Document:

WWW.EXFILE.COM, INC. -- 14656 -- SCHNITZER STEEL INDUSTRIES, INC. -- EXHIBIT 10.3 TO FORM 8-K

    EXHIBIT
      10.3

    
 

    UNITED
      STATES DISTRICT COURT 

    DISTRICT
      OF OREGON

    

     

    
      	UNITED STATES OF AMERICA	 : No. CR
              06-398        UNDER
              SEAL	 
	 	 :	 
	
               v.

            	 : INFORMATION 	 
	 	 : 	 
	 	 : 15 U.S.C. § 78dd-3 [FCPA]	 
	 	 : 15 U.S.C. § 78m(B)(5)
              [FCPA-Accounting]	 
	SSI INTERNATIONAL	 : 18 U.S.C. § 371
              [Conspiracy]	 
	FAR EAST, LTD. 	 : 18 U.S.C. § 1343 [Wire
              Fraud]	 
	 	 : 18 U.S.C. § 2 [Aiding and
              Abetting]	 
	 	 	 

    

    

    The
      defendant having waived in open court prosecution by indictment, the United
      States Attorney charges:

     

    COUNT
      ONE

    

    A. Introduction

    

    At
      all
      times relevant to this Information:

     

    1.
      The
      Foreign Corrupt Practices Act of 1977 (hereinafter, the “FCPA”), as amended, 15
      U.S.C. §§ 78dd-1, et seq.,
      prohibited certain classes of persons and entities from making payments to
      foreign government officials to obtain or retain business. Title 15, United
      States Code, Section 78dd-3, specifically prohibited any person other than
      an
      issuer or domestic concern, while in the territory of the United States, from
      corruptly making use of the mails or any means or instrumentality of interstate
      commerce in furtherance of an offer, promise, authorization, or payment of
      money
      or anything of value to a foreign official for the purpose of obtaining or
      retaining business for, or directing business to, any person or securing any
      improper advantage.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    Schnitzer
      Steel Industries, Inc.

     

    2.
      Schnitzer Steel Industries, Inc. (hereinafter, “Schnitzer Steel”), headquartered
      in Portland, Oregon, was a publicly-traded company organized under the laws
      of
      Oregon with offices in Oregon, California and Washington. Schnitzer Steel was
      engaged in the vertically-integrated businesses of metals recycling, automobile
      parts, and steel manufacturing. 

     

    3.
      Schnitzer Steel maintained a class of securities registered pursuant to Section
      12(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78l) and was required
      to file reports with the United States Securities and Exchange Commission under
      Section 13 of the Securities Exchange Act (15 U.S.C. § 78m). Accordingly,
      Schnitzer Steel was an issuer as that term is defined in the FCPA (15 U.S.C.
§
78dd-1, et seq.).

     

    SSI
      International Far East, Ltd.

     

    4.
      From
      in or about 1995 to the present, the defendant, SSI International Far East,
      Ltd.
      (hereinafter, “SSI KOREA”), was a wholly-owned subsidiary of Schnitzer Steel,
      organized under the laws of the Republic of Korea (hereinafter, “South Korea”).
      Defendant SSI KOREA assisted in the sale of ferrous recycled metal (hereinafter,
      “scrap metal”) by Schnitzer to customers in South Korea and in the People’s
      Republic of China (hereinafter, “China”) and acted as a broker for the sale of

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    scrap
      metal by Japanese suppliers to steel producers in South Korea. Defendant SSI
      KOREA maintained its principal office in Seoul, South Korea. It was managed
      by
      SSI International, Inc., a wholly-owned subsidiary of Schnitzer Steel in Tacoma,
      Washington. Defendant SSI KOREA was a “person other than an issuer or a domestic
      concern” within the meaning of the FCPA, 15 U.S.C. § 78dd-3.

     

    5.
      Defendant SSI KOREA acted as Schnitzer Steel’s agent in South Korea and China,
      maintaining the business relationships with all of Schnitzer Steel’s scrap metal
      customers in those countries. SSI KOREA also transmitted requests to the United
      States for approval and wire transfer of funds for payment to managers of
      Schnitzer Steel’s customers in South Korea and China in connection with sales of
      scrap metal to those customers. Accordingly, defendant SSI KOREA acted within
      the territorial jurisdiction of the United States. 

     

    6.
      The
      defendant SSI KOREA, on behalf of its parent, Schnitzer Steel, engaged in
      long-standing business transactions with steel producers in Asia, some of which
      were wholly or partially owned by the Government of China. These
      government-owned steel production companies were “instrumentalities” of a
      foreign government and their officers and employees were “foreign officials,”
within the meaning of the FCPA, 15 U.S.C. § 78dd-3(f)(2)(A). 

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    B. The
      Co-Conspirators

     

    7.
      An
      employee of SSI International, Inc., a wholly-owned subsidiary of Schnitzer
      Steel, who is a resident of Tacoma, Washington, and was acting as an agent
      of
      the defendant SSI KOREA (hereinafter, “Officer A”), who is named as a
      co-conspirator but not as a defendant herein, was employed by SSI International,
      Inc. from in or around 1995 through 2005. From in or around March 2000 to in
      or
      around May 2004, Officer A was a senior officer of SSI International, Inc.
      and
      was responsible for Schnitzer Steel’s Asian scrap metal sales. Officer A’s
      duties included, among other things, negotiating sales of scrap metal with
      steel
      production companies in Asia on behalf of Schnitzer Steel; handling invoices
      from SSI KOREA for payment in connection with sales to Schnitzer Steel’s
      customers in Asia; and forwarding to Schnitzer Steel’s offices in Portland,
      Oregon, for processing and authorization wire transfer requests for payment
      to
      managers of Schnitzer Steel’s scrap metal customers in China and South Korea.
      Officer A’s job responsibilities also included frequent travel to China and
      South Korea in connection with managing Schnitzer Steel’s scrap metal sales and
      finalizing sales contracts with customers there.

     

    8.
      Another Schnitzer Steel employee (hereinafter, “Officer B”), a resident of
      Portland, Oregon, who is named as a co-conspirator but not as a defendant
      herein, was employed as a 

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    senior
      executive officer of Schnitzer Steel, based in Portland, Oregon, from at least
      1990 to 2005. Officer B’s responsibilities included, among other things, setting
      policy for the sale of scrap metal to Asian customers, approving all such sales,
      authorizing wire transfer requests for payment to managers of customers of
      Schnitzer Steel and directly supervising the work of Officer A. 

     

    C. The
      Conspiracy and its Objects

     

    9.
      From
      in or about 1995 through in or about August 2004, in the District of Oregon
      and
      elsewhere, defendant SSI KOREA did unlawfully, willfully and knowingly conspire
      and agree with Officer A, Officer B and other persons, known and unknown, to
      commit the following offenses against the United States:

     

    Object
      No. 1 - Foreign Corrupt Practices Act

     

    To
      violate the Foreign Corrupt Practices Act by the use of the mails and of means
      and instrumentalities of interstate commerce corruptly in furtherance of an
      offer, payment, promise to pay, and authorization of the payment of any money,
      and anything of value to foreign officials for purposes of: (I) influencing
      acts
      and decisions of such foreign officials in their official capacities; (II)
      inducing such foreign officials to do and omit to do acts in violation of the
      lawful duty of such officials; (III) securing an improper advantage; and (IV)
      inducing such foreign officials to use their influence with 

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    foreign
      governments and instrumentalities thereof to affect and influence acts and
      decisions of such governments and instrumentalities in order to assist defendant
      SSI KOREA in obtaining and retaining business for and with, and directing
      business to, SSI KOREA and Schnitzer Steel, contrary to Title 15, United States
      Code, § 78dd-3(a); 

     

    Object
      No. 2 - Wire Fraud

     

    To
      transmit and cause to be transmitted in interstate commerce by means of wire
      communications certain signs, signals and sounds, having devised and intending
      to devise a scheme and artifice to defraud, and for obtaining money and property
      by means of materially false and fraudulent pretenses, representations and
      promises, contrary to Title 18, United States Code, § 1343; and 

     

    Object
      No. 3 - FCPA False Books and Records

     

    To
      further violate the Foreign Corrupt Practices Act by knowingly falsifying the
      books, records, and accounts which were required, in reasonable detail, to
      accurately and fairly reflect the transactions and dispositions of the assets
      of
      Schnitzer Steel, an issuer within the meaning of the FCPA, contrary to Title
      15,
      United States Code, §§ 78m(b)(2)(A), 78m(b)(5) and 78ff(a).

     

    D. Purpose
      of the Conspiracy

     

    10.
      The
      primary purpose of the conspiracy was to make 

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    cash
      payments to officers and employees of foreign-owned steel production companies,
      both government-owned and private, in order to induce employees of those
      companies to do business with, and provide preferential terms to, defendant
      SSI
      KOREA and Schnitzer Steel. 

