Siemens AG will pay more than $US1.6 billion in fines for allegedly “engaging in a systematic practice of paying bribes to foreign government officials” to obtain business that earned more than $US1.1 billion in profits.
The charges were laid out by the SEC (Securities and Exchange Commission), which alleges that Siemens paid bribes on such widespread transactions as the design and construction of metro transit lines in Venezuela, power plants in Israel, and refineries in Mexico.
Siemens also used bribes to obtain business developing mobile phone networks in Bangladesh; national identity cards in Argentina; and medical devices in Vietnam, China, and Russia, according to the SEC’s complaint.
The commission further alleged that Siemens paid kickbacks to Iraqi ministries in connection with sales of power stations and equipment to Iraq under the United Nations Oil for Food Program.
The international probe into Siemens business practices began in November 2006 in the company’s home country of Germany and quickly spread to the United States and Japan in February 2007.
That was followed by a raid of Siemens’ headquarters, where Munich police reportedly uncovered suspicious payments made mostly through Swiss and Austrian accounts.
In April, Siemens’ then-CEO Klaus Kleinfeld abruptly stepped down from his post as the company as the investigation intensified.
The fines, which Siemens has accepted without admitting guilt, will resolve SEC charges that the manufacturer of industrial and consumer products violated the Foreign Corrupt Practices Act (FCPA) by using bribes to gain business.
In the US, Siemens has agreed to pay $US350 million in disgorgement to settle the SEC’s charges, and a $US450 million fine to the US Department of Justice to settle criminal charges.
Siemens also will pay a fine of approximately $US569 million to the Office of the Prosecutor General in Munich, to whom the company previously paid an approximately $US285 million fine in October 2007.
“This pattern of bribery by Siemens was unprecedented in scale and geographic reach,” Linda Chatman Thomsen, director of the SEC’s division of enforcement, said on Monday (8th Dec).
“The corruption alleged in the SEC’s complaint involved more than $US1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East, and the Americas.
“Our success in bringing the company to justice is a testament to the close, coordinated working relationship among the SEC, the US Department of Justice, and international law enforcement, particularly the Office of the Prosecutor General in Munich.”
SEC complaint specifics The SEC’s complaint alleged that between March 12, 2001, and Sept. 30, 2007, Siemens created “elaborate payment schemes” to conceal the nature of its corrupt payments, and the company’s “inadequate internal controls allowed the conduct to flourish.”
According to the SEC, Siemens used numerous slush funds, off-books accounts maintained at unconsolidated entities, and a system of business consultants and intermediaries to facilitate the corrupt payments.
Siemens made at least 4,283 payments totaling $US1.4 billion to bribe government officials for business and approximately 1,185 separate payments to third parties totaling approximately $US391 million, which were not properly controlled and were used, at least in part, for such purposes as commercial bribery and embezzlement, the SEC claimed in its filing.
All but $US27.5 million of the corrupt payments occurred before November 15, 2006, the SEC said. Siemens further violated Section 30A of the Securities Exchange Act of 1934 (Exchange Act) by making” illicit payments” to foreign government officials in order to obtain or retain business; Section 13(b)(2)(B) of the Exchange Act by “failing to have adequate internal controls” to detect and prevent the payments; and Section 13(b)(2)(A) of the Exchange Act by “improperly” recording the payments in its books and records, according to the SEC.
Under the terms of the plea and settlement agreements, Siemens has engaged Dr Theo Waigel, former German Finance Minister, as compliance monitor to evaluate and report on the company’s progress in implementing and operating new compliance programs. Waigel, who was recommended by Siemens, will be the first non-US national appointed to serve as a compliance monitor.
“Siemens is closing a painful chapter in its history. For Siemens, the corruption cases in Germany and the US are now over. Today marks the end of an unprecedented two-year effort to resolve extremely serious matters for the company,” said Gerhard Cromme, chairman of Siemens’ supervisory board, in a statement from the company.
“We regret what happened in the past. But we have learned from it and taken appropriate measures. Siemens is now a stronger company,” added Peter Löscher, Siemens’ president and CEO, in the statement.
The SEC said that since being approached by its staff, Siemens has cooperated fully with the investigation.