8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported):    October 16, 2006

SCHNITZER STEEL INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

OREGON (State or other jurisdiction of incorporation) 0-22496 (Commission File Number) 93-0341923 (I.R.S. Employer Identification No.)

  3200 N.W. Yeon Ave. P.O. Box 10047 Portland, OR (Address of principal executive offices)       97296-0047 (Zip Code)

Registrant’s Telephone Number, Including Area Code (503) 224-9900

NO CHANGE

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

q Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)  

q Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)  

q Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))  

q Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))  

Item 1.01. Entry into a Material Definitive Agreement.

Schnitzer Steel Industries, Inc. (the “Company”) finalized settlements with the United States Department of Justice (the “DOJ”) and the United States Securities and Exchange Commission (the “SEC”) by agreeing to a deferred prosecution agreement with the DOJ on October 16, 2006 (the “Deferred Prosecution Agreement”) and by agreeing to an order, issued by the SEC, instituting cease-and-desist proceedings, making findings, and imposing a cease-and-desist order pursuant to Section 21C of the Securities and Exchange Act of 1934 on October 16, 2006 (the “Order”). The Order relates to an offer of settlement that the Company had made to the SEC on July 26, 2006 (the “Offer”). The settlements with the DOJ and the SEC resolve the investigation that commenced with the self-reporting by the Company of its past practice of improper payments to purchasing managers of nearly all of the Company’s customers in Asia for export sales of recycled ferrous metals.

A description of the Deferred Prosecution Agreement, the Order and the Offer is included under Item 8.01 of this report and is incorporated herein by reference. A copy of the Deferred Prosecution Agreement is filed as Exhibit 10.1 to this report and is incorporated herein by reference. A copy of the Order and the Offer are filed as Exhibits 10.4 and 10.5, respectively, to this report and are incorporated herein by reference.

Item 8.01. Other Events.

On October 16, 2006, the Company issued a press release announcing that it has finalized settlements with the DOJ and the SEC resolving the investigation that commenced with the self-reporting by the Company of its past practice of improper payments to purchasing managers of nearly all of the Company’s customers in Asia for export sales of recycled ferrous metals. A copy of the press release is filed as Exhibit 99.1 to this report and is incorporated herein by reference.

DOJ Settlement

The Company has agreed to the Deferred Prosecution Agreement with the DOJ, under which the DOJ will not prosecute the Company if the Company meets the conditions of the agreement for a period of three years. Under the Deferred Prosecution Agreement, among other things, the Company will engage a compliance consultant to advise its compliance officer and its Board of Directors on the Company’s compliance program. The obligations of the Company are set forth in the Deferred Prosecution Agreement.

The Company’s Korean subsidiary, SSI International Far East, Ltd., pled guilty to Foreign Corrupt Practices Act anti-bribery and books and records provisions, conspiracy and wire fraud charges and will pay a fine of $7.5 million pursuant to a plea agreement. The DOJ had filed a criminal Information in the United States District Court for the District of Oregon (the “District Court”) which charged SSI International Far East, Ltd. with these violations.

A copy of the Deferred Prosecution Agreement (including the statement of facts attached thereto) in the form filed with the District Court, the plea agreement by SSI International Far East, Ltd. and the criminal Information in the form filed with the District Court are filed as Exhibits 10.1, 10.2 and 10.3, respectively, to this report and are incorporated by reference herein.

SEC Settlement

The Company agreed to the Order, issued by the SEC, to cease and desist from the past practices that were the subject of the investigation and to disgorge $7.7 million of profits and prejudgment interest. The Order also contains provisions comparable to those in the Deferred Prosecution Agreement regarding the engagement of the compliance consultant. The obligations of the Company are set forth in the Order and Offer.

A copy of the Order and the Offer are filed as Exhibits 10.4 and 10.5, respectively, to this report and are incorporated by reference herein.

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Item 9.01. Financial Statements and Exhibits.

(d)     Exhibits.

10.1	Deferred Prosecution Agreement (including Statement of Facts), dated October 16, 2006, between Schnitzer Steel Industries, Inc. and the United States Department of Justice.
10.2	Plea Agreement by SSI International Far East, Ltd., dated October 10, 2006.
10.3	Criminal Information, United States of America vs. SSI International Far East, Ltd., dated October 10, 2006.
10.4	Offer of Settlement to the United States Securities and Exchange Commission, dated July 26, 2006.
10.5	Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities and Exchange Act of 1934, dated October 16, 2006.
99.1	Press Release, dated October 16, 2006.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	SCHNITZER STEEL INDUSTRIES, INC.
	(Registrant)
Dated:        October 19, 2006	By:	/s/ Richard C. Josephson
		Name:  Richard C. Josephson
		Title:    Secretary

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Exhibit Index

Exhibit No.		Description
	10.1	Deferred Prosecution Agreement (including Statement of Facts), dated October 16, 2006, between Schnitzer Steel Industries, Inc. and the United States Department of Justice.
	10.2	Plea Agreement by SSI International Far East, Ltd., dated October 10, 2006.
	10.3	Criminal Information, United States of America vs. SSI International Far East, Ltd., dated October 10, 2006.
	10.4	Offer of Settlement to the United States Securities and Exchange Commission, dated July 26, 2006.
	10.5	Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities and Exchange Act of 1934, dated October 16, 2006.
	99.1	Press Release, dated October 16, 2006.

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EX-10.1

EXHIBIT 10.1

DEFERRED PROSECUTION AGREEMENT

Defendant SCHNITZER STEEL INDUSTRIES, INC. (“Schnitzer Steel” or “the Company”), an Oregon corporation, by its undersigned attorneys, pursuant to authority granted by its Board of Directors, and the United States Department of Justice, Criminal Division, Fraud Section (“Department of Justice” or the “Department”), enter into this Deferred Prosecution Agreement (“Agreement”).

1. SchnitzerSteel accepts and acknowledges that the Department of Justice will file a criminal Information in the United States District Court for the District of Oregon charging SSI International Far East, Ltd. (“SSI Korea”), a wholly-owned subsidiary of Schnitzer Steel, with Conspiracy to violate, and with substantive violations of, the anti-bribery provisions of the Foreign Corrupt Practices Act of 1977 (“FCPA”) and the Wire Fraud statute, and with aiding and abetting the making of false entries in the books and records of Schnitzer Steel, a publicly-held corporation, in violation of the books and records and internal controls provisions of the FCPA. Schnitzer Steel accepts and acknowledges that SSI Korea will enter a plea of guilty to all charges in the Information. Schnitzer Steel does not endorse, ratify or condone criminal conduct and, as set forth below, has taken steps to prevent such conduct from

occurring in the future.

2. Schnitzer Steel accepts and acknowledges that it is responsible for the acts of its officers and employees, and those of its wholly owned subsidiary, SSI Korea, as set forth in the Statement of Facts annexed hereto as “Attachment A.” Should the Department, pursuant to Paragraphs 21 and 22 of this Agreement, initiate the prosecution that is deferred by this Agreement, Schnitzer Steel agrees that it will neither contest the admissibility of, nor contradict, in any such proceeding, the facts contained in the Statement of Facts.

3. Schnitzer Steel expressly agrees that it shall not, through its present or future attorneys, Board of Directors, officers, or any other person authorized to speak for the Company, make any public statement, in litigation or otherwise, contradicting Schnitzer Steel’s acceptance of responsibility set forth above or the factual statements set forth in the Statement of Facts. Any such contradictory statement shall, subject to Schnitzer Steel’s cure rights below, constitute a breach of this Agreement as governed by Paragraph 21 of this Agreement, and Schnitzer Steel thereafter shall be subject to prosecution as set forth in Paragraphs 21 and 22 of this Agreement. The decision whether any public statement by any such person

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contradicting a fact contained in the Statement of Facts will be imputed to Schnitzer Steel for the purpose of determining whether Schnitzer Steel has breached this Agreement shall be at the sole discretion of the Department. Should the Department determine that a public statement by any such person contradicts in whole or in part a statement contained in the Statement of Facts, the Department shall so notify Schnitzer Steel as provided in Paragraph 27, and the Company may avoid a breach of this Agreement by publicly repudiating such statement within two (2) business days after notification. Consistent with Schnitzer Steel’s obligations as set forth above, Schnitzer Steel shall be permitted to raise defenses and to assert affirmative claims in civil and regulatory proceedings relating to the matters set forth in the Statement of Facts. This Paragraph is not intended to apply to any statement made by any Schnitzer Steel employee in the course of any criminal, regulatory, or civil case initiated against such individual, unless such individual is speaking on behalf of Schnitzer Steel.

4. In connection with this Agreement, Schnitzer Steel agrees to issue a press release, the text of which shall be acceptable to the Department.

