Siemens Introduction

In December 2008, the Munich, Germany-based Siemens AG (Siemens) agreed to pay fines to the tune of 1 billion towards settlement of corruption charges that had hit the company since 2006. This included a record US$800 million fine imposed by the US authorities and another 395 million imposed by German authorities. This 1 billion was in addition to the billions of euros that it paid in fines, back taxes and late interest charges by 2007.4 Peter Loescher (Loescher), who joined as the CEO of Siemens in 2007 following the major bribery scandal that broke out in the company, said, "We regret what happened in the past. But we have learned from it and taken appropriate measures. Siemens is now a stronger company."5 On May 14, 2007, a German court convicted two former managers of Siemens AG (Siemens) for diverting the company's money to bribe employees of Enel SpA6 (Enel), an Italian energy company.7 Both the former managers admitted that they had bribed employees at Enel who had demanded money in return for contracts. They also said that they had not done anything wrong as they did it for the benefit of the company and not for any personal gain. Moreover, there was no other way to win contracts in several countries abroad where bribing for contracts was a common practice, they said...

Background Note
Siemens was initially started as TelegraphenBauanstalt von Siemens & Halske (Siemens & Halske) in 1847 by Werner von Siemens (Werner) and a mechanical engineer, Johann Georg Halske (Halske)...

A Series of Scandals Rocks Siemens

Slush funds to win contracts abroad

On November 15, 2006, around 30 offices and private homes related to Siemens and its employees were raided by some 200 police officers, tax inspectors and prosecutors in Munich, and other cities of Germany, to probe suspicions of bribery, embezzlement of company funds and tax evasion...

Repercussions of the Scandals

The series of bribery allegations came in the aftermath of Siemens' sale of its loss-making mobile handset unit in 2005, to a Taiwanese company, BenQ. Here too, Siemens did not cover itself in glory as it was seen as having got rid of the unit because it could not easily lay off its employees...

Initiatives at Siemens
After the bribery scandals were unearthed at Siemens, the company started many initiatives to strengthen its corporate governance and compliance controls. A law firm Debevoise & Plimpton LLP (Debevoise & Plimpton) was appointed to conduct an independent and comprehensive investigation into the company's compliance and control system with the help of the independent auditor for Siemens, KPMG.

Questions Relating to Ethics in Corporate Germany

Around the same time as the Siemens cases came out, unethical practices surfaced in other German companies including Volkswagen AG (Volkswagen), Deutsche Telekom AG, Deutsche Bahn AG and Deutsche Post AG. At Volkswagen, a senior executive was fined 576,000 and received a suspended prison sentence in January 2007 for bribing labor representatives with money, foreign trips and prostitutes. Since several of the corruption scandals involved the bribing of labor representatives on the boards of German companies, some analysts felt that the Co-determination law or Mitbestimmung in Germany was flawed...

Outlook

Analysts opined that on account of increasing competition, companies were resorting to illegal payments to win international contracts especially in some emerging economies where the practice was common. Siemens along with many other companies was found guilty of paying bribes to secure contracts abroad...

Exhibits
Exhibit I: A Note on the Co-Determination Law or Mitbestimmung Exhibit II(a): Major Business Activities of Siemens (before 2008) Exhibit II (b): Major Business Activities of Siemens (As of 2009) Exhibit III: Income Statement of Siemens: 2004-2008 Exhibit IV: Stock Price Movement of Siemens Exhibit V: A Note on Siemens' Anti-Public-Corruption Compliance

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