Monsanto agrees to fines over bribes in Indonesia
By Rachel Melcer
Of the Post-Dispatch
Thursday, Jan. 06 2005
Monsanto Co. affiliates made more than $700,000 in illicit payments to
Indonesian government officials between 1997 and 2002, according to documents
filed Thursday in U.S. District Court in Washington.
The agribusiness and biotech-seed company, based in Creve Coeur, said it will
pay $1.5 million in fines and submit to independent monitoring for three years
in order to settle related charges brought by the Securities and Exchange
Commission and the Justice Department.
"We accept full responsibility for the improper activities that happened in
that five-year period. That is not the kind of behavior that we condone or
accept in Monsanto," spokeswoman Lori Fisher said. "We are glad to be able to
begin the process of putting this behind us, and we're sorry that anyone
affiliated with Monsanto ever acted in this manner."
Monsanto detected the first signs of wrongdoing, conducted an internal
investigation and then reported itself to the federal agencies in November
2002, Fisher said. The company's cooperation made the settlement possible,
according to both the Justice Department and the SEC.
But the problems would not have occurred if Monsanto had tighter internal
controls and oversight of its Indonesian partners, said Paul Berger, assistant
director of enforcement with the SEC.
The company failed to audit its Indonesian businesses between 1996 and 2001,
although those operations were included in Monsanto's consolidated financial
statements, according to an SEC complaint. Berger said these kinds of controls
violations are commonly associated with bribery schemes.
"That's where, fundamentally, the problem lies. The company failed to establish
internal controls and that leads the company down the road of potentially being
able to do wrong," he said. Proper controls "could have prevented payments of
bribes."
The SEC charges that Monsanto's Indonesian affiliates created more than 20
"nominee companies." These were used to invoice Monsanto for false product
registration fees and inflate sales of its pesticides.
Indonesian managers then siphoned money from these "unauthorized and improperly
documented sales" to finance at least $700,000 of illicit payments to at least
140 current and former Indonesian government officials and their family members
between 1997 and 2002, the SEC charged.
The largest set of payments, totaling $373,990, were to the wife of a senior
Ministry of Agriculture official who used the money to buy land and design and
build a house, the charges said. Other "slush fund" payments were for travel
and gifts, such as cellular phones and golf-club memberships, the charges said.
Meanwhile, Monsanto was reporting these sales and charges as legitimate in its
consolidated statements to the SEC.
Fisher said the company could not send U.S.-based auditors to Indonesia during
this period because political turmoil and instability had led the State
Department to advise against Americans visiting there, so the Indonesian
affiliates were left to run and monitor themselves.
Yet, Monsanto's problems did not stop at the Indonesian border. The Justice
Department charges center on a former U.S.-based "senior Monsanto manager" who
authorized the payment of a $50,000 bribe. The scheme played out in late 2001
and early 2002 - after Monsanto had detected problems with its Indonesian
business and commenced its internal investigation.
The manager, whom the company is not identifying, advised an Indonesian
consultant to "incentivize" an Indonesian environment official, according to
the Justice Department charges. The manager advised the consultant how to bill
for the bribe, and then authorized its payment at company headquarters. They
wanted the official to repeal a law requiring an annual environmental
assessment of Monsanto's genetically modified cotton, which would have made it
difficult for the company to do business there. The official took the money,
but the law never was repealed, the charges state.
Monsanto is paying a $1 million fine to the Justice Department related to this
particular charge. It is paying another $500,000 to the SEC for this as well as
the overarching problems. It also will retain and open itself up to scrutiny by
an independent consultant, who for three years will review its policies and
procedures relating to the Foreign Corrupt Practices Act.
In addition, Monsanto has restructured its Indonesian operations, revised its
accounting procedures and implemented an expanded compliance program under the
corrupt practices act. It also fired anyone involved in improper activities.
Monsanto continues to sell hybrid corn seed and Roundup herbicide in Indonesia,
and manufactures Roundup there for distribution throughout the Asia Pacific
region. However, it decided in January 2003 to halt sales of genetically
modified cotton seeds because of "uncertainty surrounding the regulatory
framework," Fisher said.
Bryan Sierra, a Justice Department spokesman, said the company's level of
cooperation in the investigation has been "significant." If all of the
settlement conditions have been met in three years, "Their interests have been
met, our interests have been met" and these charges against Monsanto will be
dropped, he said.
Several dozen companies have faced charges related to violations of the Foreign
Corrupt Practices Act over the last few years, and more such cases are sure to
come, Sierra said.
"It's not uncommon," he said. But "It's bad business for them, it's bad
business for the American economy and, certainly, it's bad business for the
host government. It's something we recognize as a problem, (that) we're trying
to address as best we can."
Monsanto Indonesia timeline
According to charges by the Securities and Exchange Commission and the U.S.
Justice Department:
1996 to 2001: Monsanto fails to audit its Indonesian affiliates.
1997 to 2002: These affiliates make at least $700,000 of illicit payments to at
least 140 current and former Indonesian government officials and their family
members.
March 2001: Monsanto becomes aware of possible financial irregularities in its
Indonesian business and begins an internal investigation.
Late 2001: A "senior Monsanto manager" authorizes a $50,000 bribe by a
Jakarta-based consultant to an Indonesian environment official. The payment is
meant to "incentivize" the official to repeal a law that hindered Monsanto's
plans to sell genetically modified cotton in the country.
Nov. 2002: Monsanto completes its internal review and voluntarily discloses
irregularities to the Justice Department and SEC. These do not include the
alleged $50,000 bribe, which Monsanto failed to detect.
Jan. 2003: Monsanto decides not to continue selling genetically modified cotton
in Indonesia, due to issues with its regulatory framework.
March 2004: Monsanto discloses to the public that the Justice Department and
SEC are expanding their investigation into the company's Indonesian business.
Jan. 2005: Monsanto reaches a $1.5 million settlement with the SEC and the
Justice Department. The federal agencies say their investigation is continuing.
Reporter Rachel Melcer
E-mail: rmelcer@post-dispatch.com
Phone: 314-340-8394
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