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Lessons from the massive Siemens corruption scandal one decade later

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Ten years ago a colossal corruption scandal involving Siemens, one of the world’s largest electrical engineering companies, shocked the world. The scale of it marked it out as the biggest corruption case of the time.

A few years later, Linda Thomsen, Director at the Security Exchange Commission described the pattern of bribery in the company as:

… unprecedented in scale and geographic reach. The corruption involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East and the Americas.

How did it happen and why is it important to keep this case in mind?

Prior to the corruption scandal, the reputation of Siemens was extremely good. It was renowned for its technological products and reliable services in telecommunications, power, transportation and medical equipment. It was common to see articles featuring its activities in remote areas, developing new high quality products and winning competitive bids.

So the world was taken by surprise when the police raided the company headquarters in Munich as well as other subsidiaries on November 15th 2006 . The company’s first reaction was to claim innocence and to blame events on a small “criminal gang” .

For years the company had pretended to do business according to the highest ethical and legal standards. Since at least 1991, Siemens had developed corporate anti-corruption norms, fancy codes of conduct and strict business guidelines. It was even selected to become a corporate member of Transparency International’s German chapter in 1998 – a non-governmental organisation created to fight corruption.

The reality was completely different.

Since at least the 1990s, Siemens had organised a global system of corruption to gain market share and increase its price . It was able to get away with this because of big loopholes in the legal systems of a host of countries, including Germany.

Anti-corruption existed only on paper

Over many decades bribes became the accepted business norm at Siemens. They were channelled through hidden bank accounts, obscure intermediaries and pseudo “consultants”. When calculating the cost of a project, Siemens employees used “ nützliche aufwendungen ”, a common tax term literally translated as “useful expenditures” or internally understood as “bribes.”

The situation wasn’t helped by the fact that the law in Germany was written in a way that allowed bribes to be accounted for as tax-deductible expenses . This changed in 1999 when the country finally brought its law into line with the 1997 OECD Convention on Combating Bribery . This made it illegal to bribe foreign officials for a German company.

On the day the new law was passed in February that year, discussions began at the highest level at Siemens on how to handle the new regulation.

Time for justice

On July 5th 2000, Siemens issued a new corporate circular requiring operating groups and regional companies to ensure that a new anti-corruption clause would be included in all contracts with agents, consultants, brokers, or other third parties. The following year it issued new guidelines that stipulated:

No employee may directly or indirectly offer or grant unjustified advantages to others in connection with business dealings, neither in monetary form nor as some other advantage.

And on taking up a listing on the New York Stock Exchange in 2001, the company became subject to the 1977 Foreign Corruption Practice Act . In addition, from November 2003 the company was obliged to comply with the Sarbanes-Oxley Act, with a code of ethics that required chief financial officers and business heads to act responsibly and with integrity.

In July 2004 Siemens’ chief financial officer delivered a speech entitled “Tone from the Top ”. The aim was to show that fighting corruption was finally a priority and contrary to the company’s principles of integrity.

In reality, as a German prosecutor was to comment later, the Siemens compliance programme existed only on paper .

Government investigations into corruption had been launched in Israel, Hungary, Azerbaijan, Taiwan and China while issues were also becoming apparent in Nigeria, Italy, Greece and Liechtenstein.

But, as American prosecutors discovered :

Siemens management failed to adequately investigate or follow up on any of these issues.

All over the word – from Bangladesh, Vietnam, Russia, and Mexico to Greece, Norway Iraq and Nigeria – Siemens paid bribes to government officials and civil servants. The magnitude of the bribery system was widespread. As Reinhard Siekaczek, a Siemens employee put it :

We all knew that what we were doing was illegal. Paying a bribe was customary in practically all business units at Siemens AG, except for business units that deals with lamps and such.

Action was finally taken against Siemens in a number of countries including the US, Germany, Italy and Lichtenstein.

Following the US and German prosecutions, Siemens paid more than $1.6 billion in fines, penalties and disgorgement of profits, including $800 million to US authorities. This was the largest monetary sanction ever imposed in a case under America’s Foreign Corruption Practice Act since it was passed in 1977.

Lessons from a corruption scandal

The Siemens case is emblematic of the past and we hope that it’s remembered and used to set up real compliance programmes. Without real counter actions, the risk is that the spread of corruption will continue as a virus, with companies imitating one other. .

Another lesson is that the only real justice system taking on corruption seriously is the US. Only the US Department of Justice has been able to sanction corporations sufficiently. But the US shouldn’t be alone in punishing corporate misconduct. All governments should stop simply saying that corruption is bad. They should also show that it will be punished.