     

    E. Manner
      and Means of the Conspiracy

     

    11.
      The
      manner and means by which defendant SSI KOREA and its co-conspirators
      accomplished the objects of the conspiracy, included, but were not limited
      to,
      the following:

     

    a.
      It was
      part of the conspiracy that from at least as early as 1995 through in or about
      August 2004, SSI KOREA conspired with Schnitzer Steel, through Officer A,
      Officer B and other persons, known and unknown to the United States Attorney,
      to
      authorize and make payments, principally in cash, to officers and/or employees
      (hereinafter collectively referred to as “managers”) of government-owned and
      private steel production companies in China and South Korea to
      induce
      those companies
      to purchase scrap metal from Schnitzer Steel at advantageous prices.

     

    b.
      It was
      a further part of the conspiracy that from at least as early as 1999 through
      in
      or about August 2004, Schnitzer Steel, through Officer A, Officer B and other
      persons, known and unknown to the United States Attorney, made the payments
      to
      the managers of Schnitzer Steel’s scrap metal customers in each instance as
      follows: Schnitzer Steel routinely 

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    received
      invoices from defendant SSI Korea for payment to such managers which were
      associated with scrap metal shipments to customers of Schnitzer Steel. Officer
      A
      and others subsequently executed wire transfer requests specifying the bank
      account into which the payments would be made and identifying the type of
      payments to be made, and forwarded the wire transfer requests for payment to
      Schnitzer Steel’s offices in Portland, Oregon for processing. One or more of
      Schnitzer Steel’s senior executives then approved the requests and authorized
      the payments. During this time period, Officer B approved and authorized at
      least forty requests for payments to managers of Schnitzer Steel’s customers in
      China and South Korea.

     

    c.
      It was
      a further part of the conspiracy that, to facilitate the transfer of payments
      from Schnitzer Steel to managers of its scrap metal customers in China and
      South
      Korea, certain employees of defendant SSI KOREA, which was previously known
      as
      MMI International Far East, Ltd., opened a series of bank accounts in South
      Korea which were not reflected in the books and records of Schnitzer Steel
      or
      SSI KOREA. These off-the-books accounts, which were maintained from in or about
      1995 through in or about 2004, were opened in the names of relatives of certain
      employees of SSI KOREA.

     

    d.
      It was
      a further part of the conspiracy that Schnitzer Steel, through Officer A,
      Officer B and others, wire 

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    transferred
      and authorized the wire transfer of funds from its bank account in Portland,
      Oregon to the off-the-books bank accounts affiliated with employees of defendant
      SSI KOREA. Following the wire transfer of funds into the off-the-books accounts,
      employees of SSI KOREA withdrew pre-approved sums of cash and/or obtained bank
      checks, which were then given to the managers of Schnitzer Steel’s scrap metal
      customers in China and South Korea.

     

    e.
      It was
      a further part of the conspiracy that Officer A traveled to South Korea and
      made
      direct cash payments and/or instructed employees of defendant SSI KOREA to
      make
      direct cash payments on behalf of Schnitzer Steel to managers of its scrap
      metal
      customers in China and South Korea. 

     

    f.
      It was
      a further part of the conspiracy that the following types of payments, among
      others, were made to managers of government-owned and private steel production
      companies:

     

    Commission
      Payments

     

    (i)
      From
      at least as early as 1999 through in or about August 2004, Schnitzer Steel
      made
      cash payments in connection with nearly every sale of scrap metal from
      the
      United States to managers of its customers in China and South Korea, which
      payments were reflected on Schnitzer Steel’s books and records as “commissions.”
The commissions, which were included in the purchase price of the scrap metal,
      were paid in cash directly to 

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    a
      manager
      of a private or government-owned customer. As set forth in Paragraphs 11(b)
      and
      (c), Schnitzer Steel effectuated the payment of the illegal commissions by
      approving wire transfer requests and wire transferring funds to off-the-books
      bank accounts affiliated with employees of defendant SSI KOREA.

     

    (ii)
      Between in or about September 1999 and in or about September 2001, defendant
      SSI
      KOREA, acting as a broker as described in Paragraph 4, above, paid at least
      135 commission
      payments on behalf of Japanese scrap metal suppliers to managers of steel
      production companies in China and South Korea. Of these commission payments,
      at
      least approximately $3,823.35 were paid to managers of government
“instrumentalities,” as defined in Paragraph 6, above.

     

    (iii)
      The
      standard commission payments to managers of foreign-owned steel production
      companies were $.15 per ton for scrap metal sold to companies in China, and
      $.25
      per ton for scrap metal sold to companies in South Korea. Between in or about
      September 1999 and August 2004, employees and agents of defendant SSI KOREA
      paid
      approximately $774,600 in total commission payments to managers of steel
      production companies in China and South Korea. At least approximately $104,300
      of the total commission payments were paid directly to managers of government
      “instrumentalities,” as defined in Paragraph 6, above.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    Refunds

     

    (iv)
      In
      addition to the commission payments described above, from in or about September
      2001 to August 2004, Schnitzer Steel made separate cash payments in connection
      with its sales of scrap metal to managers of its government-owned and private
      customers in China and South Korea, which payments were reflected on Schnitzer
      Steel’s books and records as “refunds” or “rebates” to the customers
      (hereinafter, “refunds”). As with commission payments, Schnitzer Steel paid
      refunds by inflating the price of a scrap metal contract, causing the customer
      to overpay Schnitzer Steel for the scrap metal purchase, and ultimately passing
      on the inflated amount as cash to the manager of the customer. As set forth
      in
      Paragraphs 11(b) and (c), and starting in or around September 2001, Schnitzer
      Steel paid the refunds by wire transferring and approving the wire transfer
      of
      funds to off-the-books bank accounts affiliated with employees of defendant
      SSI
      KOREA.

     

    (v)
      Between in or about May 2002 and in or about September 2002, defendant SSI
      KOREA, acting as a broker as described in Paragraph 4, above, made refund
      payments on behalf of Japanese scrap metal suppliers to managers of steel
      production companies in South Korea.

     

    (vi)
      The
      standard refund varied from $.025 per ton to $1.00 per ton for scrap metal
      sold
      to scrap metal customers in China and South Korea. Between in or about May
      2001
      and August 

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    2004,
      approximately $889,400 in total refund payments were made to managers of
      Schnitzer Steel’s scrap metal customers in Asia. At least approximately $57,200
      of the total refund payments were paid directly to managers of government
“instrumentalities,” as defined in Paragraph 6, above. 

     

    Gratuities

     

    (vii)
      From at least as early as in or about October 1999 through in or about May
      2003,
      Schnitzer Steel made additional cash payments in the form of gratuities to
      managers of its scrap metal customers, which payments were reflected on
      Schnitzer Steel’s books and records as “gratuities,” “other marine expenses,”
“commissions,” “customer relations,” and/or “bonuses” (hereinafter,
“gratuities”). To fund the gratuities, Schnitzer Steel issued
      corporate checks
      to
      Schnitzer Steel employees, including Officer A, who cashed the checks and
      delivered the gratuities, in the form of cash, to managers of the Chinese and
      South Korean customers, at or around the time that a cargo of scrap metal was
      loaded for shipment in the United States. During this time period, a total
      of
      approximately $45,200 was paid in gratuities, of which at least approximately
      $39,200 were directly paid to managers of government “instrumentalities,” as
      defined in Paragraph 6, above. 

     

    Gifts
      and Entertainment Expenditures

     

    (viii)
      From in or about September 1999 through in or 

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    about
      December 2004, employees of Schnitzer Steel and defendant SSI KOREA spent
      approximately $138,000 in gift and entertainment expenses for managers of
      Schnitzer Steel’s customers in China and South Korea. The gifts and
      entertainment expenditures included, among other things, jewelry, gift
      certificates, perfume, and the use of SSI KOREA’s golf club membership and
      condominium time-share. At least approximately $4,100 of these expenditures
      were
      paid directly to managers of government “instrumentalities,” as defined in
      Paragraph 6, above.

     

    g.
      It was
      a further part of the conspiracy that Schnitzer Steel and defendant SSI KOREA
      failed to account properly for the commissions, refunds and gratuity payments
      to
      managers of government-owned and private steel production companies in China
      and
      South Korea and failed to describe accurately the transactions in Schnitzer
      Steel’s books and records. Instead, SSI KOREA conspired with Schnitzer Steel to
      improperly characterize the payments on the books and records of Schnitzer
      Steel
      as legitimate payments for, among other things, “commissions,” “sales
      commissions,” “commissions to the customer,” “refunds,” “rebates,” “refunds to
      customer,” “rebates to customer,” “quality claims,” “discounts,” “credits,”
“freight savings,” “gratuities,” “other marine expenses,” “customer relations,”
and “bonuses.” 

