Friday, October 5, 2007

Siemens Fined for Bribery

Many years ago we consulted to an American company that bid on projects against Siemens in the world market. Our bids were typically lower and featured greater functionality. Even when we won a bid, it would typically get rebid on a minor technicality. Now we know why. Unfortunately, the American company is no longer in that business. It would be nice if the companies that got cheated by Siemens were actually compensated instead of the German government.

Siemens Fine Ends a Bribery Probe

Germany's Investigation Of Telecom Arm Is Closed;Other Inquiries Continue

October 5, 2007; Page A2 (WSJ)

MUNICH -- A German court ordered Siemens AG to pay €201 million ($284 million) as prosecutors closed a part of Europe's largest bribery investigation. But as other probes continue, the German conglomerate faces more possible fines and criminal charges against its executives.
Europe's largest engineering company by sales said yesterday that the court-ordered penalty, which it won't appeal, is tied to alleged bribe payments at its telecommunications-equipment unit. A prosecutor in the case said the probe of that unit is now closed.

• The News: Siemens was ordered to pay $284 million over alleged bribe payments at its telecom-gear unit, one of the largest corporate penalties levied in Germany.

• Background: Embarrassment at officials' apparent practice of paying commissions to secure contracts forced a leadership change at the company earlier this year.

• What's Next: Criminal investigations into irregularities at Siemens are continuing in several other countries, including the U.S.

Prosecutors also said yesterday that Reinhard Siekaczek, an ex-manager in the Siemens telecom unit, was indicted last week in connection with the bribery probe. He has been charged with embezzling €24 million, according to Christian Schmidt-Somerfeld, a criminal prosecutor in Munich. More indictments are expected this year, according to people familiar with the matter. Mr. Siekaczek's attorney wasn't available to comment.

The penalty payment, which includes a small fine and a charge for illegal profits, is the first Siemens has faced since the current investigations were launched last year into suspicious payments at the company. A German court in May fined Siemens €38 million as part of an earlier investigation into bribes paid by the company's power-generation unit in Italy. Following German practice, prosecutors proposed the penalties to a court, which approved them in a court order yesterday.

An internal investigation ordered by Siemens has now flagged €1.6 billion in suspicious payments, according to people familiar with the matter. Embarrassment at the extent of Siemens officials' apparent practice of paying commissions to secure contracts forced a change of leadership at the company earlier this year.

Siemens said it also reached an agreement with German tax authorities to pay €179 million in unpaid taxes tied to €450 million in suspicious transactions at the telecom unit. Of that amount, Siemens already had booked a tax charge of €168 million last year after flagging €420 million in questionable transactions spanning the previous seven years.

"Today's decisions are important steps in clarifying and coming to terms with the misconduct which occurred in the past. Siemens accepts full responsibility in this matter," said Siemens President and CEO Peter Löscher. "We will continue to strengthen compliance as a key element of Siemens's corporate and leadership culture."

Although it is one of the largest corporate penalties levied in Germany, yesterday's €201 million charge is unlikely to trouble Siemens financially. The company booked a net profit of just over €3 billion for the fiscal year ended Sept. 30, 2006. European Union regulators hit Siemens with a much larger €400 million fine earlier this year for operating a cartel in electrical switching gear. Siemens is appealing that decision.

German police raided Munich-based Siemens's offices last November after flagging €20 million in questionable payments at the telecom unit, formerly the conglomerate's largest. Prosecutors suspect company managers funneled funds through sham consulting contracts to bribe potential customers abroad over several years. Earlier this year, Siemens transferred the bulk of its telecom-equipment business into a 50-50 joint venture with Finland's Nokia Corp.

But allegations of bribe payments have since spread to other units at Siemens. The company booked €87 billion of sales in the fiscal year ended Sept. 30, 2006, and makes goods including high-speed trains, steam turbines, medical scanners and light bulbs.

Siemens confirmed during the summer it was investigating payments at five other units. Last December, Siemens hired U.S. law firm Debevoise & Plimpton LLP to probe the corruption allegations.

Mr. Schmidt-Somerfeld said his office has investigated only the telecom unit thus far. Another prosecutor familiar with the investigation said other probes could be opened if needed.
Criminal investigations into financial irregularities at Siemens are continuing in several other countries, including the U.S., where the Justice Department and the Securities and Exchange Commission are probing Siemens's business dealings.

People familiar with the matter say U.S. authorities could levy larger fines and possibly ban Siemens from public-sector contracts in the U.S. Prosecutors in the U.S. have more legal tools at their disposal to go after companies than their German counterparts, who typically prosecute individuals. The U.S. Justice Department and SEC declined to comment.

German prosecutors in Nuremberg also are probing tens of millions of euros in payments by Siemens to an employer-friendly labor group allegedly aimed at undermining the country's most powerful union. That criminal investigation led to the arrest of a Siemens management-board member earlier this year.

Write to David Crawford at and Mike Esterl at