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At Siemens, Bribery Was Just a Line Item

By Siri Schubert and T. Christian Miller

• Dec. 20, 2008

REINHARD SIEKACZEK was half asleep in bed when his doorbell rang here early one morning two years ago.

Still in his pajamas, he peeked out his bedroom window, hurried downstairs and flung open the front door. Standing before him in the cool, crisp dark were six German police officers and a prosecutor. They held a warrant for his arrest.

At that moment, Mr. Siekaczek, a stout, graying former accountant for Siemens A.G., the German engineering giant, knew that his secret life had ended.

“I know what this is about,” Mr. Siekaczek told the officers crowded around his door. “I have been expecting you.”

To understand how Siemens, one of the world’s biggest companies, last week ended up paying $1.6 billion in the largest fine for bribery in modern corporate history, it’s worth delving into Mr. Siekaczek’s unusual journey.

A former midlevel executive at Siemens, he was one of several people who arranged a torrent of payments that eventually streamed to well-placed officials around the globe, from Vietnam to Venezuela and from Italy to Israel, according to interviews with Mr. Siekaczek and court records in Germany and the United States.

What is striking about Mr. Siekaczek’s and prosecutors’ accounts of those dealings, which flowed through a web of secret bank accounts and shadowy consultants, is how entrenched corruption had become at a sprawling, sophisticated corporation that externally embraced the nostrums of a transparent global marketplace built on legitimate transactions.

Mr. Siekaczek (pronounced SEE-kah-chek) says that from 2002 to 2006 he oversaw an annual bribery budget of about $40 million to $50 million at Siemens. Company managers and sales staff used the slush fund to cozy up to corrupt government officials worldwide.

The payments, he says, were vital to maintaining the competitiveness of Siemens overseas, particularly in his subsidiary, which sold telecommunications equipment. “It was about keeping the business unit alive and not jeopardizing thousands of jobs overnight,” he said in an interview.

Siemens is hardly the only corporate giant caught in prosecutors’ cross hairs.

Three decades after Congress passed a law barring American companies from paying bribes to secure foreign business, law enforcement authorities around the world are bearing down on major enterprises like Daimler and Johnson & Johnson, with scores of cases now under investigation. Both companies declined comment, citing continuing investigations.

Albert J. Stanley, a legendary figure in the oil patch and the former chief executive of the KBR subsidiary of Halliburton, recently pleaded guilty to charges of paying bribes and skimming millions for himself. More charges are coming in that case, officials say.

But the Siemens case is notable for its breadth, the sums of money involved, and the raw organizational zeal with which the company deployed bribes to secure contracts. It is also a model of something that was once extremely rare: cross-border cooperation among law enforcement officials.

German prosecutors initially opened the Siemens case in 2005. American authorities became involved in 2006 because the company’s shares are traded on the New York Stock Exchange.

In its settlement last week with the Justice Department and the Securities and Exchange Commission, Siemens pleaded guilty to violating accounting provisions of the Foreign Corrupt Practices Act, which outlaws bribery abroad.

Although court documents are salted throughout with the word “bribes,” the Justice Department allowed Siemens to plead to accounting violations because it cooperated with the investigation and because pleading to bribery violations would have barred Siemens from bidding on government contracts in the United States. Siemens doesn’t dispute the government’s account of its actions.

Matthew W. Friedrich, the acting chief of the Justice Department’s criminal division, called corruption at Siemens “systematic and widespread.” Linda C. Thomsen, the S.E.C.’s enforcement director, said it was “egregious and brazen.” Joseph Persichini Jr., the director of the F.B.I.’s Washington field office, which led the investigation, called it “massive, willful and carefully orchestrated.”

MR. SIEKACZEK’S telecommunications unit was awash in easy money. It paid $5 million in bribes to win a mobile phone contract in Bangladesh, to the son of the prime minister at the time and other senior officials, according to court documents. Mr. Siekaczek’s group also made $12.7 million in payments to senior officials in Nigeria for government contracts.

In Argentina, a different Siemens subsidiary paid at least $40 million in bribes to win a $1 billion contract to produce national identity cards. In Israel, the company provided $20 million to senior government officials to build power plants. In Venezuela, it was $16 million for urban rail lines. In China, $14 million for medical equipment. And in Iraq, $1.7 million to Saddam Hussein and his cronies.

The bribes left behind angry competitors who were shut out of contracts and local residents in poor countries who, because of rigged deals, paid too much for necessities like roads, power plants and hospitals, prosecutors said.

