What can compliance violations cost companies?
In addition to major reputational damage, there have been several cases around the world in recent years which demonstrate the massive penalties companies face if they fail in their compliance duties. Three examples:
The Cum-Ex Scandal
Martin Shields and Nicholas Diable, two British investment bankers, went on trial in Germany in 2020 for helping to structure a massive tax evasion scheme known as Cum-Ex trading. This scheme siphoned up to €55bn in European public funds. Cum-Ex transactions took advantage of a now-abandoned method of taxing dividends which made it possible to get multiple refunds through a combination of short sales and other transactions. Seen as a landmark case, both investment bankers received suspended prison sentences and Martin Shields received a fine of €14 million. Hamburg bank M.M. Warburg, which is also involved in the lawsuit, was ordered to repay almost €177million to the state. Criminal prosecutors in Cologne continue their investigation into more than 50 other Cum-Ex trades with more than 400 suspects.
VW was making a major push to sell diesel cars in the US, backed by a huge marketing campaign trumpeting its cars’ low emissions. In 2015 the Environmental Protection Agency (EPA) found that many VW cars being sold in America had a “defeat device” – or software – in diesel engines that could detect when they were being tested, changing the performance accordingly to improve results. The German car giant has since admitted cheating emissions tests in the US. Getting caught in the United States kicked off a chain reaction that cost the automaker a fortune globally. The DoJ has charged six executives with conspiracy to defraud the United States and violate the Clean Air Act. The Dieselgate scandal is estimated to have cost Volkswagen more than €30bn in fines, penalties and buyback costs worldwide.
Siemens Bribery Scandal
In 2006 a colossal corruption scandal involving Siemens, one of the world’s largest electrical engineering companies, shocked the world. The scale of it marked it out as the biggest corruption case of the time. For years the company had pretended to do business according to the highest ethical and legal standards but, since at least the 1990s, Siemens had organised a global system of $1.4bn in bribes to government officials to enable them to win bids across the world. US and Germany launched investigations and ultimately secured a historic sanction of US$1.6 billion.