[ by Howard Haykin ]

The SEC on Monday charged Germany-based insurance and asset management company Allianz SE with violating the books and records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA) for improper payments to government officials in Indonesia during a 7-year period.  Allianz, headquartered in Munich, agreed to pay more than $12 million to settle the SEC’s charges.

The SEC’s investigation uncovered 295 insurance contracts on large government projects that were obtained or retained by improper payments of $650,000 by Allianz’s subsidiary in Indonesia to employees of state-owned entities.  These transactions generated over $5.3 million in profits for the firm..

“Allianz’s subsidiary created an 'off-the-books' account that served as a slush fund for bribe payments to foreign officials to win insurance contracts worth several million dollars.” --  Kara Brockmeyer, Chief of SEC Enforcement Division’s FCPA Unit.

SEC Findings and Allegations.   According to the SEC’s order instituting settled administrative proceedings against Allianz, the misconduct occurred from 2001 to 2008 while the company’s shares and bonds were registered with the SEC and publicly traded on the NYSE. 

Two complaints brought the misconduct to Allianz’s attention. In 2005, a submitted complaint reported unsupported payments to agents;  a subsequent audit of accounting records at Allianz’s subsidiary in Indonesia uncovered that managers were using “special purpose accounts” to make illegal payments to government officials in order to secure business in Indonesia.  The misconduct continued in spite of that audit.

In 2009, a 2nd complaint was made to Allianz’s external auditor, alleging that Allianz failed to properly account for certain payments in their books and records. The improper payments were disguised in invoices as an “overriding commission” for an agent that was not associated with the government insurance contract.  In other instances, the improper payments were structured as an overpayment by the government insurance contract holder, who was later “reimbursed” for the overpayment. Excess funds were then paid to foreign officials who were responsible for procuring the government insurance contracts. Allianz lacked sufficient internal controls to detect and prevent the wrongful payments and improper accounting.

SEC Alleged Securities Violations and Agreed-Upon Sanctions.   Allianz is alleged to have violated the books and records and internal controls provisions of the FCPA - specifically Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.

To settle SEC charges, Allianz agreed pay $12.4 million in disgorgement, prejudgment interest, and a penalty.

SEC Staff Credits.   Investigation by Irene Gutierrez, Jennifer Baskin, Tracy Price of the FCPA Unit.

For further details, go to:   [SEC PR 12-266, 12/17/12].