Because government contracting is an opaque process and losers don’t typically file formal protests, it’s difficult to know the identity of competitors who lost out to Siemens. Companies in the United States have long complained, however, that they face an uneven playing field competing overseas.

Ben W. Heineman Jr., a former general counsel at General Electric and a member of the American chapter of Transparency International, a nonprofit group that tracks corruption, says the enforcement of some antibribery conventions still remains scattershot. “Until you have energetic enforcement by the developed-world nations, you won’t get strong antibribery programs or high-integrity corporate culture,” he said.

Afghanistan, Haiti, Iraq, Myanmar and Somalia are the five countries where corporate bribery is most common, according to Transparency International. The S.E.C. complaint said Siemens paid its heftiest bribes in China, Russia, Argentina, Israel and Venezuela.

“Crimes of official corruption threaten the integrity of the global marketplace and undermine the rule of law in the host countries,” said Lori Weinstein, the Justice Department prosecutor who oversaw the Siemens case.

All told, Siemens will pay more than $2.6 billion to clear its name: $1.6 billion in fines and fees in Germany and the United States and more than $1 billion for internal investigations and reforms.

Siemens’s general counsel, Peter Y. Solmssen, in an interview outside a marble-lined courtroom in Washington, said the company acknowledged that bribes were at the heart of the case. “This is the end of a difficult chapter in the company’s history,” he said. “We’re glad to get it behind us.”

Mr. Siekaczek, who cooperated with German authorities after his arrest in 2006, has already been sentenced in Germany to two years’ probation and a $150,000 fine. During a lengthy interview in Munich, a few blocks from the Siemens world headquarters, he provided an insider’s account of corruption at the company. The interview was his first with English-language news outlets.

“I would never have thought I’d go to jail for my company,” Mr. Siekaczek said. “Sure, we joked about it, but we thought if our actions ever came to light, we’d all go together and there would be enough people to play a game of cards.”

Mr. Siekaczek isn’t a stereotype of a white-collar villain. There are no Ferraris in his driveway, or villas in Monaco. He dresses in jeans, loafers and leather jackets. With white hair and gold-rimmed glasses, he passes for a kindly grandfather — albeit one who can discuss the advantages of offshore bank accounts as easily as last night’s soccer match.

SIEMENS began bribing long before Mr. Siekaczek applied his accounting skills to the task of organizing the payments.

World War II left the company shattered, its factories bombed and its trademark patents confiscated, according to American prosecutors. The company turned to markets in less developed countries to compete, and bribery became a reliable and ubiquitous sales technique.

“Bribery was Siemens’s business model,” said Uwe Dolata, the spokesman for the association of federal criminal investigators in Germany. “Siemens had institutionalized corruption.”

Before 1999, bribes were deductible as business expenses under the German tax code, and paying off a foreign official was not a criminal offense. In such an environment, Siemens officials subscribed to a straightforward rule in pursuing business abroad, according to one former executive. They played by local rules.

Inside Siemens, bribes were referred to as “NA” — a German abbreviation for the phrase “nützliche Aufwendungen” which means “useful money.” Siemens bribed wherever executives felt the money was needed, paying off officials not only in countries known for government corruption, like Nigeria, but also in countries with reputations for transparency, like Norway, according to court records.

In February 1999, Germany joined the international convention banning foreign bribery, a pact signed by most of the world’s industrial nations. By 2000, authorities in Austria and Switzerland were suspicious of millions of dollars of Siemens payments flowing to offshore bank accounts, according to court records.

Rather than comply with the law, Siemens managers created a “paper program,” a toothless internal system that did little to punish wrongdoers, according to court documents.

Mr. Siekaczek’s business unit was one of the most egregious offenders. Court documents show that the telecommunications unit paid more than $800 million of the $1.4 billion in illegal payments that Siemens made from 2001 to 2007. Managers in the telecommunications group decided to deal with the possibility of a crackdown by making its bribery procedures more difficult to detect.

So, on one winter evening in late 2002, five executives from the telecommunications group met for dinner at a traditional Bavarian restaurant in a Munich suburb. Surrounded by dark wood panels and posters celebrating German engineering, the group discussed how to better disguise its payments, while making sure that employees didn’t pocket the money, Mr. Siekaczek said.

To handle the business side of bribery, the executives turned to Mr. Siekaczek, a man renowned within the company for his personal honesty, his deep company loyalty — and his experiences in the shadowy world of illegal bribery.

“It had nothing to do with being law-abiding, because we all knew what we did was unlawful.” Mr. Siekaczek said. “What mattered here was that the person put in charge was stable and wouldn’t go astray.”