     

    h.
      It was
      a further part of the conspiracy that in or 

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    about
      August 2004, an employee of the defendant SSI KOREA directed a member of the
      SSI
      KOREA staff to destroy records pertaining to the off-the-books bank accounts
      described in Paragraphs 13 and 14, which the staff member did. Thereafter the
      SSI KOREA employee informed Officer A that those documents had been destroyed.
      

     

    i.
      It was
      a further part of the conspiracy that between in or about September 1999 and
      August 2004, Schnitzer Steel realized profits of approximately $55 million
      on
      scrap metal it sold to customers in China and South Korea, upon which
      commissions, refunds and/or gratuities were paid. Of those sales, approximately
      $6,259,104 in profits resulted from transactions involving government-owned
      customers. During that time period, Schnitzer Steel realized additional profits
      of approximately $420,500 on scrap metal sales by Japanese suppliers for which
      defendant SSI KOREA received a brokerage commission. Of those sales,
      approximately $20,000 in profits resulted from transactions involving
      government-owned scrap metal customers. 

     

    Overt
      Acts

     

       12.
      In
      order to further the objects and purpose of this conspiracy, defendant SSI
      KOREA
      and its co-conspirators, known and unknown to the United States Attorney, did
      commit and cause to be committed the following overt acts, among others, in
      the
      District of Oregon and
      elsewhere: 

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    a.
      On or
      about the dates set forth below, the following payments, among others, were
      made
      via wire transfer from Portland, Oregon, to the off-the-books bank accounts
      in
      South Korea affiliated with employees of defendant SSI KOREA, which payments
      were passed on in cash to managers of Schnitzer Steel’s government-owned scrap
      metal customers in China and South Korea:

     

    
      	 	
               

              Approximate
                Date 

              of
                Wire Transfer

               

            	
               

              Description
                of 

              Payment,
                As 

              Reflected
                in 

              the
                Records of 

              Schnitzer
                Steel 

               

            	
               

              Approximate
                

              Amount
                of 

              Payment

              (U.S.
                

              dollars)

               

            	
               

              SSI
                

              Cargo
                

              Number

               

            
	
               

              (1)

               

            	
               

              June
                1, 2001

               

            	
               

              Commission

               

            	
               

              $3,378.50

               

            	
               

              S2206-T

               

            
	
               

              (2)

               

            	
               

              June
                1, 2001

               

            	
               

              Commission

               

            	
               

              $5,750.00

               

            	
               

              S2200-O

               

            
	
               

              (3)

               

            	
               

              August
                22, 2001

               

            	
               

              Commission

               

            	
               

              $5,371.23

               

            	
               

              S2211-T

               

            
	
               

              (4)

               

            	
               

              September
                10, 2001

               

            	
               

              Commission

               

            	
               

              $5,371.23

               

            	
               

              S2211-T

               

            
	
               

              (5)

               

            	
               

              September
                10, 2001

               

            	
               

              Commission

               

            	
               

              $3,921.83

               

            	
               

              S2207-T

               

            
	
               

              (6)

               

            	
               

              October
                12, 2001

               

            	
               

              Commission

               

            	
               

              $6,049.47

               

            	
               

              S2215-P

               

            
	
               

              (7)

               

            	
               

              October
                12, 2001

               

            	
               

              Refund

               

            	
               

              $6,049.47

               

            	
               

              S2215-P

               

            
	
               

              (8)

               

            	
               

              October
                31, 2001

               

            	
               

              Commission

               

            	
               

              $4,004.64

               

            	
               

              S2219-P

               

            
	
               

              (9)

               

            	
               

              October
                31, 2001

               

            	
               

              Commission

               

            	
               

              $4,084.68

               

            	
               

              S2218-T

               

            
	
               

              (10)

               

            	
               

              November
                21, 2001

               

            	
               

              Commission

               

            	
               

              $4,083.20

               

            	
               

              S2214-T

               

            
	
               

              (11)

               

            	
               

              December
                13, 2001

               

            	
               

              Commission

               

            	
               

              $4,185.48

               

            	
               

              S2226-T

               

            
	
               

              (12)

               

            	
               

              December
                21, 2001

               

            	
               

              Commission

               

            	
               

              $4,206.43

               

            	
               

              S2224-O

               

            
	
               

              (13)

               

            	
               

              February
                6, 2002

               

            	
               

              Commission

               

            	
               

              $3,811.69

               

            	
               

              S2225-O

               

            
	
               

              (14)

               

            	
               

              March
                1, 2002

               

            	
               

              Commission

               

            	
               

              $3,960.25

               

            	
               

              S2231-O

               

            

    

     

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

      
        	 	
                 

                Approximate
                  Date 

                of
                  Wire Transfer

                 

              	
                 

                Description
                  of 

                Payment,
                  As 

                Reflected
                  in 

                the
                  Records of 

                Schnitzer
                  Steel 

                 

              	
                 

                Approximate
                  

                Amount
                  of 

                Payment

                (U.S.
                  

                dollars)

                 

              	
                 

                SSI
                  

                Cargo
                  

                Number

              

      

    

    
      	
               

              (15)

               

            	
               

              March
                1, 2002

               

            	
               

              Commission

               

            	
               

              $3,736.86

               

            	
               

              S2230-T

               

            
	
               

              (16)

               

            	
               

              April
                3, 2002

               

            	
               

              Commission

               

            	
               

              $3,741.20

               

            	
               

              S2232-T

               

            
	
               

              (17)

               

            	
               

              May
                22, 2002

               

            	
               

              Commission

               

            	
               

              $3,716.21

               

            	
               

              S2238-P

               

            
	
               

              (18)

               

            	
               

              June
                14, 2002

               

            	
               

              Commission

               

            	
               

              $3,666.82

               

            	
               

              S2242-T

               

            
	
               

              (19)

               

            	
               

              July
                10, 2002

               

            	
               

              Refund

               

            	
               

              $7,432.41

               

            	
               

              S2238-P

               

            
	
               

              (20)

               

            	
               

              July
                16, 2002

               

            	
               

              Commission

               

            	
               

              $3,958.06

               

            	
               

              S2245-T

               

            
	
               

              (21)

               

            	
               

              September
                20, 2002

               

            	
               

              Commission

               

            	
               

              $6,874.92

               

            	
               

              S2249-P

               

            
	
               

              (22)

               

            	
               

              September
                20, 2002

               

            	
               

              Refund

               

            	
               

              $6,874.92 

               

            	
               

              S2249-P

               

            
	
               

              (23)

               

            	
               

              March
                14, 2003

               

            	
               

              Commission

               

            	
               

              $5,894.50

               

            	
               

              S2270-O

               

            
	
               

              (24)

               

            	
               

              February
                10, 2004

               

            	
               

              Commission

               

            	
               

              $3,816.25

               

            	
               

              S2302-O

               

            
	
               

              (25)

               

            	
               

              February
                10, 2004

               

            	
               

              Refund

               

            	
               

              $6,360.43

               

            	
               

              S2302-O

               

            
	
               

              (26)

               

            	
               

              March
                2, 2004

               

            	
               

              Commission
                

               

            	
               

              $4,650.28

               

            	
               

              S2314-P

               

            
	
               

              (27)

               

            	
               

              March
                16, 2004

               

            	
               

              Refund

               

            	
               

              $15,500.95

               

            	
               

              S2314-P

               

            

    

    

    b.
      On or
      about the dates set forth below, the following payments, among others, were
      made
      via wire transfer from Portland, Oregon to the off-the-books bank accounts
      in
      South Korea affiliated with employees of defendant SSI KOREA, which payments
      were passed on to managers of privately-owned scrap metal customers in China
      and
      South Korea:

      

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    

    
      	 	
               

              Approximate
                Date 

              of
                Wire Transfer

               

            	
               

              Description
                of 

              Payment,
                As 

              Reflected
                in 

              the
                Records of 

              Schnitzer
                Steel 

               

            	
               

              Approximate
                

              Amount
                of 

              Payment

              (U.S.
                

              dollars)

               

            	
               

              SSI
                

              Cargo
                

              Number

               

            
	
               

              (1)

               

            	
               

              June
                4, 2002

               

            	
               

              Commission

               

            	
               

              $7,610.02

               

            	
               

              S2236-O

               

            
	
               

              (2)

               

            	
               

              June
                4, 2002

               

            	
               

              Refund

               

            	
               

              $30,440.07

               

            	
               

              S2236-O

               

            
	
               

              (3)

               

            	
               

              July
                9, 2002

               

            	
               

              Refund

               

            	
               

              $4,566.10

               

            	
               

              S2236-O

               

            
	
               

              (4)

               

            	
               

              January
                16, 2003

               

            	
               

              Refund

               

            	
               

              $32,618.32

               

            	
               

              S2264-O

               

            
	
               

              (5)

               

            	
               

              February
                25, 2003

               

            	
               

              Commission

               

            	
               

              $8,154.58

               

            	
               

              S2264-O

               

            
	
               

              (6)

               

            	
               

              March
                4, 2003

               

            	
               