5. During the three-year (3) term of this Agreement, Schnitzer Steel agrees to cooperate fully with the Department, the

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U.S. Securities and Exchange Commission (the “SEC”), and any other authority or agency designated by the Department investigating Schnitzer Steel and any of its present and former officers, employees, agents, consultants, contractors and subcontractors, in any and all matters relating to corrupt payments in connection with its operations. Schnitzer Steel agrees that its cooperation shall include, but is not limited to, the following:

a)   Schnitzer Steel shall continue to cooperate fully with the Department, the SEC, and any other authority or agency designated by the Department, and shall truthfully disclose all information with respect to the activities of Schnitzer Steel, its officers, employees, agents, consultants, contractors and sub-contractors concerning all matters relating to corrupt payments in connection with its operations, related false books and records, and inadequate internal controls about which Schnitzer Steel has any knowledge or about which the Department shall inquire. This obligation of truthful disclosure includes an obligation upon Schnitzer Steel to provide to the Department and to the SEC, upon request, any document, record, or other tangible evidence relating to such corrupt payments, books and records, and internal controls about which the

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Department shall inquire of Schnitzer Steel. This obligation of truthful disclosure includes an obligation to provide the Department with access to Schnitzer Steel’s facilities, documents, and employees. This obligation does not apply to any communications that are protected by the attorney-client privilege or work product doctrine. The parties agree, however, that the disclosure of information to Schnitzer Steel’s counsel concerning corrupt payments and related books and records shall not relieve Schnitzer Steel of its obligation to truthfully disclose such matters to the Department and the SEC.

b)   Upon request of the Department, with respect to any issue relevant to its investigation of corrupt payments in connection with Schnitzer Steel’s operations, related books and records, and inadequate internal controls, Schnitzer Steel shall designate knowledgeable employees, agents, or attorneys to provide to the Department the information and materials described in Paragraph 5(a) above, on Schnitzer Steel’s behalf. It is further understood that Schnitzer Steel must at all times provide complete, truthful, and accurate information.

c)   With respect to any issue relevant to the Department’s

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investigation of corrupt payments in connection with Schnitzer Steel’s operations, the Company shall use its best efforts to make its employees available to provide information and testimony as requested by the Department, including sworn testimony before a federal grand jury or in federal trials, as well as interviews with federal law enforcement authorities. Cooperation under this Paragraph will include identification of witnesses who, to Schnitzer Steel’s knowledge, may have material information regarding the matters under investigation.

d)   With respect to any issue relevant to the Department’s investigation of corrupt payments in connection with Schnitzer Steel’s operations, the Company shall use its best efforts to make available, for interviews or for testimony, such present or former Schnitzer Steel officers, directors, agents, consultants, and employees, and the officers, directors, employees, agents and consultants of contractors and sub-contractors, as may be requested by Department of Justice.

e)   With respect to any information, testimony, document, record, or other tangible evidence provided to the Department pursuant to this Agreement, Schnitzer Steel

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consents to any and all disclosures to other Government agencies of such materials as the Department, in its sole discretion, shall deem appropriate.

6. In return for Schnitzer Steel’s full and truthful cooperation, the Department agrees not to use any information provided by Schnitzer Steel pursuant to this Agreement against the Company or its subsidiaries in any criminal or civil case relating to the conduct described in the Statement of Facts, at Attachment A, except in a prosecution for perjury or obstruction of justice; in a prosecution for making a false statement after the date of this Agreement; in a prosecution or other proceeding relating to any crime of violence; or in a prosecution or other proceeding relating to a violation of any provision of Title 26 of the U.S. Code. In addition, the Department agrees, except as provided herein, that it will not bring any criminal or civil case against Schnitzer Steel relating to the conduct of Schnitzer Steel employees as described in the attached Statement of Facts. This Paragraph does not provide any protection against prosecution for corrupt payments, if any, made in the future by Schnitzer Steel, its subsidiaries, affiliates, officers, directors, employees, agents or consultants, whether or not disclosed by Schnitzer Steel pursuant to the terms of this Agreement, nor does it

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apply to any such payments, made in the past, which are not described in the attached Statement of Facts. In addition, this Paragraph does not provide any protection against criminal prosecution for any violations committed by any present or former officer, employee, director, agent or consultant of Schnitzer Steel or any of its subsidiaries or affiliates.

7. Schnitzer Steel represents that it has implemented a compliance and ethics program designed to detect and prevent violations of the FCPA, U.S. commercial bribery laws and all applicable foreign bribery laws throughout its operations, including those of its subsidiaries, affiliates, and joint ventures, and those of its contractors and subcontractors, with responsibilities that include interactions with foreign officials. Implementation of these policies and procedures shall not be construed in any future enforcement proceeding as providing immunity or amnesty for any crimes not disclosed to the Department as of the date of the execution of this Agreement for which Schnitzer Steel would otherwise be responsible.

8. Schnitzer Steel agrees to the appointment of an independent compliance consultant (“Compliance Consultant”), within sixty (60) calendar days of the signing of this Agreement, to monitor the Company’s compliance program with respect to

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the FCPA, U.S. commercial bribery laws, and applicable foreign bribery laws for a period of three (3) years from the execution of this Agreement, subject to the provisions of Paragraph 11. The Compliance Consultant shall be the same person as appointed pursuant to any agreement between Schnitzer Steel and the SEC concerning the acts described in the Statement of Facts at Attachment A. The Compliance Consultant will review and evaluate the effectiveness of Schnitzer Steel’s internal controls, record-keeping, and financial reporting policies and procedures as they relate to Schnitzer Steel’s compliance with the books and records, internal accounting controls, and anti-bribery provisions of the FCPA, U.S. commercial bribery laws, and all applicable foreign bribery laws.This review and evaluation shall include an assessment of those policies and procedures as actually implemented.

9. The Department shall provide to Schnitzer Steel, within thirty (30) days of the signing of this Agreement, the names of two (2) recommended Compliance Consultants. Thereafter, Schnitzer Steel shall select one person as its Compliance Consultant or, in the event the Company does not select a person within thirty (30) days, the Department shall have the sole right to select the Compliance Consultant. The compensation and expenses of the Compliance Consultant, and

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of any persons hired under his or her authority, shall be paid by Schnitzer Steel.

10. Schnitzer Steel shall cooperate fully with the Compliance Consultant. The Compliance Consultant shall have the authority to take such reasonable steps, in the Compliance Consultant’s view, as may be necessary to be fully informed about the operations of Schnitzer Steel within the scope of his or her responsibilities under this Agreement. To that end, Schnitzer Steel shall provide the Compliance Consultant with access to all files, books, records, and personnel that fall within the scope of his or her responsibilities under this Agreement. It shall be a condition of the Compliance Consultant’s retention that the Compliance Consultant is independent of Schnitzer Steel and that no attorney-client relationship shall be formed between them. Except insofar as Schnitzer Steel retains the attorney-client privilege or work product doctrine described in Paragraph 5(a) of this Agreement, Schnitzer Steel shall not withhold from the Department, and shall require the Compliance Consultant to agree not to withhold from the Department, any documents or information on the basis of any privilege or work product claims.

11. Schnitzer Steel agrees that the Compliance Consultant shall assess whether Schnitzer Steel’s policies and procedures are

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reasonably designed to detect and prevent violations of the FCPA, all applicable U.S. commercial bribery laws, and all applicable foreign bribery laws, and, during the three-year consultancy, shall conduct an initial review and prepare an initial report, followed by two (2) follow-up reviews and follow-up reports as described below. With respect to each of the three (3) reviews, after initial consultations with Schnitzer Steel, the Department, and the SEC, the Compliance Consultant shall prepare a written work plan for each of the reviews, which shall be submitted in advance to Schnitzer Steel, the Department and the SEC for comment. In order to conduct an effective initial review and to fully understand any existing deficiencies in controls, policies and procedures related to the FCPA, U.S. commercial bribery laws, and all applicable foreign bribery laws, the Compliance Consultant’s initial work plan shall include such steps as are necessary to develop an understanding of the facts and circumstances surrounding the violations described in the attached Statement of Facts. Any disputes between Schnitzer Steel and the Compliance Consultant with respect to the work plan shall be decided by the Department in its sole discretion.

12. In connection with the initial review, the Compliance Consultant shall issue a written report within one hundred

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twenty (120) calendar days after being retained, setting forth the Compliance Consultant’s assessment and making recommendations reasonably designed to improve Schnitzer Steel’s policies and procedures for ensuring compliance with the FCPA, U.S. commercial bribery laws, and all applicable foreign bribery laws. The Compliance Consultant shall provide the report to Schnitzer Steel’s Board of Directors and its Audit Committee and contemporaneously transmit copies to the following individuals, or their successors: 1) Mark F. Mendelsohn, Deputy Chief, Fraud Section, Criminal Division, U.S. Department of Justice, 10^th and Constitution Ave., N.W. (Bond), Washington, D.C. 20530; and 2) Helane L. Morrison, District Administrator, U.S. Securities and Exchange Commission, 44 Montgomery Street, 26^th Floor, San Francisco, CA 94127. The Compliance Consultant may extend the time period for issuance of the report with prior written approval of the Department and the SEC.

13. Within one hundred twenty (120) calendar days after receiving the report, Schnitzer Steel 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 Steel shall advise the Compliance Consultant, the Department and the SEC in writing of any recommendations that it considers

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. to be unduly burdensome, impractical, or costly. With respect to any recommendation that Schnitzer Steel considers unduly burdensome, impractical, or costly, Schnitzer Steel 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 any recommendation on which Schnitzer Steel and the Compliance Consultant do not agree, such parties shall attempt in good faith to reach an agreement within sixty (60) calendar days after Schnitzer Steel serves the written advice. In the event Schnitzer Steel and the Compliance Consultant are unable to agree on an alternative proposal, Schnitzer Steel 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, the Compliance Consultant may extend the time period for implementation with prior written approval of the Department.

14. The Compliance Consultant shall undertake two follow-up reviews to further monitor and assess whether Schnitzer Steel’s policies and procedures are reasonably designed to detect and prevent violations of the FCPA, U.S. commercial bribery laws, and all applicable foreign bribery laws.

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Within one hundred twenty (120) calendar days of initiating each follow-up review, the Compliance Consultant (i) shall complete the review, (ii) certify whether Schnitzer Steel’s anti-bribery compliance program, including its policies and procedures, is appropriately designed and implemented to ensure compliance with the FCPA, U.S. commercial bribery laws, and all applicable foreign bribery laws, and (iii) report on the Compliance Consultant’s findings in the same fashion as set forth in Paragraph 12 with respect to the initial review. The first follow-up review shall commence one year after appointment of the Compliance Consultant, and the second follow-up review shall commence at least one year after completion of the first review. The Compliance Consultant may extend the time period for these follow-up reviews with prior written approval of the Department and the SEC.