Although Mr. Siekaczek was reluctant to take the job offered that night, he justified it as economic necessity. If Siemens didn’t pay bribes, it would lose contracts and its employees might lose their jobs.

“We thought we had to do it,” Mr. Siekaczek said. “Otherwise, we’d ruin the company.”

Indeed, he considers his personal probity a point of honor. He describes himself as “the man in the middle,” “the banker” or, with tongue in cheek, “the master of disaster.” But, he said, he never set up a bribe. Nor did he directly hand over money to a corrupt official.

German prosecutors say they have no evidence that he personally enriched himself, though German documents show that Mr. Siekaczek oversaw the transfer of some $65 million through hard-to-trace offshore bank accounts.

“I was not the man responsible for bribery,” he said. “I organized the cash.”

Mr. Siekaczek set things in motion by moving money out of accounts in Austria to Liechtenstein and Switzerland, where bank secrecy laws provided greater cover and anonymity. He said he also reached out to a trustee in Switzerland who set up front companies to conceal money trails from Siemens to offshore bank accounts in Dubai and the British Virgin Islands.

Each year, Mr. Siekaczek said, managers in his unit set aside a budget of about $40 million to $50 million for the payment of bribes. For Greece alone, Siemens budgeted $10 million to $15 million a year. Bribes were as high as 40 percent of the contract cost in especially corrupt countries. Typically, amounts ranged from 5 percent to 6 percent of a contract’s value.

The most common method of bribery involved hiring an outside consultant to help “win” a contract. This was typically a local resident with ties to ruling leaders. Siemens paid a fee to the consultant, who in turn delivered the cash to the ultimate recipient.

Siemens has acknowledged having more than 2,700 business consultant agreements, so-called B.C.A.’s, worldwide. Those consultants were at the heart of the bribery scheme, sending millions to government officials.

MR. SIEKACZEK was painfully aware that he was acting illegally. To protect evidence that he didn’t act alone, he and a colleague began copying documents stored in a basement at Siemens’s headquarters in Munich that detailed the payments. He eventually stashed about three dozen folders in a secret hiding spot.

In 2004, Siemens executives told him that he had to sign a document stating he had followed the company’s compliance rules. Reluctantly, he signed, but he quit soon after. He continued to work for Siemens as a consultant before finally resigning in 2006. As legal pressure mounted, he heard rumors that Siemens was setting him up for a fall.

“On the inside, I was deeply disappointed. But I told myself that people were going to be surprised when their plan failed,” Mr. Siekaczek recalled. “It wasn’t going to be possible to make me the only one guilty because dozens of people in the business unit were involved. Nobody was going to believe that one person did this on his own.”

The Siemens scheme began to collapse when investigators in several countries began examining suspicious transactions. Prosecutors in Italy, Liechtenstein and Switzerland sent requests for help to counterparts in Germany, providing lists of suspect Siemens employees. German officials then decided to act in one simultaneous raid.

The police knocked on Mr. Siekaczek’s door on the morning of Nov. 15, 2006. Some 200 other officers were also sweeping across Germany, into Siemens’s headquarters in Munich and the homes of several executives.

In addition to Mr. Siekaczek’s detailed payment records, investigators secured five terabytes of data from Siemens’s offices — a mother lode of information equivalent to five million books. Mr. Siekaczek turned out to be one of the biggest prizes. After calling his lawyer, he immediately announced that he would cooperate.

Officials in the United States began investigating the case shortly after the raids became public. Knowing that it faced steep fines unless it cooperated, Siemens hired an American law firm, Debevoise & Plimpton, to conduct an internal investigation and to work with federal investigators.

As German and American investigators worked together to develop leads, Debevoise and its partners dedicated more than 300 lawyers, forensic analysts and staff members to untangle thousands of payments across the globe, according to the court records. American investigators and the Debevoise lawyers conducted more than 1,700 interviews in 34 countries. They collected more than 100 million documents, creating special facilities in China and Germany to house records from that single investigation. Debevoise and an outside auditor racked up 1.5 million billable hours, according to court documents. Siemens has said that the internal inquiry and related restructurings have cost it more than $1 billion.

Siemens officials “made it crystal clear that they wanted us to get to the bottom of this and follow it wherever the evidence led,” said Bruce E. Yannett, a Debevoise partner.

AT the same time, Siemens worked hard to purge the company of some senior managers and to reform company policies. Several senior managers have been arrested. Klaus Kleinfeld, the company’s C.E.O., resigned in April 2007. He has denied wrongdoing and is now head of Alcoa, the aluminum giant. Alcoa said that the company fully supports Mr. Kleinfeld and declined to comment further.

