What Did Managers Know? Corruption Charges Deepen at Siemens

As the scope of the corruption scandal at Siemens grows, new information suggests that company executives may have known a lot more about the Bavarian engineering giant's bribe troubles than they previously admitted. Reports suggest the company may sue former managers.

German engineering and electronics multinational Siemens may soon sue former executives to the tune of millions. It's the latest twist in a corporate corruption scandal that has emerged as the biggest in the history of German business and has made headlines here since surfacing in 2006.

In its Monday edition, the Süddeutsche Zeitung claimed that the company's board may take former executives to court, including ex-chairman Heinrich von Pierer. The paper claims a report has been distributed to several members of the company's internal control committee about a possible suit against the managers.

Siemens headquarters in Munich: "We are looking closely at areas where there are possible claims for damages."

Siemens headquarters in Munich: "We are looking closely at areas where there are possible claims for damages."

The company's board member responsible for legal issues and combating corruption, Peter Solmssen, indirectly affirmed those considerations in a Monday interview with the Berlin daily Tagesspiegel. When asked if former top management could be threatened with civil lawsuits, the compliance manager said: "We are looking closely at areas where there are possible claims for damages." However, Solmssen would not make any concrete statements about former chairman Pierer, saying only: "We will protect the interests of Siemens regardless of the individual."

In two weeks, the Siemens supervisory board is expected to meet to consider filing civil lawsuits. A SPIEGEL cover story this week reports that former Siemens chairman Pierer may have known about the company's corruption problems earlier than he has admitted. Pierer and other executives had long maintained they were unaware of the company's system of slush funds and bribes.

Documents obtained by SPIEGEL suggest that the man formerly in charge of compliance at the company, Albrecht Schäfer, alerted Pierer and several of his colleagues about company slush funds as early as 2004. An internal memo dated May 3, 2004 by an employee reporting to Schäfer noted that a Milan court had ordered that the company be excluded from public contracts following an instance of bribe-paying in its electric power plant division. The ruling stated, "Especially the … existence of slush funds at Siemens shows that oversight practiced by Siemens was totally inefficient and that the company, at the very least, viewed the payment of bribes as a possible corporate strategy." The memo advised key executives, including Pierer, to "take note" of the information.

On Monday, the Süddeutsche cited sources claiming that Schäfer, serving as a witness for Munich state prosecutors, has testified that he had informed company executives about information from Milan prosecutors as early as late 2003.

The new details that have emerged in the investigation provide yet more fodder in the slow-motion exposure of mass-scale corruption at Siemens. It is a case made all the more charged by the unique position Siemens has in German corporate history. Indeed, Siemens first provided the country with electricity during the time of the Kaiser and prepared Germany for its rise to a world power. It wired the German army through two world wars and would later provide power to the country during the post-World War II "economic miracle."

The scope of the Siemens affair is staggering and centers on a current estimated €1.3 billion ($2.1 billion) in dubious payments -- mostly in bribes to secure business for the company. Indeed, the company is believed to have paid bribes around the world often amounting to between 5 and 10 percent of a deal's value, and in some cases as much as 30 percent.

The Germans had fallen behind in terms of technical innovation and, as a bookkeeper in one division put it, many were convinced bribes were the only way the company could score big contracts abroad. In some divisions, executives became convinced that without bribes it would be impossible to get contracts in many countries, including Vietnam, Thailand, the Arab world and large swaths of Africa, Iran and other states.

But the company had one of its biggest moral conflicts in Nigeria, where former dictator Sani Abacha created an iron business rule during the 1990s requiring not only that companies wanting contracts there must bribe, but that he should also get a 50-percent cut. At the time, it was still legal for German companies to bribe abroad -- but in cases like Abacha, bribe money often turned into blood money.

In 1999, the German government passed a law making it illegal for companies to bribe in order to win business and contracts abroad. But that didn't stop Nigerians and Libyans from coming to Siemens' Munich headquarters and asking for pocket money during their European vacations. Employees would quickly stuff a few thousand euros in their pockets to quiet them.

On Saturday, a spokesperson for the Munich state prosecutor's office said it could not provide comment on statements allegedly made by witnesses or the press reports related to the Schäfer memos. A Siemens spokesperson also refused to comment. However, the company has stated in recent weeks that it is supporting prosecutors in their investigation.

The scandal is especially explosive for Siemens because it has triggered an investigation by the stringent American stock market watchdog, the Securities and Exchanges Commission, which is threatening to impose massive fines on the Munich-based company. Siemens has been listed on the New York Stock Exchange since 2001. Talks began a few weeks ago between the SEC and Siemens to negotiate possible fines that could run as high as $2 billion related to the investigation into corruption and balance sheet falsification.

Speaking to Tagesspiegel, Solmssen said he expected the SEC probe to be a protracted one. "It could take a long time," he told the paper, adding, however, that he was optimistic about the outcome. "My feeling is that our approach with the SEC is being viewed positively," said the US manager, who joined the board about six months ago.


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