15. In undertaking the assessment and reviews described in Paragraphs 8 through 14 of this Agreement, the Compliance Consultant shall formulate conclusions based on, among other things, (i) inspection of documents, including all the policies and procedures relating to Schnitzer Steel’s anti-bribery compliance program; (ii) onsite observation of Schnitzer Steel’s systems and procedures, including Schnitzer Steel’s internal controls, recordkeeping and

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internal audit procedures; (iii) meetings with and interviews of Schnitzer Steel’s employees, officers, directors and any other relevant persons; and (iv) analyses, studies and testing of Schnitzer Steel’s anti-bribery compliance program. In undertaking such assessment and reviews, the Compliance Consultant, at his or her own discretion, may rely, to a reasonable extent and after reasonable inquiry, on reports, studies, and analyses issued or undertaken by other consultants hired by Schnitzer Steel prior to the date of this Agreement.

16. The Compliance Consultant’s charge, as further described in Paragraphs 8 through 15 above, is to review Schnitzer Steel’s controls, policies and procedures related to the compliance with the FCPA, U.S. commercial bribery laws and all other applicable foreign bribery laws. Should the Compliance Consultant, during the course of his or her engagement, discover that corrupt payments or corrupt transfers of property or interests may have been offered, promised, paid, or authorized by any Schnitzer Steel entity or person, or any entity or person working directly or indirectly for Schnitzer Steel, the Compliance Consultant shall promptly report such payments to Schnitzer Steel’s Corporate Compliance Officer and its Audit Committee for further investigation, unless the Compliance Consultant

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believes, in the exercise of his or her discretion, that such disclosure should be delayed. In such circumstances, the Compliance Consultant may refer the matter directly to the Department and the SEC. If the Compliance Consultant refers the matter only to Schnitzer Steel’s Corporate Compliance Officer or its Audit Committee, Schnitzer Steel shall promptly report the same to the Department and the SEC. If Schnitzer Steel fails to make such disclosure within ten (10) calendar days of the report of such payments to Schnitzer Steel’s Corporate Compliance Officer or its Audit Committee, the Compliance Consultant shall independently disclose his or her findings to the Department and the SEC, at the addresses listed above in Paragraph 12. If the Compliance Consultant reasonably concludes that disclosure to Schnitzer Steel’s Corporate Compliance Officer or its Audit Committee would be inappropriate, the Compliance Consultant may limit such disclosure to any one of the foregoing parties. If the Compliance Consultant reasonably concludes that disclosure to even one of the foregoing parties would be inappropriate, the Compliance Consultant may refer the matter directly to the Department or the SEC. In the event of such a direct referral, the Compliance Consultant shall make a similar disclosure to Schnitzer Steel’s Corporate Compliance Officer or its Audit

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Committee as soon as the reason for the nondisclosure has abated, unless directed not to do so by the relevant authorities. Further, in the event that any Schnitzer Steel entity or person, or any entity or person working directly or indirectly for Schnitzer Steel, refuses to provide information necessary for the performance of the Compliance Consultant’s responsibilities, the Compliance Consultant shall disclose that fact to the Department and the SEC. Schnitzer Steel shall not take any action to retaliate against the Compliance Consultant for such disclosures. The Compliance Consultant is not precluded from reporting other criminal or regulatory violations discovered in the course of performing his or her duties, in the same manner as described above.

17. The Agreement between Schnitzer Steel and the Compliance Consultant shall provide that for the three-year period of engagement and for a period of two (2) 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 Steel, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity as such. The agreement will also provide that the Compliance Consultant will require that any firm with which

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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 Agreement shall not, without prior written consent of the Department and the SEC’s Division of Enforcement, enter into any employment, consultant, agency, attorney-client, auditing or other professional relationship with Schnitzer Steel, 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 (2) years after the engagement. To ensure the independence of the Compliance Consultant, Schnitzer Steel shall not have the authority to terminate the Compliance Consultant without the prior written approval of the Department and the SEC.

18. Schnitzer Steel further agrees that its subsidiary, SSI Korea, shall pay a monetary penalty of $7,500,000 to the U.S. Treasury within ten (10) days of the imposition of any fine upon SSI Korea by the District Court for the District of Oregon. Schnitzer Steel will offset against the $7,500,000 monetary penalty required under this Agreement any fine imposed upon SSI Korea by the District Court for the District of Oregon. This amount is a final payment and shall not be refunded (a) if the Department does not institute a criminal prosecution against Schnitzer Steel

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pursuant to Paragraph 21 below, or (b) should the Department later determine that Schnitzer Steel has breached this Agreement and brings a prosecution against it pursuant to Paragraph 22 below. Further, nothing in this Agreement shall be deemed an agreement by the Department that this amount is the maximum criminal fine that may be imposed in such prosecution, and the Department shall not be precluded from arguing that the Court should impose a higher fine. The Department agrees, however, to recommend to the Court that any amounts paid pursuant to this Agreement and in the criminal proceeding against SSI Korea should be offset against whatever fine the Court shall impose as part of its judgment in the event of a subsequent breach and prosecution. Schnitzer Steel agrees, on behalf of itself and its subsidiaries, including SSI Korea, that no tax deduction will be sought in connection with the $7,500,000 million monetary penalty required under this Agreement or any criminal fine imposed by a Court in connection with any criminal proceeding arising from the facts contained in the Statement of Facts.

19. In consideration of the action of the Audit Committee of the Board of Directors of Schnitzer Steel in initiating an investigation conducted by outside legal counsel and the voluntary disclosure to the Department and the SEC; the cooperation of the Audit Committee and the Company with the investigations conducted by the Department and the SEC; the

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willingness of the Board of Directors to replace senior officers of the Company, to increase the number of independent directors, and to adopt and implement effective compliance procedures; and the willingness of Schnitzer Steel to (a) acknowledge responsibility for its behavior, (b) cause its subsidiary, SSI Korea, to enter a plea of guilty to criminal charges, (c) continue its cooperation with the Department, the SEC, and other investigative and regulatory authorities and agencies, (d) adopt and maintain remedial measures and its commitment to independently review and audit such measures, and (e) consent to pay the criminal fine in connection with the plea of guilty of its subsidiary SSI Korea, the Department agrees that any prosecution of Schnitzer Steel be and hereby is deferred for a period of three (3) years from the date of this Agreement.

20. The Department further agrees that if Schnitzer Steel is in full compliance with all of its obligations under this Agreement, including its obligation to adopt the recommendations of the Compliance Consultant in accordance with the terms of Paragraph 13, the Department will not institute a criminal prosecution against Schnitzer Steel pursuant to Paragraph 1, and this Agreement shall expire

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except that the Department shall remain bound to its obligation in paragraph 6 not to bring any criminal or civil case against Schnitzer Steel relating to the conduct described in the Statement of Facts.

21. If the Department determines, in its sole discretion, that Schnitzer Steel, at any time between the execution of this Agreement and completion of Schnitzer Steel’s cooperation as set forth in Paragraph 5, provided deliberately false, incomplete, or misleading information under this Agreement or has committed any federal crimes subsequent to the date of this Agreement or has otherwise violated any provision of this Agreement, Schnitzer Steel shall, in the Department’s sole discretion, thereafter be subject to prosecution for any federal criminal violation of which the Department has knowledge. Any such prosecutions may be premised on information provided by Schnitzer Steel. Moreover, Schnitzer Steel agrees that any such prosecutions that are not time-barred by the applicable statute of limitations on the date of this Agreement may be commenced against Schnitzer Steel in accordance with this Agreement, notwithstanding the expiration of the statute of limitations between the signing of this Agreement and the termination of this Agreement. By this Agreement, Schnitzer Steel expressly intends to and does waive any rights in this respect.

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22. It is further agreed that in the event that the Department, in its sole discretion, determines that Schnitzer Steel has violated any provision of this Agreement: (a) all statements made by or on behalf of Schnitzer Steel to the Department, and any testimony given by Schnitzer Steel before a grand jury or any tribunal, at any legislative hearings, or to the SEC, whether prior or subsequent to this Agreement, or any leads derived from such statements or testimony, shall be admissible in evidence in any and all criminal proceedings brought by the Department against Schnitzer Steel and (b) Schnitzer Steel shall not assert any claim under the United States Constitution, Rule 11(f) of the Federal Rules of Criminal Procedure, Rule 410 of the Federal Rules of Evidence, or any other federal rule, that statements made by or on behalf of Schnitzer Steel prior to or subsequent to this Agreement, or any leads therefrom, should be suppressed. The decision whether conduct or statements of any individual will be imputed to Schnitzer Steel for the purpose of determining whether Schnitzer Steel has violated any provision of this Agreement shall be in the sole discretion of the Department.

23. Schnitzer Steel acknowledges that the Department has made no representations, assurances, or promises concerning what

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sentence may be imposed by the Court should Schnitzer Steel breach this Agreement and this matter proceed to judgment. Schnitzer Steel further acknowledges that any such sentence is solely within the discretion of the Court and that nothing in this Agreement binds or restricts the Court in the exercise of such discretion.

24. Schnitzer Steel agrees that in the event it sells or merges all or substantially all of its business operations as they exist as of the date of this Agreement, whether such sale is structured as a stock or asset sale, it shall include in any contract for sale or merger a provision binding the purchaser or any successor to the obligations described in this Agreement.

