U.S. SEC to Limit Charges Against Allianz

By | October 17, 2011

The U.S. Securities and Exchange Commission does not plan to charge Allianz SE for illegal activity at its private equity investments, according to two people familiar with the matter, in a case that could have tested the agency’s reach.

Europe’s largest insurer has been under investigation in the United States for alleged corruption at a joint venture in Indonesia and at a German printing equipment maker it owns through a private equity arm.

While the SEC is expected to settle the Indonesia investigation in the coming weeks, it will not bring charges related to the private equity holdings, in part due to German ownership laws that make it difficult to obtain information, one of the people said.

“We confirm discussions with SEC on a settlement. It is our policy to fully cooperate with authorities. In the meantime we took the proper consequences in order to avoid such misbehavior to happen again,” said Michael Matern, a spokesman for the company.

An SEC spokesman declined comment.

The case involves allegations an Allianz joint venture paid bribes to win contracts to insure big infrastructure projects in Indonesia and whether the printing equipment maker paid bribes in Europe and elsewhere.

The SEC’s decision marks a tough start to the agency’s efforts to hold private equity funds and other investors responsible for corruption at companies they have stakes in.

The SEC and Justice Department have turned to financial services as a new area of interest as they have ramped up their enforcement of the Foreign Corrupt Practices Act. The law bars U.S.-linked companies from paying bribes to foreign government officials.

But complicated foreign investment structures and data privacy laws may make those cases difficult to prosecute.

Allianz Capital Partners owns just over 60 percent of the voting rights of the company at issue, manroland AG, but the stake is a passive one.

Allianz does not exercise day-to-day control over the company and, under German law, it cannot force manroland to turn information over to it or the SEC.

The entity that allegedly paid the bribes is a Swiss subsidiary of manroland, making the link to the corporate parent at least three levels removed.

The case gets even more complicated for the SEC because the parent firm, Allianz SE, used to be listed on the New York Stock Exchange, but removed its shares in 2009 citing a desire to focus on German capital markets.

The case began when a whistleblower at the company’s operations in Asia contacted its outside auditors at KPMG with allegations of corruption. The auditors informed the board, which hired Claudius Sokenu, a partner at Arnold & Porter, to conduct an internal investigation.

The allegations centered on Allianz’ business in Indonesia.

The firm originally entered the market through a joint venture with a state-owned entity and the projects let the firm get a foothold into the Indonesian insurance market.

The investigation turned up evidence of bribe payments there, and in India and China.

The manroland conduct turned up later, when German tax authorities began to investigate.

Allianz is expected to pay between $7 million and $10 million in penalties to settle the SEC case. German prosecutors continue to examine the manroland conduct.

A lawyer for Allianz, Joel Cohen at Gibson, Dunn & Crutcher, declined to comment. Sokenu and a spokesman for KPMG did not respond to a request for comment.

Whether the problems with getting documents will hinder future foreign bribery cases against investment funds remains to be seen. It may be easier for the agency to bring cases related to problems that should have surfaced during an acquisition.

“They are always fact-based inquiries, but where a company has an ownership interest or a stake in a subsidiary, the SEC is going to be looking very carefully at what steps the firm has taken to ensure policies are compliant and what due diligence it did prior to that acquisition,” said Luke Cadigan, a former SEC lawyer who is now a partner at K&L Gates.

(Reporting by Aruna Viswanatha; editing by Andre Grenon)

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