              Refund

               

            	
               

              $15,500.00

               

            	
               

              S2271-P

               

            
	
               

              (7)

               

            	
               

              March
                19, 2003

               

            	
               

              Commission

               

            	
               

              $7,750.00

               

            	
               

              S2271-P

               

            
	
               

              (8)

               

            	
               

              April
                23, 2003

               

            	
               

              Refund

               

            	
               

              $13,786.28

               

            	
               

              S2272-O

               

            
	
               

              (9)

               

            	
               

              April
                24, 2003

               

            	
               

              Commission

               

            	
               

              $6,893.14

               

            	
               

              S2272-O

               

            
	
               

              (10)

               

            	
               

              September
                9, 2003

               

            	
               

              Refund

               

            	
               

              $7,699.79

               

            	
               

              S2292-O

               

            
	
               

              (11)

               

            	
               

              September
                10, 2003

               

            	
               

              Commission

               

            	
               

              $7,699.79

               

            	
               

              S2292-O

               

            
	
               

              (12)

               

            	
               

              November
                3, 2003

               

            	
               

              Refund

               

            	
               

              $7,699.79

               

            	
               

              S2292-O

               

            
	
               

              (13)

               

            	
               

              December
                11, 2003

               

            	
               

              Refund

               

            	
               

              $7,703.57

               

            	
               

              S2301-O

               

            
	
               

              (14)

               

            	
               

              January
                29, 2004

               

            	
               

              Commission

               

            	
               

              $7,703.60

               

            	
               

              S2301-O

               

            
	
               

              (15)

               

            	
               

              March
                3, 2004

               

            	
               

              Commission

               

            	
               

              $4,433.64

               

            	
               

              S2309-O

               

            
	
               

              (16)

               

            	
               

              March
                3, 2004

               

            	
               

              Refund

               

            	
               

              $7,389.41

               

            	
               

              S2309-O

               

            
	
               

              (17)

               

            	
               

              June
                10, 2004

               

            	
               

              Commission

               

            	
               

              $8,249.26

               

            	
               

              S2320-O

               

            
	
               

              (18)

               

            	
               

              June
                10, 2004

               

            	
               

              Refund

               

            	
               

              $13,500.00

               

            	
               

              S2320-O

               

            
	
               

              (19)

               

            	
               

              June
                17, 2004

               

            	
               

              Refund

               

            	
               

              $19,500.00

               

            	
               

              S2320-O

               

            
	
               

              (20)

               

            	
               

              July
                1, 2004

               

            	
               

              Refund

               

            	
               

              $11,253.69

               

            	
               

              S2322-O

               

            
	
               

              (21)

               

            	
               

              July
                2, 2004

               

            	
               

              Refund

               

            	
               

              $4,489.31

               

            	
               

              S2322-O

               

            
	
               

              (22)

               

            	
               

              July
                2, 2004

               

            	
               

              Refund

               

            	
               

              $8,246.31

               

            	
               

              S2320-O

               

            
	
               

              (23)

               

            	
               

              July
                6, 2004

               

            	
               

              Refund

               

            	
               

              $23,614.50

               

            	
               

              S2322-O

               

            

    

     

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

    
      	 	
               

              Approximate
                Date 

              of
                Wire Transfer

               

            	
               

              Description
                of 

              Payment,
                As 

              Reflected
                in 

              the
                Records of 

              Schnitzer
                Steel 

               

            	
               

              Approximate
                

              Amount
                of 

              Payment

              (U.S.
                

              dollars)

               

            	
               

              SSI
                

              Cargo
                

              Number

            

    

    
      	
               

              (24)

               

            	
               

              July
                29, 2004

               

            	
               

              Commission

               

            	
               

              $7,871.50

               

            	
               

              S2322-O

               

            

    

     

    
       

    

    c.
      On or
      about the dates set forth below, the following additional payments, among
      others, were made by issuing corporate checks to Officer A in the United States,
      which checks were then cashed and the proceeds hand-delivered in the United
      States to managers of Schnitzer Steel’s government-owned scrap metal
      customers: 

     

    
      	 	
               

              Approximate
                Date 

              of
                Check

               

            	
               

              Description
                of 

              Payment,
                As 

              Reflected
                in 

              the
                Records of 

              Schnitzer
                Steel 

               

            	
               

              Approximate
                

              Amount
                of 

              Check
                (U.S. 

              Dollars)

               

            	
               

              SSI
                

              Cargo
                

              Number

               

            
	
               

              (1)

               

            	
               

              June
                27, 2001

               

            	
               

              Gratuity
                to Customer Representative

               

            	
               

              $2,500.00

               

            	
               

              S2199-O

               

            
	
               

              (2)

               

            	
               

              August
                10, 2001

               

            	
               

              Cash
                Bonus

               

            	
               

              $1,000.00

               

            	
               

              S2207-T

               

            
	
               

              (3)

               

            	
               

              September
                10, 2001

               

            	
               

              Gratuity
                Commission to Customer

               

            	
               

              $1,000.00

               

            	
               

              S2206-T

               

            
	
               

              (4)

               

            	
               

              September
                10, 2001

               

            	
               

              Gratuity
                Commission to Customer

               

            	
               

              $1,000.00

               

            	
               

              S2212-O

               

            
	
               

              (5)

               

            	
               

              January
                10, 2002

               

            	
               

              Gratuity
                to Customer Representative

               

            	
               

              $2,500.00

               

            	
               

              S2224-O

               

            

    

     

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    
      	 	
               

              Approximate
                Date 

              of
                Check

               

            	
               

              Description
                of 

              Payment,
                As 

              Reflected
                in 

              the
                Records of 

              Schnitzer
                Steel 

               

            	
               

              Approximate
                

              Amount
                of 

              Check
                (U.S. 

              Dollars)

               

            	
               

              SSI
                

              Cargo
                

              Number

            

    

    
      	
               

              (6)

               

            	
               

              April
                3, 2002

               

            	
               

              Gratuity
                to Customer Representative

               

            	
               

              $2,500.00

               

            	
               

              S2230-T

               

            
	
               

              (7)

               

            	
               

              April
                3, 2002

               

            	
               

              Gratuity
                to Customer Representative

               

            	
               

              $2,500.00

               

            	
               

              S2231-O

               

            
	
               

              (8)

               

            	
               

              July
                12, 2002

               

            	
               

              Gratuity
                to Customer Representative

               

            	
               

              $2,500.00

               

            	
               

              S2242-T

               

            

    

    

    d.
      On or
      about February 3, 2003, Officer A sent an e-mail to Officer B and others,
      describing, in substance and in part, Schnitzer Steel’s practice of paying “kick
      backs” to representatives of government-owned scrap metal customers, and
      stating:

     

    Commission
      revenue: We think $.50/MT to SSI Korea who will cover the SSI-China expenses
      including regular kick back $0.15/MT. We think total about 800,000 M/T to China
      in 2003, so commission pay is $400,000/yr. We just wire to SSI-Korea for the
      net
      money need for China operation (SSI-China expense + Kick back) and keep the
      balance in SSI-Portland as credit to SSI-Korea without paying the whole
      commission money. This will be additional saving for SSI from this new
      operation. We are currently paying total $0.90/MT ($.50/MT to CCM and $0.25/MT
      to SSI-Korea, and $0.15/MT regular kick back to Chinese
      customers)....

    

    e.
      On or
      about September 18, 2003, Officer A sent an e-mail to Officer B and others,
      which referenced, in substance 

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    and
      in
      part, an agreement between Schnitzer Steel and Baosteel, a government-owned
      scrap metal customer in China, for a “quarter dollar refund for [the customer]
      after shipment,” and stated that “[the customer] and SSI agreed to keep this
      business confidential.”

     

    f.
      On or
      about September 28, 2003, Officer A sent an e-mail to Officer B and others,
      which stated, in substance and in part, that a representative of a
      privately-owned scrap metal customer in Asia “will make the contract to include
      his share $.025/MT at $190.75/MT,” and that the representative would likely give
“his favor and priority to [Schnitzer Steel].”

     

    g.
      On or
      about November 20, 2003, Officer A sent an e-mail to Officer B and others
      referencing new business with Baosteel, a government-owned scrap metal customer
      in China, and stating, in substance and in part, “[The company] will make the
      contract to include $0.50/MT more for refund to them after shipment, so[] the
      price will be $229.50/MT on the contract and to the market later,” and directing
      one of the e-mail recipients to “[p]lease keep it confidential[,] insiders only
      and assign the job No. for this new contract.” 

     

    h.
      In or
      about August 2004, an employee of defendant SSI KOREA discussed with Officer
      A
      the destruction of records pertaining to the off-the-book bank accounts of
      defendant SSI KOREA.  

     

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    All
      in
      violation of Title 18, United States Code, Section 371.

    

    COUNT
      TWO

    (Foreign
      Corrupt Practices Act)

    

    13. Paragraphs
      1 through 8 and 10 through 11 of Count One are realleged and incorporated as
      if
      fully set forth herein. 