25. It is understood that this Agreement is binding on Schnitzer Steel and the Department but specifically does not bind any other federal agencies, or any state or local law enforcement or regulatory agencies, although the Department will bring the cooperation of Schnitzer Steel and its compliance with its other obligations under this Agreement to the attention of such agencies and authorities if requested to do so by Schnitzer Steel and its attorneys.

26. This Agreement sets forth all the terms of the Deferred Prosecution Agreement between Schnitzer Steel and the Department. No modifications or additions to this Agreement

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shall be valid unless they are in writing and signed by the Department, Schnitzer Steel’s attorneys, and a duly authorized representative of Schnitzer Steel.

27. Any notice to Schnitzer Steel under this Agreement shall be given by personal delivery, overnight delivery by a recognized delivery service or registered or certified mail, in each case addressed to Schnitzer Steel Industries, Inc., Attn: President and Chief Executive Officer, 3200 NW Yeon Avenue, Portland OR 97210, with a copy by the same means to Schnitzer Steel Industries, Inc., Attn: General Counsel, 3200 NW Yeon Avenue, Portland OR 97210. Notice shall be effective upon actual receipt by Schnitzer Steel.

FOR THE DEPARTMENT OF JUSTICE:

/S/ STEVEN A. TYRRELL

Steven A. Tyrrell

Acting Chief, Fraud Section

By: /s/ Kathleen McGovern

MARK F. MENDELSOHN

Deputy Chief, Fraud Section

DEBORAH L. GRAMICCIONI

Assistant Chief, Fraud Section

KATHLEEN MCGOVERN

Trial Attorney, Fraud Section

Fraud Section, Criminal Division

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United States Department of Justice

10^th& Constitution Avenue, NW
Washington, D.C. 20530

(202) 514-7023

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FOR SCHNITZER:

/s/ KENNETH M. NOVACK

Kenneth M. Novack

Chairman

Schnitzer Steel Industries, Inc.

3200NW Yeon Avenue

Portland, Oregon 97210

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OFFICER’S CERTIFICATE

I have read this Agreement and carefully reviewed every part of it with counsel for Schnitzer Steel Industries, Inc., (“Schnitzer Steel”). I understand the terms of this Agreement and voluntarily agree, on behalf of Schnitzer Steel, to each of its terms. Before signing this Agreement, I consulted with the attorney for Schnitzer Steel. The attorney fully advised me of Schnitzer Steel’s rights, of possible defenses, of the Sentencing Guidelines’ provisions, and of the consequences of entering into this Agreement.

I have carefully reviewed every part of this Agreement with the Audit Committee of the Board of Directors of Schnitzer Steel, to which the Board has delegated the authority to approve and enter into this Agreement on behalf of Schnitzer Steel. I have fully advised the Audit Committee of Schnitzer Steel’s rights, of possible defenses, of the Sentencing Guidelines’ provisions, and of the consequences of entering into the Agreement.

No promises or inducements have been made other than those contained in this Agreement. Furthermore, no one has threatened or forced me, or to my knowledge any person authorizing this Agreement on behalf of Schnitzer Steel, in any way to enter into this Agreement. I am also satisfied with the attorney’s representation in this matter. I certify that I am an officer of

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Schnitzer Steel and that I have been duly authorized by Schnitzer Steel to execute this Agreement on behalf of Schnitzer Steel.

10/16/06

Date  Schnitzer Steel Industries, Inc.

By: /s/ Kenneth M. Novack

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CERTIFICATE OF COUNSEL

I am counsel for Schnitzer Steel Industries, Inc., (“Schnitzer Steel”) in the matter covered by this Agreement. In connection with such representation, I have examined relevant Schnitzer Steel documents and have discussed this Agreement with the authorized representative of Schnitzer Steel. Based on my review of the foregoing materials and discussions, I am of the opinion that: Schnitzer Steel’s representative has been duly authorized to enter into this Agreement on behalf of Schnitzer Steel. This Agreement has been duly and validly authorized, executed, and delivered on behalf of Schnitzer Steel and is a valid and binding obligation of Schnitzer. Further, I have carefully reviewed every part of this Agreement with the General Counsel of Schnitzer Steel. I have fully advised him of Schnitzer Steel’s rights, of possible defenses, of the Sentencing Guidelines’ provisions, and of the consequences of entering into this Agreement. To my knowledge, Schnitzer Steel’s decision to enter into this Agreement is an informed and voluntary one.

10/16/06

Date

  /s/ George Terwilliger                                             

Counsel for SCHNITZER STEEL INDUSTRIES, INC.

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CERTIFICATE OF CORPORATE RESOLUTIONS

A copy of the executed Certificate of Corporate Resolutions is annexed hereto as “Attachment B.”

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Attachment B

SCHNITZER STEEL INDUSTRIES, INC. LIMITED CERTIFICATE OF

CORPORATE RESOLUTIONS

I, Richard C. Josephson, do hereby certify that I am the duly elected, qualified and acting Secretary of Schnitzer Steel Industries, Inc. (“Schnitzer”), an Oregon corporation, and that the following is a complete and accurate copy of the resolutions adopted by the Board of Directors of Schnitzer at a meeting held on July 26, 2006 at which a quorum was present and resolved as follows:

WHEREAS, by resolutions adopted at its meeting on April 19, 2006, the Board approved in principle a settlement of the investigations by the U.S. Department of Justice (“DOJ”) and the United States Securities and Exchange Commission (“Commission”) into the Company’s past payment practices in the Far East and delegated to the Audit Committee of the Board authority to negotiate the definitive documentation of the settlement, subject to final approval of the Board; and

WHEREAS, the Audit Committee, with the assistance of its counsel and input from management of the Company, has prepared and obtained DOJ approval of a revised code of conduct and compliance program document, which was a condition to approval by DOJ of the settlement; and

WHEREAS, the settlement contemplates (a) the Company executing a deferred prosecution agreement with the DOJ and an offer of settlement to the Commission pursuant to which the Commission would issue a cease and desist order directed to the Company (together, the “Settlement Documents”), (b) the Company paying fines and disgorgement to the DOJ and the Commission in the amount of approximately $15 million (including prejudgment interest) and (c) SSI International Far East Ltd., a subsidiary of the Company, pleading guilty to certain crimes; now, therefore, be it

RESOLVED, that the Audit Committee, or a subcommittee thereof as designated by the Audit Committee, is authorized and empowered, with the assistance of its counsel and in consultation of management of the Company as it deems appropriate, to negotiate the final forms of the Settlement Documents; and it is further

RESOLVED, that the Company is authorized to pay to the DOJ and the Commission penalties, disgorgement and prejudgment interest in the aggregate amount of $15,225,201; and it is further

RESOLVED, that Kenneth M. Novack, Chairman of the Board, is authorized, for and on behalf of the Company, to execute and deliver the

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Settlement Documents and such other documents and to take such other and further actions as may be approved by the Audit Committee or subcommittee thereof, as applicable, to consummate the resolution of the investigation.

I further certify that the aforesaid resolutions have not been amended or revoked in any respect and remains in full force and effect.

IN WITNESS WHEREOF, I have executed this Certificate on September 25, 2006.

By: /s/ Richard C. Josephson

Richard C. Josephson, Secretary

Schnitzer Steel Industries, Inc.

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STATEMENT OF FACTS

I. Schnitzer Steel’s Status as an “Issuer” Under the Foreign Corrupt Practices Act

1.Schnitzer Steel Industries, Inc. (“Schnitzer Steel”) is a publicly traded corporation organized under the laws of Oregon with its headquarters in Portland, Oregon, and offices in Oregon, California and Washington. Schnitzer Steel operates in three vertically integrated business segments: a metals recycling business; an auto parts business; and a steel manufacturing business. Schnitzer Steel maintains 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 (“SEC”) under Section 13 of the Securities Exchange Act (15 U.S.C. § 78m). Accordingly, Schnitzer Steel is an “issuer” within the meaning of the Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-1.

2.From 1995 to the present, Schnitzer Steel has maintained a wholly-owned subsidiary in Seoul, Republic of Korea (“South Korea”). The subsidiary, SSI International Far East, Ltd. (“SSI Korea”), facilitates the sale of ferrous recycled (“scrap”) metal by Schnitzer Steel from the United States and also acts as a broker for the sale of scrap metal by Japanese suppliers to steel producers in the People’s Republic of China (“China”) and South Korea. SSI Korea maintains its principal office in Seoul. It is managed by SSI International, Inc., a wholly-owned subsidiary of Schnitzer Steel in Tacoma, Washington. SSI Korea acts as Schnitzer Steel’s agent in South Korea and China, maintaining the business relationships with Schnitzer Steel’s customers in those countries. SSI Korea also transmits

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requests to the United States for approval and wire transfer of funds in connection with sales of scrap metal to Schnitzer Steel’s customers in South Korea and China, which payments subsequently are processed and approved by employees and officers of Schnitzer Steel in Portland, Oregon. Accordingly, SSI Korea operates within the territorial jurisdiction of the United States, within the meaning of the Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-3.

3.Schnitzer Steel has developed longstanding relationships with steel producers in South Korea and China that have purchased Schnitzer Steel’s scrap metal. Some of those steel producers in China, such as Baosteel, are wholly or partially owned by the government of China. Those government-owned customers are foreign government “instrumentalities,” and their officers and employees are “foreign officials,” within the meaning of the Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-1(f)(1)(A).

II. Overview of Violations

4.From at least 1995, continuing to in or about at least August 2004, Schnitzer Steel through its officers and employees authorized and made corrupt payments, principally in cash, to officers and employees (“managers”) of private customers in South Korea and private and government-owned customers in China to induce them to purchase, and to secure an improper advantage with respect to the purchase of, scrap metal from Schnitzer Steel. In total, corrupt payments of approximately $204,537 were paid to managers of government-owned customers in China, and corrupt payments of approximately $1,683,672 were paid to managers of private customers in China and South Korea. These

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corrupt payments took three basic forms: (1) commissions, (2) refunds, and (3) gratuities.

