Siemens' Soldiers New Pressure for Former Siemens Executive

In addition to losing the chancellor's support and facing a possible lawsuit from his former employer, the former chairman of German engineering and electronics giant Siemens could face charges in a Munich district court. A senior executive at Siemens has told investigators that Heinrich von Pierer encouraged him to pay a bribe.

In an interview with German public broadcaster ZDF last Thursday, German Chancellor Angela Merkel was asked to keep it brief. The interviewer set the tone by uttering half a sentence and asking the chancellor to complete the sentence. It was a stroke of luck for Merkel, who managed to get away with offering a sentence and a half of commentary on an issue that she would have preferred to ignore altogether.

No, she told the interviewer, she would no longer be needing the help of Heinrich von Pierer, her chief advisor for innovation, because ... well, because "we now have the Leopoldina National Academy and a national engineering academy." These academies would certainly do a better job, she added.

Earlier this year, the German government rechristened Leopoldina, the world's oldest continuously existing academy for medicine and natural sciences based in the eastern city of Halle, as the country's first National Academy of Sciences. The government also moved to establish the German Academy of Science and Engineering in Munich.

It took Merkel all of a few seconds to sever a connection she had maintained with the man for years. The former chief executive of a global Blue Chip company, Pierer had exercised more influence over the Chancellery than almost any other business leader -- in the administrations of both Merkel and her predecessor Gerhard Schröder. It was an influence that he apparently enjoyed -- at least until recently.

For one and a half years, Pierer, nicknamed "Mr. Siemens," did not cut this umbilical cord to political power himself, even though his company was embroiled in the biggest bribery scandal in postwar German history, while he himself was at the center of the question: What did management know about it ?

Last week got off to an inauspicious start for Pierer. Recent SPIEGEL revelations reinforced the suspicion that the former Siemens chairman was not only familiar with the bribery system, but even supported it. From then on it was downhill for Pierer, who suddenly found that he had lost more than his direct access to the Chancellery. The new Siemens board of directors, under its Austrian CEO, Peter Löscher, announced that it was considering suing all former directors, including Pierer, for damages or at least breach of fiduciary duty.

'Irresponsible and Apparently Criminal Activity'

It would be an unprecedented move in German economic history, and yet it appears to be unavoidable -- at least according to a legal opinion prepared for the new board. It is clear, Pierer's successor Löscher wrote in the opinion, "that irresponsible and apparently criminal activity has been underway in the midst of our company for a long time."

But that wasn't everything. While these stories filled the media, Pierer was looking at a potentially far more serious threat: the possibility of criminal proceedings. Indeed, a man who was once Germany's most respected business executive could wind up in court as a defendant. In addition to losing his political influence, Pierer would lose face and his reputation.

According to information obtained by SPIEGEL, the Munich prosecutor's office, which had not so much as questioned Pierer until last week, is now targeting him after all. Last Friday Pierer reportedly had his first conversation with investigators. They are meticulously examining a business deal in Argentina that threatens to turn into a disaster for Uriel Sharef, formerly in charge of Siemens' power plant division. Sharef is accused of breach of trust, and investigators named him as a defendant in the case two weeks ago.

New testimony given on Wednesday of last week has also deeply incriminated Pierer. If what a Siemens executive spent seven hours telling officers with the Bavarian State Office of Criminal Investigation is true, Pierer apparently ordered a payment for which it is not clear what exactly was being paid -- and whether the payment was even legal. Pierer has never been in a tighter spot.

Bribes in Argentina?

The fuse attached to this power keg reaches back into the 1990s. In 1998, then-Argentine President Carlos Menem signed government decree No. 1342/98, with which Siemens was awarded a $1 billion (€633 million) contract to provide forgery-proof I.D. cards along with the matching technology for border controls and the ability to compare names against voter lists.

At the time, Siemens CEO Pierer and Argentine President Menem were more than just business associates. They also played tennis together. During a business trip through South America in the year of the Siemens mega-contract, Pierer, a former Bavarian youth league champion, had himself picked up by helicopter from his hotel for his one-on-one tennis matches with Menem.