     

    14.
      From
      in or about 1995 through in or about August 2004, in the District of Oregon
      and
      elsewhere, defendant SSI KOREA, a person other than an issuer subject to 15
      U.S.C. § 78dd-1 or a domestic concern, while in the territory of the United
      States, used means and instrumentalities of interstate commerce, corruptly
      in
      furtherance of an offer, payment, promise to pay and authorization of the
      payment of money to foreign officials for purposes of influencing the acts
      and
      decisions of such foreign officials in their official capacity, inducing said
      foreign officials to do acts in violation of their lawful duty, securing an
      improper advantage; and inducing such foreign officials to use influence with
      a
      foreign government and instrumentality thereof to affect or influence an act
      and
      decision of such government and instrumentality; to wit, following the
      processing and authorization of payments by Schnitzer Steel, SSI KOREA caused
      payments to be made from a bank account originating in Portland, Oregon, through
      a transfer of funds to off-the-books bank accounts in South Korea, to officials
      of steel production 

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

    companies
      owned by the Government of China, in order to secure and maintain agreements
      to
      purchase scrap metal from Schnitzer Steel, and to secure an improper advantage
      for Schnitzer Steel and SSI KOREA by positioning the companies to obtain future
      business in Asia.

     

    All
      in
      violation of Title 15, United States Code, Section 78dd-3(a).

    

    COUNT
      THREE

    (Wire
      Fraud)

    

    15. Paragraphs
      1 through 8 and 10 through 11 of Count One are realleged and incorporated as
      if
      fully set forth herein.   

     

    16.
      From
      at least as early as in or about 1995 through in or about August 2004, in the
      District of Oregon and elsewhere, defendant SSI KOREA devised, caused to be
      devised and intended to devise a scheme and artifice to obtain property by
      means
      of materially false and fraudulent pretenses, representations and promises,
      which scheme and artifice was in substance as set forth in Paragraphs One
      through 8 and 10 through 11 of Count One of this Information, the allegations
      contained therein being realleged as if set forth herein at length.  

     

    17.
      As
      described in Count One, Schnitzer Steel, through Officer A and others, and
      at
      the request of defendant SSI KOREA, wire transferred funds from Schnitzer
      Steel’s bank account in
      Portland, Oregon to off-the-books bank accounts in South Korea 

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

    affiliated
      with employees of defendant SSI KOREA. The wire transferred funds were then
      paid
      to managers of government-owned and private steel production companies in China
      and South Korea in the form of illegal commission payments and refunds, among
      other payments. To disguise the illegal nature of the payments, Schnitzer Steel,
      through Officer A and others, included the commissions and refunds in the
      purchase price of the scrap metal, causing its scrap metal customers in China
      and South Korea to overpay Schnitzer Steel for their scrap metal purchases.
      The
      amounts overpaid were then passed on as cash, via the above-described wire
      transfers, to the managers of Schnitzer Steel’s customers in China and South
      Korea.

     

    18.
      In
      total, approximately $1,828,587 in wire transfers were made from Schnitzer
      Steel’s bank account in
      Portland, Oregon to off-the-books bank accounts in South Korea affiliated with
      employees of defendant SSI KOREA, which ultimately were passed on to managers
      of
      Schnitzer Steel’s government and privately owned scrap metal customers in China
      and South Korea. Of that amount, approximately $165,338 was paid to managers
      of
      Schnitzer Steel’s government-owned customers in China. 

     

    19. On
      or
      about March 16, 2004, for the purpose of executing said scheme and artifice,
      and
      attempting to do so, in the District of Oregon and elsewhere, defendant SSI
      KOREA

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

     knowingly
      and willfully transmitted and caused to be transmitted in interstate and foreign
      commerce by means of wire communications certain writings, signs, signals and
      sounds; to wit, a wire transfer in the amount of $15,500.95, which was deposited
      in an off-the-books bank account affiliated with employees of SSI KOREA, and
      ultimately paid to representatives of Baosteel, a government-owned steel
      production company in China.

     

    All
      in
      violation of Title 18, United States Code, Sections 1343, 1346 and
      2.

     

    COUNT
      FOUR

    (Books
      and Records Violation)

    

    20.
      Paragraphs 1 through 8 and 10 through 11 of Count One are realleged and
      incorporated as if fully set forth herein. 

     

    21.
      The
      FCPA required issuers not only to refrain from making corrupt payments to
      foreign government officials, but also to implement policies and practices
      that
      reduce the risk that employees and agents will engage in bribery. Specifically,
      Section 102 of the FCPA, 15 U.S.C. § 78m(b)(2)(A) (amending Section 13 of the
      Securities and Exchange Act of 1934), required certain corporations to make
      and
      keep books, records and accounts which accurately and fairly reflect
      transactions and the distribution of the company’s assets. Section 102 further
      prohibited the knowing falsification of any books, record or account.

     

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    22.
      Schnitzer Steel, by virtue of its status as an issuer within the meaning of
      the
      FCPA and the Securities and Exchange Act of 1934, was required to make and
      keep
      books, records and accounts which, in reasonable detail, accurately and fairly
      reflected the transactions and disposition of assets of Schnitzer
      Steel.

     

    23.
      As
      set forth in Paragraph 11(g) of Count One, from in or about 1995 through in
      or
      about August 2004, Schnitzer Steel and defendant SSI KOREA failed to account
      properly for the commissions, refunds and gratuity payments to managers of
      government-owned and private scrap metal customers in China and South Korea
      and
      failed to describe accurately the transactions in its books and records.
      Instead, the payments were excluded from SSI KOREA’s books and records and
      improperly characterized on Schnitzer Steel’s books and records as legitimate
      payments for, among other things, “commissions,” “sales commissions,”
“commissions to the customer,” “refunds,” “rebates,” “refunds to customer,”
“rebates to customer,” “quality claims,” “discounts,” “credits,” “freight
      savings,” “gratuities,” “other marine expenses,” “customer relations,” and
“bonuses.” 

     

    24.
      In or
      about March 2003, in the District of Oregon and elsewhere, defendant SSI KOREA
      knowingly and willfully aided, abetted and assisted in the falsification of
      books, records, and accounts which, in reasonable detail, accurately and fairly
      

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    reflected
      the transactions and disposition of the assets of Schnitzer Steel, to wit:
      SSI
      KOREA aided, abetted and assisted Schnitzer Steel in failing to accurately
      reflect in its books and records a payment of $5,894.50 to a manager of
      Baosteel, a government-owned steel production company in China, and improperly
      characterizing the payment on its books and records as a legitimate “commission”
payment. 

     

    All
      in
      violation of Title 15, United States Code, Sections 78m(b)(2)(A), 78m(b)(5)
      and
      78ff, and Title 18, United States Code Section 2.  

      

    /s/
      STEVEN A. TYRRELL

    Steven
      A.
      Tyrrell

    Acting
      United States Attorney

     

    /s/
      MARK
      F. MENDELSOHN

    By:
      MARK
      F. MENDELSOHN

    Deputy
      Chief, Fraud Section

    Criminal
      Division

    U.S.
      Department of Justice

     

    /s/
      DEBORAH L. GRAMICCIONI

    By:
      DEBORAH L. GRAMICCIONI 

    Assistant
      Chief, Fraud Section

    Criminal
      Division

    U.S.
      Department of Justice

     

    /s/
      KATHLEEN McGOVERN

    By:
      KATHLEEN McGOVERN

    Trial
      Attorney, Fraud Section

    Criminal
      Division

    U.S.
      Department of Justice

     

     

     

    
      
         

      

      
        26WWW.EXFILE.COM, INC. -- 14656 -- SCHNITZER STEEL INDUSTRIES, INC. -- EXHIBIT 10.4 TO FORM 8-K

    EXHIBIT
      10.4

     

    UNITED
      STATES OF AMERICA

    Before
      the

    SECURITIES
      AND EXCHANGE COMMISSION

     

    ADMINISTRATIVE
      PROCEEDING 

    File
      No.

     

    
      	
               

              
                

              

               

              In
                the Matter of

               

              Schnitzer
                Steel Industries, Inc.,

               

              Respondent.

               

                

              

            	
              OFFER
                OF SETTLEMENT

              OF
                SCHNITZER STEEL INDUSTRIES, 

              INC.

               

            

    

    

     

    I.

     

    Schnitzer
      Steel Industries, Inc. (“Schnitzer” or “Respondent”), pursuant to Rule 240(a)
      of
      the
      Rules of Practice of the Securities and Exchange Commission (“Commission”) [17
      C.F.R. § 201.240(a)], submits this Offer of Settlement (“Offer”) in anticipation
      of cease-and-desist proceedings to be instituted against it by the Commission,
      pursuant to Section 21C of the Securities Exchange Act of 1934 (“Exchange
      Act”).

     

    II.