III. Details of the Violations

A.            Commissions

5.From at least 1999 to in or about August 2004, Schnitzer Steel made corrupt payments in connection with nearly every sale of scrap metal to customers in South Korea and China, which payments were falsely reflected on Schnitzer Steel’s books and records as “commissions” (hereafter “commissions”). The “commissions” were included in the purchase price of the scrap metal. For scrap metal sold to customers in South Korea, the “commission” was a standard $0.25 per ton. For scrap metal sold to customers in China, the “commission” was a standard $0.15 per ton. Schnitzer Steel wired the “commissions” at the request of the head of its Asian scrap metal sales (“Officer A”) to off-books bank accounts in South Korea opened and maintained by the manager of SSI Korea (“Employee A”), specifically for receiving these payments. Officer A was a resident of Tacoma, Washington, and was an employee of SSI International, Inc. from in or about 1995 through 2005. From in or about March 2000 to in or about 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

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customers in China and South Korea. Employee A was a resident of Seoul, South Korea, and was an employee of SSI Korea from in or about 1995 through 2005. From in or about 1998 through 2005, Employee A was the manager of SSI Korea and was responsible for managing the business relationships locally with Schnitzer Steel’s scrap metal customers in Asia, managing SSI Korea’s Japanese brokered scrap metal sales, coordinating the delivery of scrap metal to steel mills in South Korea and China and forwarding to Officer A in Tacoma, Washington, invoices for payment in connection with sales to Schnitzer Steel’s customers in South Korea and China and wire transfer requests for payment to managers of Schnitzer Steel’s scrap metal customers in those countries.

6.Officer A and Employee A would use funds from the secret accounts to make cash “commission” payments to the managers of the customers, the funding of which is described below. “Commissions” typically were paid directly to a customer’s manager in cash, either at a restaurant or at the customer’s office. Between September 1999 and August 2004, at least 131 “commission” payments were made in South Korea and China. Of those, at least 72 “commission” payments were made to managers of their scrap metal customers in China. Those payments totaled approximately $299,558.10, of which at least approximately $104,297.03 was paid to managers of foreign government “instrumentalities” within the meaning of the Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-1(f)(1)(A) (hereafter “government instrumentalities”). At least 59 payments totaling approximately $475,021.15 were made to managers of non-government owned or controlled (“private”) customers in South Korea.

7.SSI Korea also acted as a broker for Japanese scrap metal companies that sold scrap metal in South Korea and

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China, receiving brokerage commissions for finding buyers for scrap metal in South Korea and China. From at least September 1999 until at least September 2001, Japanese companies provided SSI Korea with funds to make corrupt payments to managers of the South Korean and Chinese steel mills similar to the corrupt payments made by Schnitzer Steel for the scrap metal it sold. Employee A generally delivered these corrupt payments to the managers of the South Korean and Chinese steel mills. Employee A and others delivered at least 135 cash “commission” payments by Japanese scrap metal suppliers to managers of their customers in South Korea and China. These payments totaled approximately $156,059.50, of which at least $3,823.35 was paid to managers of steel mills which were government instrumentalities. Records of these “commission” payments were maintained by Schnitzer Steel in the United States until September 2001. All records of “commissions” related to the Japanese brokered sales paid after September 2001 were maintained in South Korea by SSI Korea. In or around August 2004, the records maintained by SSI Korea were intentionally destroyed by an SSI Korea employee, as described below.

B.            Refunds

8.Schnitzer Steel made a second type of corrupt payment in connection with sales of scrap metal to South Korean and Chinese customers. Those payments typically were reflected on Schnitzer Steel’s books and records as a “refund to customer” or “rebate to customer,” although some were characterized variously as “quality claims,” “discounts,” “credits,” and “freight savings” (hereafter “refunds”). In order to pay the refunds, Schnitzer Steel participated in a scheme whereby the customer’s manager would cause the customer to overpay Schnitzer

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Steel for the scrap metal purchase, and would then personally recover the overpayment from Schnitzer Steel. For sales in which “refunds” were paid, “commissions” typically also were paid, resulting in two or more corrupt payments to the customer’s manager.

9.The practice of paying “refunds” appears to have started in mid-2001, due to the volatility in the price of scrap metals, which sometimes resulted in a substantial difference in the price of metal between the time of signing the contract and shipment 60 to 90 days later. When the price in the market at the time of shipment was substantially lower than the contract price, a customer’s manager often demanded to be paid a “refund.” The “refund” was negotiated at the time the customer entered into a subsequent contract with Schnitzer Steel. The amount of the “refund” was based on the tonnage of the next shipment to the customer.

10.Unlike “commissions,” which were a fixed per-ton amount, “refunds” varied from $0.25 per ton up to $1.00 per ton. The so-called “refund” was then incorporated in the price of the subsequent scrap metal contract so that the customer, not Schnitzer Steel, bore the cost of the “refund” which was thereafter paid to the customer’s manager. “Refunds” were paid in the same way as “commission payments.” Schnitzer Steel wired the money for the “refunds” to secret bank accounts in South Korea opened and maintained by Employee A specifically for the purpose of receiving these payments. Officer A and Employee A then used funds from the secret accounts to pay “refunds” to the managers of the customers, the funding of which is described below. “Refunds” typically were paid directly to the customer’s manager in cash, either at a restaurant or at the customer’s office.

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11.At least 80 “refund” payments were made between May 2001 and August 2004, totaling approximately $889,372.68. Of those, at least 38 “refund” payments were made to customers’ managers in China, totaling approximately $280,046.47, of which approximately $57,218.18 was paid to managers of customers which were government instrumentalities. At least 42 “refund” payments totaling approximately $609,326.21 were made to managers of private customers in South Korea.

12.Three “refund” payments were made or facilitated by Schnitzer Steel in regard to its brokerage of Japanese scrap metal between May and September 2002. The total amount of those payments was approximately $12,399.00, all of which were paid to managers of private customers. Records related to those three “refunds” were maintained by Schnitzer Steel in the United States; all other records of “refund” payments related to the Japanese brokered sales after September 2001 were maintained by SSI Korea in South Korea. In or around August 2004, the records maintained by SSI Korea related to “refund” payments were destroyed by an SSI Korea employee, as described below.

C. Funding of “Commission” and “Refund” Payments Through Off-Book Bank Accounts in South Korea

13.In 1995, Schnitzer Steel acquired Manufacturing Management Inc. (“MMI”) and its South Korean subsidiary, MMI International Far East, Ltd. (“MMI Korea”), which became SSI Korea. Thereafter, Schnitzer Steel adopted MMI’s practice of making illegal “commission” payments to managers of customers in cash or bank check from funds held in a series of bank accounts

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in South Korea that were not reflected on the books and records of Schnitzer Steel or SSI Korea (the “off-book” bank accounts). Starting around 2001, funds from those bank accounts were also used to pay illegal “refunds.”

14.Between 1995 and 1998, the off-book bank accounts were opened and maintained in the names of relatives of “Employee B,” a former MMI Korea employee who in 1995 became the manager of SSI Korea. Employee B was a resident of Seoul, South Korea. Between 1995 and 1998, Employee B was responsible for managing the business relationships locally with Schnitzer Steel’s scrap metal customers in Asia, managing SSI Korea’s Japanese brokered scrap metal sales, coordinating the delivery of scrap metal to the customers of Schnitzer Steel and the Japanese scrap metal suppliers, and forwarding to Tacoma, Washington, invoices for payment in connection with sales to Schnitzer Steel’s customers in South Korea and China and wire transfer requests for payment to managers of Schnitzer Steel’s scrap metal customers in those countries.

15.Employee B resigned from SSI Korea in 1998. Following his resignation, his former deputy, Employee A, became the manager of SSI Korea. Around that time, Employee C, a former employee of MMI based in Tacoma, Washington, who was Officer A’s supervisor and the manager of Schnitzer Steel’s Asian scrap metal sales until he retired in or around February 2000, traveled to South Korea and instructed Employee A that he was to continue making “commission” payments on behalf of Schnitzer Steel to managers of its South Korean and Chinese customers. Employee C further instructed Employee A that he should establish bank accounts to be used to facilitate the “commission” payments. Thereafter, Employee A opened bank accounts in South Korea in the

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names of his mother and wife. On August 21, 2001, Employee A opened a bank account in the name of a fictitious corporate entity, similar to that of SSI Korea, “SSI International Co., Ltd.” Employee A maintained these off-book bank accounts on behalf of SSI Korea from 1998 through sometime in 2004.

16.After a shipment of scrap metal was delivered from Schnitzer Steel to the South Korean or Chinese customer, Employee A sent to Officer A in Tacoma, Washington, an invoice for the “commission” associated with that shipment.

17.After receiving an invoice from Employee A for a “commission,” Officer A authorized it and requested a wire transfer be made to one of SSI Korea’s off-book bank accounts. The wire transfer request was forwarded from Officer A in Tacoma, Washington, to Schnitzer Steel employees in Portland, who approved and processed it. The request typically identified a bank account number, but not the individual or entity in whose name that bank account was maintained. The request typically identified the payment as a “commission.” Each “commission” payment was authorized by one or more Schnitzer Steel executives. Similarly, Officer A made a wire request for each “refund,” which was sent from Tacoma, Washington, to Portland, Oregon, for approval and processing. “Officer B,” who supervised Officer A, authorized at least 40 “commissions” or “refunds” between September 1999 and October 2003. Officer B was a resident of Portland, Oregon, who was employed as a 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

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requests for payment to managers of customers of Schnitzer Steel, and directly supervising the work of and approving the expenses of Officer A.

