Tognum uncovers $32 million in commissions that may have been wrongfully paid

Article by Christian Andrei, on October 19, 2011

At least 23 million euros ($32 million) of wrongfully paid commissions at Tognum AG’s MTU Friedrichhafen unit were discovered. Daimler AG and Rolls-Royce Group Plc are in the process of acquiring Tognum, a German engine manufacturer. These commissions are from sales of defense-related products in South Korea.

According to a management summary of a draft report prepared for Tognum by Ernst & Young GmbH, some of the funds were used to put up members of the Korean military at Asian vacation resorts and night clubs in the Bangkok red-light district. This document, which is part of an internal review, was centered on commissions given to a South Korean businessman.

In the advisory section of the Sept. 26 draft report, Ernst & Young recommended "an examination of the implementation of current compliance measures" for sales partners and payments at Tognum's units outside Germany.

Ever since Siemens AG was involved in a bribery scandal, German companies have intensified anti-corruption efforts. The controversy is related to 1.3 billion euros of "unclear payments" that resulted to a $1.6 billion settlement with prosecutors in Germany and the U.S.

Last year, Daimler agreed to pay $185 million to resolve a U.S. investigation of bribes that have been paid in 22 countries. On August 26, Daimler said that in a 50-50 joint-venture bid in March, Daimler and Rolls-Royce secured a minimum of about 97% of Tognum shares.

Daimler was the previous owner of Tognum before it was sold to private equity firm EQT Partners in 2006. Tognum said that the results of the probe could be released this week. Tognum is the second largest manufacturer of high-speed diesel engines for the marine, energy and defense industries in the world. [source: Bloomberg]

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