Last year, Siemens said in S.E.C. filings that it had discovered evidence that former officials had misappropriated funds and abused their authority. In August, Siemens said it seeks to recover monetary damages from 11 former board members for activities related to the bribery scheme. Negotiations on that matter are continuing.

Earlier this year, Siemens’s current chief executive, Peter Löscher, vowed to make Siemens “state of the art” in anticorruption measures.

“Operational excellence and ethical behavior are not a contradiction of terms,” the company said in a statement. “We must get the best business — and the clean business.”

Siemens still faces legal uncertainties. The Justice Department and German officials said that investigations were continuing and that current and former company officials might face prosecution.

Legal experts say Siemens is the latest in a string of high-profile cases that are changing attitudes about corruption. Still, they said, much work remains.

“I am not saying the fight against bribing foreign public officials is a fight full of roses and victories,” said Nicola Bonucci, the director of legal affairs for the Organization for Economic Cooperation and Development, which is based in Paris and monitors the global economy. “But I am convinced that it is something more and more people are taking seriously.”

For his part, Mr. Siekaczek is uncertain about the impact of the Siemens case. After all, he said, bribery and corruption are still widespread.

“People will only say about Siemens that they were unlucky and that they broke the 11th Commandment,” he said. “The 11th Commandment is: ‘Don’t get caught.’ ”

This article is a joint report by ProPublica , a nonprofit investigative journalism organization, PBS’s " Frontline " and The New York Times. A related documentary will be broadcast on “Frontline” on April 7.

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The Bribery Scandal at Siemens AG Case Study

Impacts of the scandal, steps were taken by siemens to prevent such incidents in future, the role of the co-determination law in the bribery scandals.

Siemens AG is a German company with a long history of success and a good reputation in the technology industry (Ma 2012). It is also one of Europe’s largest technology firms with a revenue base of over $77 billion according to Fernando, Purkayastha, and Bellamkonda (2010, p.2). In addition, the company has over 430,000 employees. However, the reputation that Siemens has built for several years was brought into question in 2006 after being caught engaged in a series of corruption scandals (Biegelman and Biegelman 2010, p.59). In the first incidence, Siemens was caught having bribed foreign officials in a bid to win contracts and create a slush fund (Ma 2012). In another case, Siemens was alleged to have bribed the officials of the labor representatives of the supervisory board in a bid to win their support over the policies that Siemens intended to implement (Brooks and Dunn 2009, p.15). Immediately after the whistle had been blown on the scandal, a team of investigators was appointed which immediately raided Siemens’ offices in Germany and other countries in the world, such as the U.S., Italy Greece, and Switzerland in a bid to unearth the alleged corruption scandal (Neelankavil and Rai 2009, p.56). The raid led to the arrest of five Siemens workers, who were then taken to custody for involving in corruption. The forensic audit conducted on Siemens financial statements found that about €420M payment could not be accounted for, which investigation later revealed that the money had been paid to foreign purchasing officials in different countries such as the U.S., Italy, Greece, and Puete Rico (Phillips and Gully 2011, p.32). It was at the time that Siemens acknowledged that some of its employees were indeed involved in the alleged fraud.

Twomey and Jennings (2010, p.16) reveal that the scandal led to the prosecution of Siemens’ chief executive Kutschenreuter after being found guilty of involvement in the corruption scandal. In this regard, “apart from being placed on probation for two years, he was also fined €160,000 for admitting to cover up the bribes and slush fund payments” (Fronz 2011, p.41). Other officials found guilty of the scandal included Hans-Werner Hartmann, the manager in charge of accounting of the telecommunication department of the company (Lawler 2012, p.92). Apart from being suspended for 18 months, Hartmann was also fined €40,000 according to Lawler (2012, p.92). The report indicates that Siemens used these funds to bribe government supervisory board officials in a bid to win lucrative contracts in Nigeria and Russia as noted by Hoskisson, Hitt, and Ireland (2008, p.17).

Mele (2009, p.34) reveals that German law prohibits any official or citizen in the country from engaging in a corruption scandal. This is the general law in most countries, Australia being not an exception, according to Schaffer, Agusti, and Earle (2008, p.44). Therefore, it was against the law for Siemens to engage in a corruption scandal a position, which was justified by the jury who handled the case. In this regard, the first immediate impact is that Siemens was fined €30 million for its engagement in the corruption scandal (Guffey and Loewy 2010, p.84). However, this fine can be considered a drop in the ocean because it only accounted for just 7% of the €420 that the company paid out in the form of a bribe (Lasher 2011, p.109). Nonetheless, when the bribe is combined with the fine it paid for the scandal, it totals €450 million, which is significant according to Newswatch Communications Limited (2007, p.15).