But in 2001, with Pierer's tennis partner no longer in office, the Argentine government cancelled the billion-dollar deal, offering various arguments for its decision, including that the new I.D. cards had become too expensive and that the new president preferred an American company. The Argentine government also cited $70 million (€44 million) in bribes Siemens had allegedly paid during the Menem era.

In December 2006, one of the main defendants from Siemens' corrupt telephone division -- who at the time had worked for Siemens Business Services (SBS), the division responsible for the Argentine deal -- also told prosecutors about illegal payments. According to the former Siemens employee, officials from the Argentine Interior Ministry had essentially held open their hands.

Siemens, which then filed a suit for breach of contract with the World Bank's court of arbitration, was not the only company that tried to get its money. A Swiss company was also apparently intent on rescuing what could be salvaged. Mfast Consulting AG had signed a consulting agreement with Siemens. Whether the agreement was in fact a front to allow bribes to be sent inconspicuously to the Argentine decision-makers is currently unclear. It is possible, however, that Mfast was in fact expected to work for its money.

When Siemens lost the contract, Mfast demanded $10 million (€6.3 million) to revive the deal. The Siemens subsidiary in Argentina also upped the pressure, claiming that unless the money was paid, employees would have to fear for their livelihoods.

A senior SBS executive has now delivered testimony that could be deeply damaging to Pierer. Last Wednesday, he brought two sheets of paper to the Bavarian State Office of Criminal Investigation on Orleansstrasse in Munich. Before talking to the government investigators, he had apparently revealed what he knew to internal Siemens investigators with the American law firm Debevoise and Plimpton.

Now the SBS executive was saying that he had received the $10 million (€6.3 million) demand from Mfast in 2002 or 2003, and that he had had qualms about releasing the money. The millions, the SBS executive said, were apparently designated for members of the Argentine government -- as bribes, at least as it appeared. Because of these suspicions, the executive, as well as a colleague who was unwilling to be associated with such dealings, refused to go along with the request at first.

The executives were at a loss and eventually turned to Pierer. They met with Pierer who, as they now claim, was very convincing. One of the witnesses says that Pierer told them that it was time to be soldiers for Siemens. He advised them to send the money to Mfast, which they apparently then did. If the testimony is to be believed, Pierer wasn't the only one with whom the two SBS executives discussed the Argentine case. They testified that they also asked other members of the company's central board of directors, including Sharef, as well as a member of the legal department, for advice on how to proceed in the matter.

A 'New Quality'

Siemens declined to comment on the matter last week. However, employees associated with the new board said that the damaging testimony meant that charges against Pierer may have attained a "new quality" -- and could even involve accusations of active participation in actions leading to a breach of trust. There is some evidence to suggest that SBS should never have paid the money and that the company incurred a loss as a result.

SPIEGEL sought to contact Pierer last week with questions about the issue, but the former Siemens CEO had not responded by Friday evening. His representatives told Süddeutsche Zeitung that the charges were untrue, and that Pierer would never use an expression like "soldiers for Siemens."

Citing the ongoing investigation, the attorney for Sharef, the man formerly in charge of the power plant division, was also unwilling to respond to individual questions from SPIEGEL. He did say, however: "Our client was not involved in setting up the Argentina contract."

Mfast, which was unavailable for comment, later placed further demands on the company. It wanted additional millions in 2003, but this time the relevant SBS executive refused -- supposedly, as he told prosecutors, in disagreement with members of the company's management board.

But Mfast refused to give up. The incident was eventually cited in an internal Siemens document -- a report by the company's internal anti-corruption official. In April 2005, he reported to the audit committee that Mfast had filed arbitration proceedings in Zurich against Siemens.

The Swiss company wanted $22.3 million (€14.1 million) from Siemens. But not even Siemens -- supposedly -- knows today how that match ended and whether Pierer had anything else to do with it.


Translated from the German by Christopher Sultan

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