agree that German corporate culture appears to have improved. "It's gotten a lot better over the last 10 years, " said the former FBI director. "The commitment and sense of obligation towards compliance has increased. I would say it has reached the level of American companies."

 

Martin Murphy covers the steel, car and defense industries for Handelsblatt. Grischa Brower-Rabinowitsch leads Handelsblatt's coverage of companies and markets. To contact the authors: [email protected] and [email protected]