Siemens’ engagement in the corruption scandal also scared away investors from the company who were afraid of losing their money because of the scandal (Brand Support Services 2007, p.74). In this regard, Siemens is reported to have lost a majority of its market share in the international business in 2006. Jeffrey (2012, p.83) reveals that the operation of the business was also affected as managers, and some employees were engaged in a court tassel. Firestein (2009, p.65) also indicates that the company’s overall profits also declined significantly in the global market, something that the company attributed to the corruption scandal, which befell the company in 2006 and 2007.

As earlier indicated, Siemens has been one of the most respected technology in the world, the reputation which took it several years to build. However, the unethical behavior of involving in the corruption scandal did ruin this reputation, something that will take the company several years to rebuild, according to Nicholls, Nicholls, and Daniel (2011, p.41). This is because the scandal made customers, investors and other stakeholders lose faith in the company for fear of other unethical acts even if it is not corruption (Jennings 2010, p.56). Siemens has experienced a decline in customer base since the scandal was unearthed probably for fear of the same (OECD 2005, 87). In addition, the scandal has also brought into question the effectiveness of the German Co-determination law after failing to prevent the corruption scandal in Siemens.

After the discovery of the corruption scandal in Siemens, the company has employed a raft of programs and strategies aimed at preventing such unethical behavior from happening in the company in the future (Schorsch 2009, p.102). Most of these programs are geared towards strengthening compliance controls and its corporate governance structures (Hitt, Ireland, and Hoskisson 2010, p.19). In this regard, Siemens has established its business conduct principles, which states how its employees are supposed to deal with government officials in what it terms “Anti-public corruption compliance” (Loughman and Sibery, 2011, p.38). The company hopes that this guideline will help bar its employees from engaging in corruption in the future as the document defines the periphery of their conduct in dealing with government officials.

The company has also instituted a strong internal control system in which all government contracts are audited both by the internal and external auditors to ensure that no employee or company manager engages in another corruption scandal that might ruin the company’s corporate image (Griffin 2012, p.33). The strong internal controls have indeed proved effective since they have made employees fear when engaging in corruption knowing that their corrupt deals may be discovered by the audit team in a matter of hours or days (Deresky 2011, p.61).

As earlier stated, Siemens also promote good ethical behaviors within the company by teaching its employees and management team of the dangers of engaging in unethical behaviors, such as corruption (Zagaris 2010, p13). At the same time, the company has become very strict in the way it handles unethical behaviors in the company (Stachowicz-Stanusch 2010, p.75). Unlike before when employees could be pardoned for misconduct, the company now punishes any person found engaged in unethical behavior through service termination, to prevent employees and managers from engaging in such acts while still working for the company.

Michel (2007, p.19) argues that the German Codetermination law confers upon workers the right to participate in management decision-making. The law also gives employees the right to be represented on the board of directors (Tarun 2010, p.26). This implies that any supervisory board must have a labor representative. However, following the scandals that have been witnessed in Germany over the past few years, Jennings notes that questions have been raised as to the effectiveness of the Codetermination law (2011, p.9). is so whereas it is meant to protect scandals from happening, it has only been promoting scandals in different companies. This has particularly been witnessed in Siemens and Volkswagen have been faced by a corruption scandal according to De Mestral, Lévesque, and Vesque (2013, p.94).

For instance, in the corruption scandal at Siemens, investigations revealed that the company bribes the labor representatives on the company supervisory board to gain their support in regards to the policies the company wanted to pursue (Twomey and Jennings 2010, p.94). As a result, instead of the labor representatives blowing the whistle over the scandal, they went ahead and concealed the scandal, which was only unearthed after investigation and audit. A similar scenario was also witnessed in Volkswagen when the labor representatives to the supervisory board accepted bribes to allow the company to pursue its policies as noted by Gorton and Schmid (2000, p17). These incidences point at a complete failure of the Codetermination law to fulfill its mandates.

As a result, an international governing body must be formed to regulate the behaviors of global corporations. As for Siemens, the company needs to eradicate corruption and any form of unethical behavior by instituting strong control measures capable of preventing such behaviors in the company, as this is the only way it will win back the confidence of its stakeholders in the market.

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IvyPanda. (2022, May 11). The Bribery Scandal at Siemens AG. https://ivypanda.com/essays/the-bribery-scandal-at-siemens-ag/

"The Bribery Scandal at Siemens AG." IvyPanda , 11 May 2022, ivypanda.com/essays/the-bribery-scandal-at-siemens-ag/.