     

    This
      Offer is submitted solely for the purpose of settling these proceedings, with
      the express understanding
      that it will not be used in any way in these or any other proceedings, unless
      the Offer
      is
      accepted by the Commission. If the Offer is not accepted by the Commission,
      the
      Offer is withdrawn without prejudice to Respondent and shall not become a part
      of the record in these or any
      other
      proceedings, except for the waiver expressed in Section VI with respect to
      Rule
      240(c)(5)
      of the
      Commission’s
      Rules of Practice [17 C.F.R. § 201.240(c)(5)].

     

    III.

     

    On
      the
      basis of the foregoing, the Respondent hereby:

     

    A.  Admits
      the jurisdiction of the Commission over it and over the matters set forth in
      the
      Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing
      a
      Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act
      of
      1934 (“Order”);

     

    B.  Solely
      for the purpose of these proceedings and any other proceedings brought by or
      on
      behalf of the Commission or in which the Commission is a party, and without
      admitting or denying the findings contained in the Order, except as to the
      Commission’s jurisdiction over it and

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    the
      subject matter of these proceedings, which are admitted, consents to the entry
      of an Order by
      the
      Commission containing the following fmdingsl
      set
      forth below:

     

    Summary

     

    1.  This
      matter involves violations of the Foreign Corrupt Practices Act of 1977 (“FCPA”)
      by Schnitzer Steel Industries, an Oregon-based steel company that sells scrap
      metal. From at least 1999 through 2004, Schnitzer has paid cash kickbacks or
      made gifts to managers of government-controlled steel mills in China to induce
      those managers to purchase scrap metal from Schnitzer. Schnitzer made the
      payments on its own behalf and as a broker for Japanese steel companies. During
      this period, Schnitzer also paid bribes to managers of private steel mills
      in
      China and South Korea, and improperly concealed those payments in its books
      and
      records.

     

    Facts

     

    2.  Schnitzer,
      incorporated in Oregon and headquartered in Portland, Oregon, operates three
      business segments that include a steel manufacturer, a metals recycling business
      and an auto parts business. Schnitzer reported revenue of $853 million for
      its
      fiscal year ended August 31, 2005. At the time of the conduct described below,
      Schnitzer’s common stock was registered with the Commission pursuant to Section
      12(g) of the Exchange Act and was listed on the NASDAQ National Market.
      Schnitzer filed reports with the Commission pursuant to Section 13 of the
      Exchange Act.

     

    3.  As
      part
      of its metals recycling business, Schnitzer buys and resells metal, including
      selling scrap metal to steel mills in Asia. In 1995, Schnitzer acquired an
      entity with two subsidiaries: a subsidiary in South Korea that it renamed SSI
      International Far East Ltd. (“SSI Korea”), and a U.S. subsidiary in Tacoma,
      Washington that it renamed SSI International, Inc. (“SSI International”).
      Thereafter, Schnitzer used these subsidiaries to facilitate its Asian scrap
      metal sales.

     

    A.    
Sales
      to
      Government-owned Steel Mills in China

     

    4.  From
      at
      least 1999 through 2004, employees and agents of SSI International and SSI
      Korea
      made improper cash payments to managers of scrap metal customers owned, in
      whole
      or in part, by the Chinese government. These payments were intended to induce
      those managers to purchase scrap metal from Schnitzer.

     

    5.  During
      the period 1999 through 2004, Schnitzer paid over $205,000 in improper payments
      to managers of its government-owned customers in China in connection with 30
      sales

     

    ____________

    1The
      findings herein are made pursuant to Respondent’s Offer of Settlement and are
      not binding on any other person or entity in this or any other
      proceeding.

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    transactions.
      Schnitzer’s gross revenue for those transactions totaled approximately $96
      million, and Schnitzer earned $6,259,104 in net profits on the
      sales.

     

    6.  Schnitzer
      paid two types of kickbacks to the general managers of its scrap metal
      customers. For the first type, Schnitzer paid a “standard” kickback, which was
      generally $3,000 to $6,000 per shipment. Schnitzer paid these kickbacks out
      of
      the revenue it earned on the scrap metal sale. Schnitzer also paid the general
      managers of Chinese customers a second kickback that Schnitzer referred to
      internally as a “refund” or “rebate.” To pay the “refunds,” Schnitzer
      participated in a scheme whereby the general manager of a steel mill would
      cause
      the steel mill to overpay Schnitzer for the steel purchase, and would then
      personally recover the “overpayment”
      from
      Schnitzer, in amounts ranging from $3,000 to $15,000.

     

    7.  Schnitzer
      wired the money for the improper payments to secret bank accounts in South
      Korea
      opened by the head of SSI Korea specifically for receiving these payments.
      The
      head of SSI International and the head of SSI Korea would then use funds from
      the secret accounts to make improper cash payments to managers of Schnitzer’s
      customers. In addition to the cash payments, the Schnitzer officers gave gifts
      to the managers of the government-owned customers. A Schnitzer senior official
      was aware of and authorized the wire transfers to the secret
      bank accounts.

     

    8.  Separate
      from SSI Korea’s role as a seller of Schnitzer’s metals, SSI Korea also acted as
      a broker for Japanese scrap metal companies that sold scrap metal in China,
      receiving brokerage commissions for locating scrap metal buyers in China. Since
      at least 1999, Japanese companies provided SSI Korea with funds to make improper
      payments to managers of the Chinese steel mills similar to the payments made
      by
      Schnitzer for scrap metal it sold. On behalf of Schnitzer, the funds were
      delivered to the managers of the Japanese steel mill customers.

     

    9.      
      From
      1999
      to 2004, Schnitzer made improper payments on behalf of its Japanese customers
      to
      managers of steel mills owned, in whole or in part, by the Chinese government
      in
      approximately eight scrap metal transactions. S SI Korea earned $58,610 in
      brokerage commissions and realized $19,991 in net profits from those eight
      transactions.

     

    10.     In
      order
      to conceal the improper payments, Schnitzer falsely described those payments
      to
      the foreign officials as “sales commissions,” “commission to the customer,”
“refunds,” or “rebates” in Schnitzer’s books and records.

     

    B.     
      Sales
      to Privately Owned Steel Mills in China and South Korea

     

    11.   
       In
      addition to making improper payments for scrap metal sales to government-owned
      steel mills in China, Schnitzer paid bribes to managers of privately owned
      steel
      mills in China and South Korea. Schnitzer falsely described the payments as
      “sales commissions,” “commission to the customer,” “refunds,” or “rebates” in
      Schnitzer’s books and records.

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    12.   
      From
      1999
      to 2004, Schnitzer made over $420,000 in improper payments to managers of
      privately owned Chinese steel mills to induce them to purchase scrap metal
      from
      Schnitzer. Schnitzer paid managers of the privately owned South Korean steel
      mills approximately $1,273,000 in bribes from 1999 to 2004 to induce them to
      purchase scrap metal from Schnitzer. From 1999 to 2004, SSI Korea also earned
      $1,513,097 in commissions for brokered sales on behalf of Japanese companies
      in
      which such kickbacks were paid. Schnitzer also provided non-cash gifts to
      general managers of Korean customers.

     

    C.     
      Schnitzer’s
      Lack of Internal Controls

     

    13.    
      During
      the period of the foreign transactions described above, Schnitzer provided
      no
      training or education to any of its employees, agents or subsidiaries regarding
      the requirements of the FCPA. Schnitzer also failed to establish a program
      to
      monitor its employees, agents and subsidiaries for compliance with the
      FCPA.

     

    D.     
      Schnitzer’s
      Investigation and Subsequent Events

     

    14.   
       In
      May
      2004, Schnitzer’s compliance department uncovered the improper payments and
      Schnitzer began to investigate the potential FCPA violations. At that time,
      a
      senior executive of Schnitzer prohibited any further payments, but nonetheless
      authorized Schnitzer employees to pay at least two additional bribes that
      Schnitzer previously had promised private customers. The same senior executive
      also authorized Schnitzer employees to increase entertainment expenses in lieu
      of cash payments to its private and government-owned scrap metal customers.
      In
      response, Schnitzer employees gave managers of Schnitzer’s
      scrap
      metal customers additional gifts, including gift certificates worth $10,000
      and
      a watch worth $2,400.

     

    15.    
      After
      Schnitzer began its internal investigation, but before it had issued a directive
      to its employees to preserve documents related to the scrap metal transactions,
      SSI Korea employees destroyed documents concerning the improper
      payments.

     

    Legal
      Analysis

     

    16.   
       The
      FCPA,
      enacted in 1977, added Section 30A to the Exchange Act to prohibit public
      companies from, among other things, making improper payments to foreign
      officials for the purpose of influencing their decisions in order to obtain
      or
      retain business. See
      15
      U.S.C.§
      78dd-1.