18.The funds for the “commissions” and “refunds” were transmitted by Schnitzer Steel in Portland to the off-book bank accounts in South Korea by wire transfers that were reflected in Schnitzer Steel’s books and records as “commissions” and “refunds.” Between September 1999 and August 2004, at least 121 such wire transfers were made.¹

19.Prior to August 21, 2001, the off-book bank accounts in South Korea were maintained in the names of individuals. The Japanese suppliers for which SSI Korea brokered scrap metal sales refused to transfer funds to those accounts, because the suppliers did not want to send funds to bank accounts in the names of individuals. Instead, the Japanese suppliers transferred funds for both SSI Korea’s brokerage commission and the corrupt payments to the managers of the customers to the bank account of SSI Korea. Employee A, however, did not want to make the payments from the SSI Korea bank account, because he did not want to risk disclosure of the payments. Accordingly, Employee A in South Korea and Officer A in Tacoma, Washington, agreed that Schnitzer Steel in Portland would wire transfer funds to the off-book bank accounts in South Korea. These wire transfers were authorized by one or more Schnitzer Steel executives or officers.

20.Between September 1999 and September 2001, there

^{____________________}

¹   7 of the 121 wire transfers to off-book bank accounts paying “commissions” and “refunds” also included payments associated with the Japanese brokered scrap metal sales. See footnote 2 below.

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were 25 wire transfers from Schnitzer Steel to off-book bank accounts in South Korea in connection with “commissions” related to Japanese brokered scrap metal sales.² Officer B authorized 4 of those wire transfers. In addition, in 2002, there were 3 wire transfers from Schnitzer Steel to the off-book bank account in the name of the fictitious entity SSI International Co., Ltd. in connection with “refunds” related to Japanese brokered scrap metal sales.

21.After Employee A opened an off-book bank account on August 21, 2001 in the fictitious name SSI International Co., Ltd., the Japanese scrap metal suppliers transferred funds to cover their corrupt payments to managers of their customers directly to that account. The records of all funds received from the Japanese scrap metal suppliers after August 21, 2001, with the exception of the 3 “refund” payments noted above, were maintained solely by SSI Korea. Those records were destroyed in or about August 2004 by an SSI Korea employee, as described below.

D.            Gratuities

22.In addition to the “commission” and “refund” payments, Schnitzer Steel, from at least October 1999 to in or about May 2003, made a third type of corrupt payment in connection with certain sales of scrap metal to customers in South Korea and China. The third type of payment was made through checks written to Schnitzer Steel employees or to “cash,” which were reflected on Schnitzer Steel’s books and records as

____________

²   7 of the 25 wire transfers made in connection with the Japanese brokered scrap metal sales also included payments for “commissions” and “refunds.”

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“gratuities,’” “other marine expenses,” “commissions,” “customer relations,” and “bonuses” (hereafter “gratuities”).

23.Checks to fund the “gratuities” were written and cashed by Schnitzer Steel employees in the United States at the direction of Schnitzer Steel Officer A in Tacoma, Washington. Some of these checks were written and cashed with the authorization by one or more Schnitzer Steel executives or officers. The cash was delivered in the United States to the manager of the South Korean or Chinese customer at or about the time that a cargo of scrap metal was loaded for shipment.

24.Between October 1999 and April 2003, at least 26 payments of “gratuities” were made in the United States to managers of South Korean and Chinese customers. Of those, at least 18 of the “gratuity” payments were made to managers of Chinese customers. Those payments totaled $45,198.60, of which at least $39,198.60 was paid to managers of customers which were government instrumentalities. At least 6 payments totaling $6,600 were made to managers of private South Korean customers. Two additional payments of “gratuities” totaling $4,000 were made to managers of customers, the identities of which cannot be determined from Schnitzer Steel’s books and records.

E. Other Cash Payments to Officers or Employees of Customers

25.In addition to the payments of “commissions,” “refunds,” and “gratuities,” other cash payments were made by Officer A and Employee A to managers of Schnitzer Steel’s customers. Some of the other cash payments ranged in amount from $2,000 to over $6,000. Others, characterized in Schnitzer Steel’s books and records as “condolence money” and

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“congratulations money,” typically ranged in amount from $45 to $500. The other cash payments made by Officer A were authorized by Officer B.

26.Approximately 25 other cash payments to managers of Schnitzer Steel’s customers were made between September 1999 and December 2004, the total amount of which was $17,243.46, of which $4,500 was paid to managers of customers which were government instrumentalities.

F. Gifts and Entertainment

27.Both Officer A and Employee A gave gifts to managers of customers. Some of the gifts were given in conjunction with the payments of “commissions” and “refunds,” which Officer A and Employee A typically presented privately to the manager in cash or “bank check” wrapped with a gift (e.g., pens, jewelry, perfume). The value of those gifts was generally less than $350. However, more substantial gifts, ranging in value from $400 to $8,000, were also given. The value of the gifts increased substantially in the fall of 2004 after the practice of making corrupt payments to managers of Schnitzer Steel’s customers was uncovered and Officer B instructed that no further “commissions” or “refunds” be paid to managers of Schnitzer Steel’s customers. For example, Officer A gave a manager of a private customer a $2,400 Cartier watch in or about September 2004, and Employee A gave a manager of a different

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private customer two gift certificates worth approximately $10,000 in or about November 2004.

28.Between September 1999 and December 2004, gifts with a total value of $50,392.12 were given to managers of customers by Officer A and Employee A. At least $3,564.65 of those gifts were given to managers of customers which were government instrumentalities.

29.Officer A and Employee A also entertained managers of customers extensively. This entertainment was provided in South Korea, China and the United States. The entertainment in South Korea included free use of SSI Korea’s golf club membership and a condominium time-share which gave SSI Korea the right to accommodations at five resort locations. The expenses attributed to the entertainment of managers of customers between September 1999 and December 31, 2004 totaled $87,636.75.

30.Officer B authorized the expenses for gifts and entertainment incurred by Officer A.

G. Books and Records Violations

31.Schnitzer Steel failed to properly account for the various types of corrupt payments made and failed to accurately describe the same in its books and records. Instead, Schnitzer Steel improperly characterized the payments it made as legitimate payments for “commissions,” “sales commissions,” “commissions to the customer,” “refunds,” “rebates,” “refunds to customer,” “rebates to customer,” “quality claims,” “discounts,” “credits,” “freight savings,” “cash,” “gratuities,” “other marine expenses,”

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“customer relations,” “bonuses,” “condolence money,” and “congratulations money,” in its books and records.

IV. Knowledge of the Payment Practices by Schnitzer Steel Senior Management

32.Certain members of the senior executive management of Schnitzer Steel, including Officer B, were aware of and either authorized or had knowledge of, within the meaning of the Foreign Corrupt Practices Act, § 78dd-1(f)(2), the giving of corrupt cash payments and gifts, and of providing entertainment to customers’ managers in South Korea and China, including managers of government instrumentalities.

V. Revenue Realized by Schnitzer Steel on Scrap Metal Sales for Which Corrupt Payments Were Made to Managers of Customers

33.Schnitzer Steel realized gross revenue of approximately $602,139,470 and profits of approximately $54,927,319 on scrap metal sold by Schnitzer Steel to South Korean and Chinese customers between September 1999 and August 2004 with respect to which corrupt payments were paid. From those scrap metal sales to government instrumentalities, Schnitzer Steel realized gross revenue of approximately $96,396,740 and profits of approximately $6,259,104.

34.Schnitzer Steel realized gross revenue of approximately $1,513,097 and profits of approximately $420,512 on scrap metal sales by Japanese suppliers to South Korean and Chinese customers between September 1999 and August 2004 for which SSI Korea received a brokerage commission, and for which it may be inferred, based on the destruction of records by SSI

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Korea, that “commissions” or “refunds” were paid. From those sales, Schnitzer Steel realized gross revenue of approximately $58,610 and profits of approximately $19,991 on scrap metal sold to government instrumentalities.

VI. Schnitzer Steel’s Lack of Internal Controls

35.Prior to May 2004, and during the period of these transactions, Schnitzer Steel provided no training or education to any of its employees, agents or subsidiaries regarding the requirements of the Foreign Corrupt Practices Act, or the prohibitions on the payments of commercial bribes or “kickbacks.” Schnitzer Steel also failed to maintain any program or procedures to monitor its employees, agents and subsidiaries for compliance with the FCPA and commercial bribery laws.

VII. Schnitzer Steel’s Investigation and Initial Response

36.In May 2004, when Schnitzer Steel introduced its new compliance and ethics program, Schnitzer Steel’s compliance department uncovered the corrupt payments and Schnitzer Steel began to investigate the potential violations of law. At that time, Officer B prohibited any further corrupt payments, but nonetheless authorized Officer A to make at least two additional corrupt payments that Schnitzer Steel previously had promised private customers. In late May or early June 2004, Officer B also authorized Officer A to increase entertainment expenses in lieu of cash payments to Schnitzer Steel’s private and government-owned scrap metal customers. In response, Officer A and Employee A gave managers of Schnitzer Steel’s scrap metal customers additional gifts, including gift certificates worth $10,000 and a Cartier watch worth $2,400, as described above.

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VIII. Destruction of Records by SSI Korea

37.After Schnitzer Steel began its internal investigation in late May or early June 2004 but before it had issued a directive to its employees to preserve documents related to the scrap metal transactions, an SSI Korea employee destroyed documents concerning the corrupt payments and off-book bank accounts, at the direction of Employee A, as described below.

