By on April 29, 2010

Have you ever done serious business in Russia? Nyet? If you want to keep your conscience pure, don’t. It’s a “gotta pay to play” country. If you don’t make regular payments, the best that can happen to you is that you are out of business. In more serious cases, you pay with your life – a common currency in that country.

Behind that backdrop, it’s humorous to read that “the Russian Prosecutor-General’s Office has asked the United States to provide information about corruption that reportedly accompanied the sale of Mercedes limousines by Russian law enforcement agencies, Prosecutor-General Yuri Chaika told the Federation Council.” That according to Russia’s news agency ITAR-TASS. (It’s “sale to law enforcement agencies.” Someone with lesser English may have made a payment. See video.)

“When the news was broken that the US Department of Justice exposed corruption that accompanied the sale of Mercedes cars to Russian law enforcement agencies, we called a special meeting at once,” Prosecutor-General Yuri Chaika said. The meeting was most likely about who got how much money, and were the proper amounts forwarded to the higher-ups. Chaika said he sent the letter to  DC three weeks ago. No reply has been received in Moscow: “We are waiting for the results from the United States,” Chaika said.

On March 25, the Russian Kommersant newspaper reported that officials may have received more than $5 million between 2000 and 2005 as payoffs. ITAR-TASS’s competition at RIA Novosti says that was “7.8 percent of the total worth of the contracts signed during that period.” The meetings will most likely center on the fact that Daimler got a good deal. The “commission” payments should be higher. The New York Times reported that “ordinary Russians pay more than $3 billion in bribes annually and that businesses paid $316 billion.”

The Russian Defense Ministry already complained that they received no money. “Russia’s Defense Ministry rubbished on Saturday media reports of corruption linked to purchases of Daimler AG vehicles,” says RIA Novosti. (Re “rubbished,” refer to video.) Simple: “The Defense Ministry has never purchased and does not purchase Mercedes vehicles,” a Defense Ministry spokesman said. No sale, no kickback. Vy ponimayete meniya?

The SEC ordered Daimler’s Russian unit to pay $27.4 million in fines, as part of  a $185m settlement between Daimler, the Department of Justice (DOJ,) and the Securities and Exchange Commission (SEC).

Is that a case of “Thank you, I already gave in Washington?” That won’t work, it will just make the Russians angrier. Given that the U.S. Treasury made $185m out of a measly $5m payment to the Russians over 5 years, one can have sympathy with the Russians: “Discrimination! Those bleeping Amerikanski got all the money and bought nothing!”

Daimler spokeswoman Ute von Vellberg said the company is willing to cooperate fully with the local authorities. And by now, we should have developed an idea how that works. The cost of doing business is spiraling out of control.

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15 Comments on “Daimler Probed By Russia After DOJ Shakedown...”

  • avatar

    I lived and worked in Moscow 1992 to 1998 — it was “The Wild Wild East”. Guys would show up with bags of cash, or guns (sometimes both). There are two ways to do business in Russia — legally or profitably. Chose one.

    I do have fond memories of my Lada Zhguli 06 — the best of Italian design combined with the best of Russian quality control.


  • avatar

    I still don’t see how the US DOJ has jurisdiction over a what a German companies Russian subsidary does? Shouldn’t the EU have handled this?

  • avatar

    From all I’ve read about Soviet business ethics and contemporary business practices by former gov’t bureaucrats “limousines by Russian law enforcement agencies” might actually be a Freudian slip.

  • avatar

    Color me as confused as moedaman is.

    What does the US has to do with something between a German company and the Russian government?

    • 0 avatar

      The way I understood it, because Mercedes has operations in the US and is traded in a US stock exchange, we declared that we had jurisdiction over their financial dealings. The reality is we have a big market and big military so no business or government is likely to stand up to us. 3rd world corruption is nothing compared to 1st world corruption.

    • 0 avatar

      Daimler AG is listed on the big board which is subject to both NSYE & SEC rules. That is part of the listing requirement.

  • avatar

    Lumbergh21 is right. That’s why several big German companies will draw back from the US stock exchange. No gain, too much cost, too much 1st-world corruption.

  • avatar

    So Russia is different from New Jersey? How?

  • avatar
    Telegraph Road

    Daimler AG paid a $185 million fine to resolve civil and criminal charges brought respectively by the U.S. DOJ and SEC over accusations it paid tens of millions of dollars in bribes to at least 22 foreign governments over a 10-year period, including BUT NOT LIMITED TO nearly $5 million in payments to Russian government officials and companies linked to the government officials between 2000 and 2005.

    Unrelated, German prosecutors are now investigating HP for allegedly paying 8 million Euros to Russian officials in kickback payments. It’s good to see that Germany and the United States are both serious about their international commitments to prosecute foreign bribery and corruption.

    • 0 avatar

      Not too long ago, the German government took the – sensible – position that “commissions” were a legal and even tax deductible expense, if incurred in a country where such payments are necessary to stay competitive. Under OECD pressure, this was changed. After the change, the “useful expenditures” (as they were euphemistically called) could still be deducted, unless a court of law had declare the act as bribery. Which was rarely the case.

      The HP thing is largely seen as a tit for tat for Daimler. If you beat my dog, I’ll beat your dog.

      I think the DOJ should get its own Blagojeviches under control, and legalized corruption, a.k.a. campaign contributions should be outlawed. The DOJ has no business shaking down foreign companies for what they do in foreign lands. Isn’t there a RICO law?

      In the words of Twotone, going overboard with this leads to two options: Doing business legally or profitably. Third option: Doing business so profitably that you can pay off the DOJ.

      What this does is drive business to countries which have a more realpolitik view of the matter. How much does one complain about the balance of payment?

    • 0 avatar
      Telegraph Road

      I’m not sure who Twotone is. But Daimler AG allegedly created a U.S. shell company to pay bribes, funneling payments through U.S. banks. U.S. laws rightly apply.

      The HP raids in Russia were instigated by German authorities because the payments originated in Germany. German laws rightly apply.

      Bribery and corruption are a blight on global commerce. It is fortunate that U.S., German, and now especially Russian prosecutors are enforcing their national laws outlawing bribery.

      By the way, here in America we associate realpolitik with Henry Kissinger’s rationalization for prolonging U.S. involvement in the futile Vietnam War.

  • avatar

    Sorry Bertel but it’s still corruption and those involved are corrupt. Smear all the honey on it you want if you’re involved you are just a business whore, nothing more.

  • avatar
    Tricky Dicky

    Thanks Bertel – once again your sardonic humo(u)r re: the Russian bribery has cheered up my Friday afternoon.

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