     

    17.    
      The
      FCPA
      also added Exchange Act Section 13(b)(2)(A) to require public companies to
      make
      and keep books, records, and accounts, which, in reasonable detail, accurately
      and fairly reflect the transactions and dispositions of the assets of the
      issuer, and Exchange Act Section 13(b)(2)(B) to require such companies to devise
      and maintain a system of internal accounting controls sufficient to provide
      reasonable assurances that: (i) transactions are

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    executed
      in accordance with management’s general or specific authorization; and (ii)
      transactions are recorded as necessary to permit preparation of fmancial
      statements in conformity with generally accepted accounting principles or any
      other criteria applicable to such statements, and to maintain accountability
      for
      assets. See
      15
      U.S.C.
§§ 78m(b)(2)(A) and 78m(b)(2)(B).

     

    18.     
      In
      each
      of the transactions described above, Schnitzer was aware of the high probability
      that its employees or agents intended to make gifts or payments in order to
      obtain or retain business for Schnitzer. In each instance described in
      paragraphs 4 through 9, by proceeding with the transactions, Schnitzer made
      or
      authorized the making of illegal payments to foreign officials, in violation
      of
      Section 30A. Schnitzer violated Section 13(b)(2)(A) by improperly recording
      in
      its books and records payments it made in the transactions involving its
      subsidiary in Korea. Finally, Schnitzer violated Section 13(b)(2)(B) by failing
      to devise and maintain an effective system of internal controls to prevent
      and
      detect violations of the FCPA.

     

    Schnitzer’s
      Remedial Efforts

     

    19.     
      In
      determining to accept the Offer, the Commission considered remedial acts
      undertaken by Respondent and cooperation afforded the Commission
      staff.

     

    IV.

     

    Undertakings

     

                                 
      Respondent undertakes to:

     

    1.  Retain,
      through its Board of Directors, within sixty (60) calendar days of the issuance
      of this Order, and for a period of three years thereafter, an independent
      compliance consultant
      (“Compliance Consultant”), not unacceptable to the staff of the Commission, to
      review
      and
      evaluate Schnitzer’s internal controls, record-keeping, and financial reporting
      policies and procedures
      as they relate to Schnitzer’s compliance with the books and records, internal
      accounting
      controls, and anti-bribery provisions of the FCPA, codified at Sections
      13(b)(2)(A), 13(b)(2)(B), and 30A of the Exchange Act and other applicable
      foreign bribery laws. This review and evaluation
      shall include an assessment of those policies and procedures as actually
      implemented in
      practice. The compensation and expenses of the Compliance Consultant, and of
      the
      persons hired under his or her authority, shall be paid by Schnitzer. Schnitzer
      may extend the time period for retention of the Compliance Consultant with
      prior
      written approval of the Commission staff;

     

    2.  Schnitzer
      shall cooperate fully with the Compliance Consultant. Schnitzer shall grant
      the
      Compliance Consultant the authority to take such reasonable steps, in the
      Compliance Consultant’s view, as necessary to be fully informed about the
      operations of Schnitzer within the scope of his or her responsibilities under
      this Order. To that end, Schnitzer shall provide the Compliance
      Consultant with access to files, books, records, and personnel that fall within
      the scope

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    of
      his or
      her responsibilities under this Order. It shall be a condition of the Compliance
      Consultant’s retention that the Compliance Consultant is independent of
      Schnitzer and that no attorney-client relationship shall be formed between
      them.
      In connection with the Compliance Consultant’s work, Schnitzer shall not
      withhold from the Commission or the Commission’s staff, and shall require the
      Compliance Consultant to agree not to withhold from the Commission or the
      Commission’s
      staff,
      any documents or information on the basis of any privilege or work product
      claims.
      This paragraph does not apply to communications and information shared among
      Schnitzer
      and
      counsel representing Schnitzer solely for the purpose of rendering legal advice
      in connection with investigations conducted by the Department of Justice (“DOJ”)
      and the Commission.

     

    3.      
      Schnitzer
      shall order the Compliance Consultant to assess whether Schnitzer’s policies and
      procedures are reasonably designed to detect and prevent violations of the
      FCPA,
      and during the three-year consultancy, conduct an initial review and prepare
      an
      initial report, followed by two follow-up reviews and follow-up reports as
      described below. With respect to each of the three reviews, after initial
      consultations with Schnitzer, DOJ, and the Commission staff, Schnitzer shall
      require the Compliance Consultant to prepare a written work plan for each of
      the
      three reviews, which shall be submitted to Schnitzer, the Commission staff,
      and
      DOJ. In order to conduct an effective initial review and to fully understand
      any
      existing deficiencies in controls, policies, and procedures related to the
      FCPA
      and other applicable foreign bribery laws, Schnitzer shall require that the
      Compliance Consultant’s initial work plan include such steps as are necessary to
      develop an understanding of the facts and circumstances surrounding the
      violations described above in Section III.

     

    4.      
      In
      connection with the initial review, Schnitzer shall require the Compliance
      Consultant to issue a written report, within one hundred twenty (120) calendar
      days after being retained, setting forth the Compliance Consultant’s assessment
      and making recommendations reasonably designed to improve Schnitzer’s program,
      policies, and procedures for ensuring compliance with the FCPA. Schnitzer shall
      require that the Compliance Consultant provide the report to Schnitzer’s Board
      of Directors and contemporaneously transmit a copy to the following individuals
      or their successors: (1) Helane L. Morrison, District Administrator, Securities
      and Exchange Commission, 44 Montgomery St., Suite 2600, San Francisco,
      California 94104; and (2) Mark F. Mendelsohn, Deputy Chief, Fraud Section,
      Criminal Division, U.S. Department of Justice, 10th
      and
      Constitution Ave., N.W. (Bond), Washington, D.C. 20530. Schnitzer shall allow
      the Compliance Consultant to extend the time period for issuance of the report
      with prior written approval of the DOJ and the Commission staff;

     

    5.      
      Within
      one hundred twenty (120) calendar days after receiving the report, Schnitzer
      shall adopt all recommendations in the report of the Compliance Consultant;
      provided, however,
      that within one hundred twenty (120) calendar days after receiving the report,
      Schnitzer
      shall in
      writing advise the Compliance Consultant and the Commission staff in writing
      of
      any recommendations that it considers to be unduly burdensome, impractical
      or
      costly. With respect to any recommendation that Schnitzer considers unduly
      burdensome, impractical or costly, Schnitzer need not adopt that recommendation
      within that time but shall propose in writing an alternative policy, procedure
      or system designed to achieve the same objective or purpose. As to

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    any
      recommendation on which Schnitzer and the Compliance Consultant do not agree,
      Schnitzer shall attempt in good faith to reach an agreement within sixty (60)
      calendar days after Schnitzer serves the written advice. In the event Schnitzer
      and the Compliance Consultant are unable to agree on an alternative proposal,
      Schnitzer shall abide by the determinations of the Compliance Consultant. With
      respect to any recommendation that the Compliance Consultant determines cannot
      reasonably be implemented within one hundred twenty (120) calendar days after
      receiving the report, Schnitzer shall allow the Compliance Consultant to extend
      the time period for implementation with prior written approval of the Commission
      staff and DOJ.

     

    6.      
      Schnitzer
      shall require the Compliance Consultant to undertake two follow-up reviews
      to
      determine whether Schnitzer’s policies and procedures are reasonably designed to
      detect and prevent violations of the FCPA and other applicable foreign bribery
      laws. Within one hundred twenty (120) calendar days of initiating each follow-up
      review, Schnitzer shall (i) require the Compliance Consultant to complete the
      review, (ii) require the Compliance Consultant to certify whether Schnitzer’s
      anti-bribery compliance program, including its policies and procedures, is
      appropriately designed and implemented to ensure compliance with the FCPA,
      (iii)
      report on the Compliance Consultant’s findings in the same fashion as set forth
      in paragraph IV.4 with respect to the initial review, and (iv) adopt
      recommendations in the same fashion as set forth in paragraph IV.5 with respect
      to the initial review. Schnitzer shall require the Compliance Consultant to
      commence the first follow-up review one year after retention of the Compliance
      Consultant, and the second follow-up review at least one year after completion
      of the first follow-up review. Schnitzer shall allow the Compliance Consultant
      to extend the time period for these follow-up reviews with prior written
      approval of the Commission staff and DOJ.

     

    7.  In
      undertaking the initial review and follow-up reviews described in Paragraphs
      IV.2 through IV.6 above, Schnitzer shall require the Compliance Consultant
      to
      formulate conclusions based on sufficient evidence obtained through, among
      other
      things, (i) inspection of documents, including all of Schnitzer’s policies and
      procedures relating to Schnitzer’s anti-bribery compliance program; (ii) onsite
      observation of FCPA systems and procedures, including Schnitzer’s internal
      controls, recordkeeping and internal audit procedures; (iii) meetings with
      and
      interviews of Schnitzer employees, officers, directors and any other relevant
      persons; and (iv) analyses, studies and testing of Schnitzer’s anti-bribery
      compliance program. In undertaking such assessment and reviews, Schnitzer shall
      allow the Compliance Consultant, at his or her own discretion, to rely, to
      a
      reasonable extent and after reasonable inquiry, on reports, studies, and
      analyses issued or undertaken by other consultants hired by Schnitzer prior
      to
      the date of this Order.