38.Around May 2004, the general practice of making corrupt payments to managers of South Korean steel producers that purchased scrap metal became a matter of public notice when South Korean law enforcement authorities conducted raids at the offices of a South Korean steel company and six suppliers of its imported raw materials.

39.Although SSI Korea was not one of the companies whose offices were searched, Employee A was summoned twice for interviews by the South Korean public prosecutor investigating the matter and was questioned regarding any corrupt payments made to the South Korean steel company’s managers. In the initial interview, Employee A denied making any such payments. In his second interview, however, Employee A admitted making the corrupt payments, but claimed a much smaller amount than had actually been paid.

40.Shortly after each interview, Employee A and Officer A discussed the interview and its implications. Officer A shared the content of those discussions with Officer B. Employee A later suggested to Officer A that the records of corrupt payments to and from the off-book bank accounts be

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destroyed, and Officer A did not disagree. In or about August 2004, Employee A directed a member of the SSI Korea staff to destroy all records pertaining to the off-book bank accounts, which the staff member did. Thereafter, Employee A informed Officer A that the documents had been destroyed.

IX. Schnitzer Steel’s Cooperation and Remedial Actions

41.Schnitzer Steel has fully cooperated with the investigation, producing all documents and information requested, including voluntary production of documents protected by the attorney-client privilege and early production and identification to the Department of Justice (“DOJ”) of relevant documents. Schnitzer Steel also agreed to make employees available for interviews and encouraged employee cooperation by agreeing to pay travel expenses and attorneys’ fees.

42.Schnitzer Steel’s Audit Committee and Board of Directors have taken additional remedial actions, including ordering an investigation, the results of which were provided to DOJ and the SEC. Schnitzer Steel has also designed and is implementing a remedial plan, which includes (i) the appointment of a corporate compliance officer who reports to Schnitzer Steel’s Audit Committee, (ii) expanded roles for Schnitzer Steel’s Audit Committee to oversee compliance with the Foreign Corrupt Practices Act and other applicable bribery laws, (iii) new reporting lines directly to the Audit Committee and Board of Directors, (iv) new ethics and due diligence policies, and (v) enhanced programs for educating and training executives and employees on ethical matters, including Foreign Corrupt Practices Act /anti-bribery compliance training. These and other remedial actions build on other corporate governance changes adopted by

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Schnitzer Steel pursuant to the Sarbanes-Oxley Act of 2002.

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EX-10.2

EXHIBIT 10.2

	U.S. Department of Justice Criminal Division
	Washington, D.C. 20530

October 10, 2006

Raymond Banoun, Esq.

Cadwalader, Wickersham & Taft LLP

1201 F Street, N.W.

Washington, D.C. 20004

Re: United States v. SSI INTERNATIONAL FAR EAST. LTD.

Plea Agreement, CR 06-398

Dear Mr. Banoun:

1.Parties/Scope: This plea agreement is between the United States Department of Justice, Criminal Division, Fraud Section (“the Department”) and defendant, SSI INTERNATIONAL FAR EAST, LTD. (“SSI KOREA”), a wholly owned subsidiary of Schnitzer Steel Industries, Inc. (“Schnitzer Steel”), and thus does not bind any other federal, state, or local prosecuting, administrative, or regulatory authority. This agreement does not apply to any other charges other than those specifically mentioned herein.

2.Charges: Defendant SSI KOREA, an organization under 18 U.S.C. _ 18, by its authorized agent, Kenneth M. Novack, Chairman, SSI International Far East, Ltd., agrees to waive indictment and plead guilty to an information charging one count each of Conspiracy (18 U.S.C. _ 371), violating the Foreign Corrupt Practices Act (“FCPA”) (15 U.S.C. § 78dd-3), Wire Fraud (18 U.S.C. _ 1343), and aiding and abetting the making of false entries in Schnitzer’s books and records (15 U.S.C. § 78m(b)(2) & (5) and 18 U.S.C. _ 2).

3.               Factual Basis: Defendant SSI KOREA is pleading guilty because it is guilty of the charges contained in Counts One through Four of

the Information. Defendant SSI KOREA agrees and stipulates that the factual allegations set forth in the Information are true and correct and accurately reflect its criminal conduct. The parties further stipulate and agree to the Statement of Facts attached hereto and incorporated herein as Exhibit 1.

4.Penalties:

a.  The statutory maximum sentence that the Court can impose for a violation of Title 18, United States Code, Section 371 is a fine of $500,000 or twice the gross gain or gross loss resulting from the offense, whichever is greatest, 18 U.S.C. §§ 3571(c)(3) and (d); five years’ probation, 18 U.S.C § 3561(c)(1); and a mandatory special assessment of $400, 18 U.S.C. § 3013(a)(2)(B).

b.  The statutory maximum sentence that the Court can impose for a violation of Title 15, United States Code, Section 78dd-3 is a fine of $25,000,000 or twice the gross gain or gross loss resulting from the offense, whichever is greatest, 15 U.S.C. §§ 78ff(a), 18 U.S.C. § 3571(d); five years’ probation, 18 U.S.C § 3561(c)(1); and a mandatory special assessment of $400, 18 U.S.C. § 3013(a)(2)(B).

c.  The statutory maximum sentence that the Court can impose for a violation of Title 18, United States Code, Section 1343 is a fine of $500,000 or twice the gross gain or gross loss resulting from the offense, whichever is greatest, 18 U.S.C. §§ 3571(c)(3) and (d); five years’ probation, 18 U.S.C § 3561(c)(1); and a mandatory special assessment of $400, 18 U.S.C. § 3013(a)(2)(B).

d. The statutory maximum sentence that the Court can impose for a violation of Title 15, United States Code, Section 78m(b)(2)&(5) is a fine of $25,000,000 or twice the gross gain or gross loss resulting from the offense, whichever is greatest, 15 U.S.C. §§ 78ff(a), 18 U.S.C. § 3571(d); five years’ probation, 18 U.S.C § 3561(c)(1); and a mandatory special assessment of $400, 18 U.S.C. § 3013(a)(2)(B).

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5.No Prosecution: In exchange for SSI KOREA’s guilty plea and the complete fulfillment of all its obligations under this Agreement, the Department agrees not to file additional criminal charges against SSI KOREA for any corrupt payments or accounting thereof disclosed to the Department as of the date of this Agreement, but specifically excluding any such conduct not disclosed to the Department as of that date or any conduct occurring after that date. This Agreement will not close or preclude the investigation or prosecution of any natural persons, including any officers, directors, employees, stockholders, agents or consultants of SSI KOREA, its direct or indirect affiliates, subsidiaries, or parent corporations who may have been involved in any of the matters set forth in the Information or in any other matters.

6.Sentencing Factors: The parties agree that pursuant to United States v. Booker, 543 U.S. 220 (2005), the Court must determine an advisory sentencing guideline range pursuant to the United States Sentencing Guidelines (“USSG”). The Court will then determine a reasonable sentence within the statutory range after considering the advisory sentencing guideline range and the factors listed in 18 U.S.C. § 3553(a). The parties’ agreement herein to any guideline sentencing factors constitutes proof of those factors sufficient to satisfy the applicable burden of proof.

7.Stipulated Fine and Sentence: Assuming SSI KOREA accepts responsibility as explained above, the parties will recommend the imposition of a fine in the amount of $7,500,000 payable to the Clerk of the Court for the United States District Court for the District of Oregon. The parties further agree that this amount

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shall be paid as a lump sum within five (5) business days after the imposition of sentencing in this matter. Defendant SSI KOREA further agrees to pay the Clerk of the Court for the United States District Court for the District of Oregon within (5) business days of the time of sentencing the mandatory special assessment.

8.               Basis for Stipulated Fine: The parties agree that an appropriate disposition of the case is a fine of $7,500,000 for defendant SSI KOREA based upon the following factors:

   a. By entering and fulfilling the obligations under this Agreement, defendant SSI KOREA demonstrates recognition and affirmative acceptance of responsibility for its criminal conduct;

   b. The plea underlying this Agreement is a result of the voluntary disclosure of the relevant conduct at the direction of the audit committee of Schnitzer Steel, the parent of SSI KOREA, to the Department beginning in November 2004 and the disclosure of the extensive investigation its attorneys subsequently conducted into the Asian operations of Schnitzer Steel and SSI KOREA;

   c. At the time of the initial disclosure, the conduct was unknown to the Department; and

   d. By entering into a deferred prosecution agreement with the Department, Schnitzer Steel has, among other things, agreed to implement a compliance and ethics program designed to detect and prevent violations of the FCPA, U.S. commercial bribery laws and all applicable foreign bribery laws throughout its operations, including those of SSI KOREA and all of Schnitzer Steel’s subsidiaries and affiliates, and to appoint an independent compliance consultant to monitor the company’s compliance program.

9.                Waiver of Presentence Report: The parties further agree, with the permission of the Court, to waive the requirement for a presentence report pursuant to Federal Rule of Criminal Procedure

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32(c)(1)(A), based on a finding by the Court that the record contains information sufficient to enable the Court to meaningfully exercise its sentencing power. However, the parties agree that in the event the Court orders the preparation of a presentence report prior to sentencing, such order will not affect the agreement set forth herein.

10.              Entry of Guilty Plea and Sentencing: The parties further agree to ask the Court’s permission to combine the entry of the plea and sentencing into one hearing. However, the parties agree that in the event the Court orders that the entry of the guilty plea and sentencing hearing occur at separate hearings, such an order will not affect the agreement set forth herein.