IvyPanda . (2022) 'The Bribery Scandal at Siemens AG'. 11 May.

IvyPanda . 2022. "The Bribery Scandal at Siemens AG." May 11, 2022. https://ivypanda.com/essays/the-bribery-scandal-at-siemens-ag/.

1. IvyPanda . "The Bribery Scandal at Siemens AG." May 11, 2022. https://ivypanda.com/essays/the-bribery-scandal-at-siemens-ag/.

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IvyPanda . "The Bribery Scandal at Siemens AG." May 11, 2022. https://ivypanda.com/essays/the-bribery-scandal-at-siemens-ag/.

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The CEO of Siemens on Using a Scandal to Drive Change

• Peter Löscher

Photography: Hans-Bernhard Huber/Laif/Redux The Idea: With Siemens reeling amid a global bribery investigation, its board hired Peter Löscher as the first outsider to become the company’s top leader. Here’s how he quickly moved to rebuild the organization. Late on a Friday night in May 2007, I flew from my home in New Jersey to a […]

Reprint: R1211A

After a global bribery investigation that lasted several years, the CEO of Siemens was asked to resign in 2007, and Löscher, then the president of Merck, was brought in to replace him. There was no question that the company needed to change—and quickly.

The scandal provided the necessary sense of urgency in the company’s ranks, and the new CEO set out to reorganize the top three levels of management, replacing between 40% and 80% of executives in each. To make the process transparent, each of the positions was benchmarked externally. He centralized decision making in the managing board, streamlined board membership, and created a new position for legal counsel and compliance.

Then he turned to the country organizations, whose strength was one of Siemens’s secrets to success, but whose growing autonomy had created an eclectic collection of local businesses. Löscher made one person accountable for global performance in every business, grouped the country operations into one-fifth as many clusters, and established a steering group to oversee the whole.

He added an environmental portfolio to the company’s strategy and refocused the top managers on customers. And he put two women on the managing board.

“If you want to change a big, complex organization like Siemens,” he says, “you have to make your agenda known, and you have to communicate in simple terms.”

• PL Peter Löscher is the president and CEO of Siemens AG.

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Eight Former Senior Executives and Agents of Siemens Charged in Alleged $100 Million Foreign Bribe Scheme

WASHINGTON – Eight former executives and agents of Siemens AG and its subsidiaries have been charged for allegedly engaging in a decade-long scheme to bribe senior Argentine government officials to secure, implement and enforce a $1 billion contract with the Argentine government to produce national identity cards, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division, U.S. Attorney Preet Bharara for the Southern District of New York and Ronald T. Hosko, Special Agent in Charge of the FBI, Washington Field Office’s Criminal Division.

The defendants charged in the indictment returned late yesterday are:

• Uriel Sharef, a former member of the central executive committee of Siemens AG;
• Herbert Steffen, a former chief executive officer of Siemens Argentina;
• Andres Truppel, a former chief financial officer of Siemens Argentina;
• Ulrich Bock, Stephan Signer and Eberhard Reichert, former senior executives of Siemens Business Services (SBS); and
• Carlos Sergi and Miguel Czysch, who served as intermediaries and agents of Siemens in the bribe scheme. 

The indictment charges the defendants and their co-conspirators with conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and the wire fraud statute, money laundering conspiracy and wire fraud.

“Today’s indictment alleges a shocking level of deception and corruption,” said Assistant Attorney General Breuer.   “The indictment charges Siemens executives, along with agents and conduits for the company, with committing to pay more than $100 million in bribes to high-level Argentine officials to win a $1 billion contract.  Business should be won or lost on the merits of a company’s products and services, not the amount of bribes paid to government officials.  This indictment reflects our commitment to holding individuals, as well as companies, accountable for violations of the FCPA.”

“As alleged, the defendants in this case bribed Argentine government officials in two successive administrations and paid off countless others in a successful effort to secure a billion dollar contract,” said U.S. Attorney Bharara.  “When the project was terminated, they even sought to recover the profits they would have reaped from a contract that was awarded to them illegitimately in the first place.  Bribery corrupts economic markets and creates an unfair playing field for law-abiding companies.  It is critical that we hold individuals as well as corporations accountable for such corruption as we are doing today.”

“Backroom deals and corrupt payments to foreign officials to obtain business wear away public confidence in our global marketplace,” said FBI Special Agent in Charge Hosko of the Washington Field Office’s Criminal Division.  “The investigation into this decades-long scheme serves as an example that the FBI is committed to curbing corruption and will investigate those who try to advance their businesses through foreign bribery.”

