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FCA Australia Scandal Widens as Former CEO Points Fingers

Motor Trend logo Motor Trend 7/30/2015 Angus MacKenzie

Clyde Campbell, the former FCA Australia CEO at the center of allegations he misappropriated and misused more than A$30 million of company funds, has fired back at his former employer, claiming in a 48-page statement of defence lodged with the Australian Federal Court that FCA may have engaged in transfer pricing in breach of Australian taxation laws.

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Campbell says in the statement that FCA made a profit of just A$30 million during his final year as CEO on sales of A$1.66 billion. The profit was calculated, Campbell's statement alleges, "after tax and transfer pricing adjustments."

Transfer pricing is the practice of setting prices for goods or services sold between business units of a company or legally related business entities. Though often difficult to prove, transfer pricing can be used to lower a company's tax liability (by, for example, charging a foreign subsidiary in a high-tax country artificially high prices for imported vehicles to reduce taxable profits in that country) and so is closely watched for by tax authorities.

Regardless of the veracity of other allegations against FCA and its executives in Campbell's statement, the Australian Taxation Office, which has long targeted foreign automakers over transfer pricing, will almost certainly dig deeper on this one. Campbell's lawyers have promised to reveal further particulars of the claimed transfer pricing adjustments, and the stakes are high: Toyota's Australian subsidiary was forced to pay A$247 million in back taxes after being found to be in breach of Australia's strict transfer pricing regulations.

For FCA, which here in the U.S. has just been fined up to $105 million by NHTSA, and faces costs of millions more to buy back and fix faulty Dodge, Jeep, and Ram SUVs and trucks, the prospect of another multi-million-dollar fine is a major blow. The company is already struggling to find the cash to invest in new vehicles to help poorly performing brands such as Fiat and Alfa Romeo, and to reduce its dependency on trucks in the U.S., which will hurt it as fuel economy regulations tighten over the next few years.

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Writing in The Age newspaper, journalist Mark Hawthorne reports Campbell also claims the money FCA alleges was misappropriated was spent acting on the verbal instructions of senior FCA executives, including CEO Sergio Marchionne, Jeep boss Mike Manley, and FCA Asia Pacific chief John Kett, who resigned suddenly last week (Manley has stepped in to take over Kett's duties). Campbell says spending he authorized to help former Mercedes-Benz USA chief Ernst Lieb and his business partner David Piva buy Jeep dealerships in Melbourne, Australia, was on the instructions of Manley, who "implied by a direction to increase FCA's dealerships to 100 by June 2012" that such deals were needed.

Hawthorne reports that according to Campbell, Manley told him at a dealer meeting in Shanghai, China, in 2012, he needed to match Kia and VW sales in Australia, and that when Campbell replied both automakers had more dealerships, Manley allegedly responded: "I'm sick of this excuse. Get 100 dealerships by June next year or you're out of a job. I don't care how you do it, I don't care how much it costs, just get it done. All your marketing is being wasted if you do not have a dealer network to deliver on it."

In his story Hawthorne notes Campbell's statement of defence "contains many claims of such conversations, but is almost bereft of supporting documentary evidence."

Hawthorne in June sensationally revealed Campbell to have been involved in a car theft ring in the early 1990s. Eight charges of theft and receiving stolen goods were dropped after he struck a deal with prosecutors to give evidence against other members of the ring. Ironically, Campbell later completed a law degree, and joined Daimler-Chrysler Australia as in-house counsel in 2003, working for then CEO Ernst Lieb.

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