11.              Waiver of Appeal/Post-Conviction Relief:  SSI KOREA knowingly, intelligently, and voluntarily waives defendant’s right to appeal the conviction in this case. SSI KOREA similarly knowingly, intelligently, and voluntarily waives the right to appeal the sentence imposed by the court, provided the sentence does not exceed the sentence agreed by the parties herein. In addition, SSI KOREA knowingly, intelligently, and voluntarily waives the right to bring a collateral challenge pursuant to 28 U.S.C. § 2255, against either the conviction, or the sentence imposed in this case, except for a claim of ineffective assistance of counsel. SSI KOREA waives all defenses based on the statute of limitations and venue with respect to any prosecution that is not time-barred on the date that this agreement is signed in the event that (a) the conviction is later vacated for any reason, (b) SSI KOREA violates this agreement, or (c) the plea is later withdrawn. The government is free to take any position on appeal or any other post judgment matter.

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12.Court Not Bound: The Court is not bound by the recommendations of the parties or of those made in any presentence report. Because this Agreement is made under Rule 11(c)(1)(B) of the Federal Rules of Criminal Procedure, SSI KOREA may not withdraw any guilty plea or rescind this plea agreement if the Court does not follow the agreements or recommendations herein.

13.Full Disclosure/Reservation of Rights: In the event the Court directs the preparation of a presentence report, the Department will fully inform the preparer of the presentence report and the Court of the facts and law related to SSI KOREA’s case. Except as set forth in this Agreement, the parties reserve all other rights to make sentencing recommendations and to respond to motions and arguments by the opposition.

14.Breach of Plea Agreement: If SSI KOREA breaches the terms of this Agreement, or commits any new criminal offenses between signing this Agreement and sentencing, the Department is relieved of its obligations under this Agreement, but SSI KOREA may not withdraw any guilty plea.

13.Total Agreement: This letter states the full extent of the agreement between the parties. There are no other promises or agreements, express or implied. If SSI KOREA accepts this offer, please sign and attach the original of this letter to the Petition to Enter Plea.

Very truly yours,

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FOR THE DEPARTMENT OF JUSTICE:

/s/ Steven A. Tyrrell                   

Steven A. Tyrrell

Acting Chief, Fraud Section

By:

/s/ Kathleen McGovern             

MARK F. MENDELSOHN

Deputy Chief, Fraud Section

DEBORAH L. GRAMICCIONI

Assistant Chief, Fraud Section

KATHLEEN MCGOVERN

Trial Attorney, Fraud Section

Fraud Section, Criminal Division

United States Department of Justice

10^th& Constitution Avenue, NW

Washington, D.C. 20530

(202) 514-7023

FOR SCHNITZER:

/s/ Kenneth M. Novack            

Kenneth M. Novack

Chairman

SSI International Far East, Ltd.

3200 NW Yeon Avenue

Portland, Oregon 97210

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EX-10.3

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, etseq., 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.

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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, etseq.).

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

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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).

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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

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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

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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

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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 Koreato induce thosecompanies 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

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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

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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 metalfrom 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

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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 135commission 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.

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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

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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 corporatechecks 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

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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

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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 Oregonand elsewhere:

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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

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  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:

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	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

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  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

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  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

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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.

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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

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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 accountin Portland, Oregon to off-the-books bank accounts in South Korea

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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 accountin 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

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 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.

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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

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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

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EX-10.4

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 expressunderstanding 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 fmdings^l 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.

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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.

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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

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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

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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.

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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, 26^th 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.

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VIII.

Consistent with the provisions of 17 C.F.R. § 202.5(f), Respondent waives any claim ofDouble 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.

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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 OFMULTNOMAH	}

The foregoing instrument as acknowledged before me this 26thday ofJuly, 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

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EX-10.5

EXHIBIT 10.5

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934

Release No. 54606 / October 16, 2006

ACCOUNTING AND AUDITING ENFORCEMENT

Release No. 2493 / October 16, 2006

ADMINISTRATIVE PROCEEDING

File No. 3-12456

    In the Matter of   SCHNITZER STEEL INDUSTRIES, INC.,   Respondent.     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  

I.

The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21 C of the Securities Exchange Act of 1934 (“Exchange Act”), against Schnitzer Steel Industries, Inc. (“Schnitzer” or “Respondent”).

II.

In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission’s jurisdiction over it and the subject matter of these proceedings, which are admitted, Respondent consents to the entry of this 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”), as set forth below.

III.

On the basis of this Order and Respondent’s Offer, the Commission finds¹ that:

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

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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. SSI 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.

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

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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 metalcustomers. 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 executed in accordance with management’s general or specific authorization; and (ii) transactions are recorded as necessary to permit preparation of financial 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

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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 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.

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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, 10^th 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 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

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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 theCompliance 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 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

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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 professionalrelationship 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.

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 IV 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, Mail Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Schnitzer

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Steel Industries, Inc. as a Respondent in these proceedings, the file number of these proceedings, acopy 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, 26^th Floor, San Francisco, CA 94104.

By the Commission.

Nancy M. Morris

Secretary

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EX-99.1

EXHIBIT 99.1

Schnitzer Steel press release released at 3:53PM PDT:

Schnitzer Settles Pending Investigation

Payments Of $15.2 Million are In Line with Previously Announced Reserve

PORTLAND, Ore.--(BUSINESS WIRE)--Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) today announced that it has finalized settlements with the United States Department of Justice and the U. S. Securities and Exchange Commission resolving the investigation that commenced with the self-reporting by the Company of its past practice of improper payments to purchasing managers of nearly all of the Company’s customers in Asia for export sales of recycled ferrous metals.

The aggregate payments of $15.2 million (including interest charges) under the settlement are consistent with the $15 million reserve that Schnitzer Steel announced in its quarterly financial reports for the first and third quarters of fiscal 2006. Under the settlement:

·   The Company’s Korean subsidiary pled guilty to Foreign Corrupt Practices Act anti-bribery and books and records provisions, conspiracy and wire fraud charges and will pay a fine of $7.5 million.

·   The Company agreed to an order, issued by the Securities and Exchange Commission, to cease and desist from the past practices that were the subject of the investigation and to disgorge $7.7 million of profits and prejudgment interest.

·   Schnitzer Steel and the government agreed to a deferred prosecution agreement, under which the government will not prosecute the Company if the Company meets the conditions of the agreement for three years.

The settlement has been approved by the Company’s Board of Directors and Audit Committee and concludes the independent investigation commenced in August, 2004 by the Board’s Audit Committee and an outside law firm that was retained by the Audit Committee to assist in the previously announced investigation of these matters.

Kenneth M. Novack, who has been Chairman of Schnitzer Steel’s Board since May 19, 2005, said, “These past payments in Asia were - and are - contrary to the policies and standards of Schnitzer Steel and its subsidiaries. When our Board’s Audit Committee learned of these payments, it launched a rigorous investigation. Then, with the unanimous support of the Board, the Company promptly reported these payments to federal authorities and directed that further steps be taken to strengthen the Company’s culture of ethical and legal compliance so that this would not happen again. The Company fully cooperated with federal authorities at each step of the investigation, and we are pleased to put this behind us. As a result of discovering these practices in Asia, we changed the senior management of the Company. We were delighted that John Carter agreed to join us as CEO in May, 2005. He has helped us to resolve this investigation, has brought in a strong new senior management team, and has led the Company through a major transformation in our business during the past 16 months.”

“I am very pleased that this matter has been concluded, so that we can now turn our full attention and energies to pursuing our strategy of growth. The Company enters its second 100 years with a strong balance sheet, a successful integration of our major acquisitions over the past year, and a talented, committed leadership team. We will continue to build on our achievements, and add to the scale and profitability of the Company’s operations,” said CEO John Carter.

Under the terms of the settlement, Schnitzer Steel has employed a compliance officer and designed and implemented a comprehensive compliance program, which will be overseen by the Audit Committee of the Company’s Board, and will engage a compliance consultant to advise the compliance officer and the Board on the compliance program. The compliance program includes enhanced training of the Company’s employees and commercial representatives, expansion of existing programs such as the whistleblower hotline, and due diligence reviews of business practices, commercial relationships and partners.

Schnitzer Steel Industries, Inc. is one of the largest manufacturers and exporters of recycled ferrous metals products in the United States with 28 operating facilities located in 11 states throughout the country, including six export facilities located on both the East and West Coasts and in Hawaii. The Company's vertically integrated operating platform also includes its auto parts and steel manufacturing businesses. The Company's auto parts business sells used auto parts through its 35 Pick-N-Pull self service facilities and 18 GreenLeaf full service facilities located in 14 states and western Canada. With an annual production capacity of 700,000 tons, the Company's steel manufacturing business produces finished steel products, including rebar, wire rod and other specialty products. The Company commenced its 100th year of operations in 2006.

For more information about Schnitzer Steel Industries, Inc. go to www.schnitzersteel.com.

Certain statements in this news release are "forward-looking statements" within the meaning of U.S. federal securities laws. The Company intends that these statements be covered by the safe harbors created under these laws. These forward-looking statements include, but are not limited to, statements related to the expected outcome of the settlements with the United States Department of Justice and the U.S. Securities and Exchange Commission, as well as expectations regarding the Company’s compliance program. These forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from future results expressed or implied by the forward-looking statements. Important factors that could cause actual results to differ materially from the information set forth in these forward-looking statements include the Company’s ability to successfully implement its compliance program and other factors, some of which are discussed in the Company’s most recent annual report on Form 10-K/A and its most recent quarterly report on Form 10-Q/A. Many of these factors and events are beyond the Company's ability to control or predict. Given these uncertainties, readers are cautioned not to place undue reliance on the forward-looking statements, which only speak as of the date of this news release. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this news release or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.

Contacts

Schnitzer Steel Industries, Inc.

Rob Stone, 503-224-9900 (Investor Relations)

Tom Zelenka, 503-323-2821 (Press Relations)

www.schnitzersteel.com

ir@schn.com