Siemens Scandal Electronics Giant Braces for a Slap from Uncle Sam

After paying huge fines in Germany for bribery, the multinational faces even stiffer penalties in the US.

By Jack Ewing


Dark days: Siemens is facing big fines in the US.
DDP

Dark days: Siemens is facing big fines in the US.

Peter Löscher, the new CEO of German electronics and engineering giant Siemens, is desperately trying to dig his company out of the biggest bribery scandal in German corporate history. On Nov. 8, Siemens disclosed that its own internal investigation has uncovered $1.9 billion in questionable payments made to outsiders by the company from 2000 to 2006. That staggering sum deeply interests US authorities in Washington who want to make an example of Siemens.

How did the long arm of the US law reach into the offices of Germany's most important company? Because its shares are listed on the New York Stock Exchange and it has extensive operations in the US, Siemens is subject to the provisions of the US Foreign Corrupt Practices Act. The act has given the Justice Deptartment and Securities & Exchange Commission the authority to launch investigations, with which Siemens is cooperating.

Munich prosecutors, who uncovered evidence that Siemens used bribes to land contracts around the globe, have already extracted $290 million in fines. But Siemens is bracing for an even nastier bite from the Americans. "The big burden could come from the SEC," says Theo Kitz, Siemens analyst at private bank Merck Finck & Co. in Munich.

Bribery experts say Siemens is the biggest FCPA case -- foreign or domestic -- of all time. Siemens or its employees face accusations they used bribes to sell medical equipment in China and Indonesia, close deals to provide sell telecom gear to the Hungarian and Norwegian armed forces, and win a power plant contract in Serbia, to name a few examples. The Siemens case is a splendid opportunity for US authorities to show they are serious about pursuing foreign companies that violate US anti-corruption laws.

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"The potential fines are much bigger than what companies have been used to in Germany," says Peter von Blomberg, deputy chair of the German chapter of Transparency International.

On Nov. 9, Peter Y. Solmssen, a US lawyer, GE veteran, and newly appointed Siemens board member responsible for compliance, met with SEC and Justice Dept. officials to see what deal could be cut. Siemens CEO Löscher, who joined the company in July, seems almost eager to unearth the full extent of the scandal so he can settle the case and focus instead on boosting Siemens' profitability. Says Solmssen: "We will go wherever the evidence takes us."

But US enforcers may be tough to placate. The bribery scandal comes in the midst of a drive by Washington to hold foreign companies to the same standards as their US competitors. "Global corruption undercuts democracy and the rule of law; it destabilizes markets; and, it creates an uneven playing field for those companies who are committed to playing by the rules," US Assistant Attorney General Alice S. Fisher told an audience of anti-corruption specialists in Alexandria (Va.) on Nov. 13, according to her prepared remarks.

Washington wants to hold foreign companies to the same standards as their US competitors.

To make their point, US regulators have been known to deliberately upstage foreign governments in the penalties they hand out. Dissatisfied with a $3 million penalty Norway imposed on energy producer Statoil for paying bribes in Iran, US authorities last year hit the company with an additional $18 million in penalties. (The company, now known as StatoilHydro, did not admit guilt in the case.)

US authorities also are targeting foreign executives suspected of wrongdoing. Last year FBI agents seized an executive of French telecom equipment maker Alcatel-Lucent as he passed through the Miami airport. The exec, French citizen Christian Sapsizian, later pleaded guilty to taking part in a scheme to bribe Costa Rican officials $2.5 million to win a mobile telephone contract.

Bribery experts say Siemens will face U.S. penalties that will blow away existing records. The biggest so far is $44 million paid by Baker Hughes Services International earlier this year, following accusations the company used bribes to win an oil field services contract in Kazakhstan. Because the Siemens case involves multiple instances of bribery, it could provoke a much higher penalty

From Siemens' point of view, though, the financial penalty may not be the worst of it. As part of a settlement with US authorities, Siemens will likely have to install a team of monitors to make sure the company banishes palm-greasing permanently.

The monitors, who could number in the hundreds, will have carte blanche to snoop anywhere in the company they want, never mind the cost. They will report directly to US authorities, but Siemens will have to pay the bill. "It's quite a draconian penalty," says a European lawyer who has been involved in similar cases, and asked not to be named because the case is still pending. "You have a third-party organization, maybe an accounting firm, embedded in your business for years."

Siemens has already spent $500 million on its own internal investigation, which was overseen by New York-based law firm Debevoise & Plimpton. The firm has been passing its findings directly to authorities, according to Siemens.

Given the looming presence of US investigators, it's no surprise that Siemens is aiming to show contrition and settle the case with US authorities as soon as possible. But before they devise a fitting penalty, Justice and SEC lawyers want to determine how much profit Siemens earned from its bribes -- an inquiry that could take months, even years. Says Solmssen, who joined Siemens only in October: "We still have a long way to go."

With Eamon Javers in Washington

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