     

    8.  The
      Compliance Consultant’s charge, as described above, is to review Schnitzer’s
      controls, policies and procedures related to the compliance with the FCPA.
      To
      the extent the Compliance Consultant, during the course of his or her
      assessment, discovers that corrupt payments or corrupt transfers of property
      or
      interests may have been offered, promised, paid, or authorized by any Schnitzer
      entity or person, or any entity or person working directly or indirectly for
      Schnitzer, Schnitzer shall require the Compliance Consultant promptly to
      report

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    such
      payments to Schnitzer’s Corporate Compliance Officer, to its Audit Committee,
      and to its outside counsel (who must have experience providing advice and
      conducting investigations regarding FCPA matters) for further investigation,
      unless the Compliance Consultant believes, in the exercise of his or her
      discretion, that such disclosure should be delayed. In such circumstances,
      Schnitzer shall allow the Compliance Consultant to refer the matter directly
      to
      the staff of the Commission or DOJ at the address listed above in paragraph
      IV.4. If the Compliance Consultant refers the matter only to Schnitzer’s
      Corporate Compliance Officer, its Audit Committee, and its outside counsel,
      Schnitzer shall promptly report the same to the Commission staff and DOJ at
      the
      addresses listed above in paragraph IV.4. If Schnitzer fails to make such
      disclosure within ten (10) calendar days of the report of such payments to
      Schnitzer’s Corporate Compliance Officer, to its Audit Committee, and to its
      outside counsel, Schnitzer shall require the Compliance Consultant to
      independently disclose his/her findings to the staff of the Commission and
      DOJ.
      Further, in the event that any Schnitzer entity or person, or any entity or
      person working directly or indirectly for Schnitzer, refuses to provide
      information necessary for the performance of the Compliance Consultant’s
      responsibilities, Schnitzer shall require the Compliance Consultant to disclose
      that fact to the Commission staff and to DOJ. Schnitzer shall not take any
      action to retaliate against the Compliance Consultant for such disclosures.
      Schnitzer shall not preclude the Compliance Consultant from reporting other
      criminal or regulatory violations discovered in the course of performing his
      or
      her duties, in the same manner as
      described
      above.

     

    9.      
      Schnitzer
      shall require the Compliance Consultant to enter into an agreement with
      Schnitzer that provides that for the period of engagement and for a period
      of
      two years from completion of the engagement, the Compliance Consultant shall
      not
      enter into any additional employment, consultant, attorney-client, auditing
      or
      other professional relationship with Schnitzer, or any of its present or former
      affiliates, directors, officers, employees, or agents acting in their capacity.
      The agreement will also provide that the Compliance Consultant will require
      that
      any firm with which he or she is affiliated or of which he or she is a member,
      and any person engaged to assist the Compliance Consultant in performance of
      his
      or her duties under this Order shall not, without prior written consent of
      the
      Securities and Exchange Commission’s Division of Enforcement, enter into any
      employment, consultant, attorney-client, auditing or other professional
      relationship with Schnitzer, or any of its present or former affiliates,
      directors, officers, employees, or agents acting in their capacity as such
      for
      the period of the engagement and for a period of two years after the engagement.
      To ensure the independence of the Compliance Consultant, Schnitzer shall not
      have the authority to terminate the Compliance Consultant without the prior
      written approval of the Commission staff and the DOJ.

     

    V.

     

    In
      view
      of the foregoing, the Commission deems it appropriate to impose the sanctions
      agreed to in Respondent Schnitzer’s Offer.

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    Accordingly,
      it is hereby ORDERED that:

     

    A.  Respondent
      Schnitzer cease and desist from committing or causing any violations and any
      future violations of Sections 13(b)(2)(A),13(b)(2)(B), and 30A of the Exchange
      Act.

     

    B.  Respondent
      shall comply with the undertakings enumerated in Section V above.

     

    C.  IT
      IS
      FURTHERED ORDERED that Respondent shall, within ten days of the entry of this
      Order, pay disgorgement and prejudgment interest in the total amount of
      $7,725,201, consisting of $6,279,095 in disgorgement and $1,446,106 in
      prejudgment interest, to the United States Treasury. Such payment shall be:
      (A)
      made by United States postal money order, certified check, bank cashier’s check
      or bank money order; (B) made payable to the Securities and Exchange Commission;
      (C) hand-delivered or mailed to the Office of Financial Management, Securities
      and Exchange Commission, Operations Center, 6432 General Green Way, Alexandria,
      Stop 0-3, VA 22312; and (D) submitted under cover letter that identifies
      Schnitzer Steel Industries, Inc. as a Respondent in these proceedings, the
      file
      number of these proceedings, a copy of which cover letter and money order or
      check shall be sent to Helane L. Morrison, District Administrator, Securities
      and Exchange Commission, 44 Montgomery Street, 26th
      Floor,
      San Francisco, CA 94127.

     

    VI.

     

    By
      submitting this Offer, Respondent hereby acknowledges its waiver of those rights
      specified
      in Rules 240(c)(4) and (5) [17 C.F.R. §201.240(c)(4) and (5)] of the
      Commission’s Rules
      of
      Practice. Respondent also hereby waives service of the Order.

     

    VII.

     

    Respondent
      understands and agrees to comply with the Commission’s
      policy
“not to permit a defendant or respondent to consent to a judgment or order that
      imposes a sanction while denying the allegations in the complaint or order
      for
      proceedings” (17 C.F.R. §202.5(e)). In compliance with this policy, Respondent
      agrees: (i) not to take any action or to make or permit to be made any public
      statement denying, directly or indirectly, any finding in the Order or creating
      the impression that the Order is without factual basis; and (ii) that upon
      the
      filing of this Offer of Settlement, Respondent hereby withdraws any papers
      previously filed in this proceeding to the extent that they deny, directly
      or
      indirectly, any finding in the Order. If Respondent breaches this agreement,
      the
      Division of Enforcement may petition the Commission to vacate the Order
      and
      restore this proceeding to its active docket. Nothing in this provision affects
      Respondent’s: (i) testimonial obligations; or (ii) right to take legal or
      factual positions in litigation or other legal proceedings in which the
      Commission is not a party.

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    VIII.

     

    Consistent
      with the provisions of 17 C.F.R. § 202.5(f), Respondent waives any claim
      of Double
      Jeopardy based upon the settlement of this proceeding, including the imposition
      of any
      remedy
      or civil penalty
      herein.

     

    IX.

     

    Respondent
      hereby waives any rights under the Equal Access to Justice Act, the Small
      Business Regulatory Enforcement Fairness Act of 1996, or any other provision
      of
      law to seek from the United States, or any agency, or any official of the United
      States acting in his or her official capacity, directly or indirectly,
      reimbursement of attorney’s fees or other fees, expenses, or costs expended by
      Respondent to defend against this action. For these purposes, Respondent agrees
      that Respondent is not the prevailing party in this action since the parties
      have reached a good faith settlement.

    

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    

 

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    X.

    
       

    

    Respondent
      states that it has read and understands the foregoing Offer, that this Offer
      is
      made voluntarily, and that no promises, offers, threats, or inducements of
      any
      kind or nature whatsoever have been made by the Commission or any member,
      officer, employee, agent, or representative
      of the Commission in consideration of this Offer or otherwise to induce it
      to
      submit to
      this
      Offer.

     

     

     

    
      	 	 	/s/
              Kenneth M. Novack
	
              26th
                Day of July, 2006

            	 	Schnitzer Steel Industries, Inc.
	 	 	 

    

     

     

    
      	STATE OF OREGON	}	 	 
	
            	}	SS:	 
	
              COUNTY
                OF MULTNOMAH

            	} 	 	 

    

                                                                                                

                

     

     

    The
      foregoing instrument as
      acknowledged before me this 26thday
      of July,
      2006,
      by
Schnitzer
      Steel Industries, who ü
      is
      personally known to me or __ who
      has
      produced an Oregon driver’s license as identification and who did take an
      oath.

     

     

     

    
       

       

      /s/
        Debra S.
        Morgan                                          

    

    
      
        	
                Notary
                  Public

              	OFFICIAL
                SEAL 
	
                State
                  of Oregon

              	DEBRA S
                MORGAN 
	
                Commission
                  Number:                 
400577 

              	NOTARY
                PUBLIC-OREGON 
	
                Commission
                  Expiration:                 
12/23/2009

              	COMMISSION NO. 400577 
	 	
                MY
                  COMMISSION EXPIRES DECEMBER 23,
                  2009 

              

      

       

       

       

      
        
          
          

        

        
          11

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}]]