According to the indictment, the government of Argentina issued a tender for bids in 1994 to replace an existing system of manually created national identity booklets with state of the art national identity cards (the DNI project).  The value of the DNI project was $1 billion.  In 1998, the Argentine government awarded the DNI project to a special-purpose subsidiary of Siemens AG. 

The indictment alleges that during the bidding and implementation phases of the project, the defendants and their co-conspirators caused Siemens to commit to paying nearly $100 million in bribes to sitting officials of the Argentine government, members of the opposition party and candidates for office who were likely to come to power during the performance of the project.  According to the indictment, members of the conspiracy worked to conceal the illicit payments through various means.  For instance, Bock made cash withdrawals from Siemens AG general-purpose accounts in Germany totaling approximately $10 million, transported the cash across the border into Switzerland and deposited the funds into Swiss bank accounts for transfer to officials.  Bock, Truppel, Reichert and other conspirators also allegedly caused Siemens to wire transfer more than $7 million in bribes to a bank account in New York disguised as a foreign exchange hedging contract relating to the DNI project.  Over the duration of the conspiracy, the conspirators allegedly relied on at least 17 off-shore shell companies associated with Sergi, Czysch and other intermediaries to disguise and launder the funds, often documenting the payments through fake consulting contracts. 

In May 1999, according to the indictment, the Argentine government suspended the DNI project, due in part to instability in the local economy and an impending presidential election.  When a new government took power in Argentina, and in the hopes of getting the DNI project resumed, members of the conspiracy allegedly committed Siemens to paying additional bribes to the incoming officials and to satisfying existing obligations to officials of the outgoing administration, many of whom remained in influential positions within the government. 

When the project was terminated in May 2001, members of the conspiracy allegedly responded with a multi-faceted strategy to overcome the termination.  According to the indictment, the conspirators sought to recover the anticipated proceeds of the DNI project, notwithstanding the termination, by causing Siemens AG to file a fraudulent arbitration claim against the Republic of Argentina in Washington, D.C.  The claim alleged wrongful termination of the contract for the DNI project and demanded nearly $500 million in lost profits and expenses.  Members of the conspiracy allegedly caused Siemens to actively hide from the tribunal the fact that the contract for the DNI project had been secured by means of bribery and corruption, including tampered witness statements and pleadings that falsely denied the existence of corruption. 

In related actions, the indictment also alleges that members of the conspiracy continued the bribe scheme, in part to prevent disclosure of the bribery in the arbitration and to ensure Siemens’ ability to secure future government contracts in Argentina and elsewhere in the region.  In four installments between 2002 and 2007, members of the conspiracy allegedly caused Siemens to pay approximately $28 million in further satisfaction of the obligations.  Conspirators continued to conceal these additional payments through various means.  For example, Sharef, Truppel and other members of the conspiracy allegedly caused Siemens to transfer approximately $9.5 million through fictitious transactions involving a Siemens business division that had no role in the DNI project.  They also caused Siemens to pay an additional $8.8 million in 2007 under the legal cover of a separate arbitration initiated in Switzerland by the intermediaries to enforce a sham $27 million contract from 2001 between SBS and Mfast Consulting, a company controlled by their co-conspirator intermediaries, which consolidated existing bribe commitments into one contract.  The conspirators caused Siemens to quietly settle the arbitration, keeping all evidence of corruption out of the proceeding.  The settlement agreement included a provision preventing Sergi, Czysch and another intermediary from testifying in, or providing information to, the Washington arbitration. 

Siemens’s corrupt procurement of the DNI project was not exposed during the lifespan of the conspiracy, and, in February 2007, the arbitral tribunal in Washington sided with Siemens AG, awarding the company nearly $220 million on its DNI claims, plus interest.  On Aug. 12, 2009, following Siemens’ corporate resolutions with the U.S. and German authorities – new management of Siemens caused Siemens AG to forego its right to receive the award and, as a result, the company never claimed the award money.

The indictment charges the defendants with conspiracy to violate the anti-bribery, books and records and internal control provisions of the FCPA; conspiracy to commit wire fraud; conspiracy to commit money laundering; and substantive wire fraud. 

The charges announced today follow the Dec. 15, 2008, guilty pleas by Siemens AG and its subsidiary, Siemens S.A. (Siemens Argentina), to criminal violations of the FCPA.  As part of the plea agreement, Siemens AG and Siemens Argentina agreed to pay fines of $448.5 million and $500,000, respectively.

In a parallel civil action, the Securities and Exchange Commission (SEC) announced charges against executives and agents of Siemens.  The department acknowledges and expresses its appreciation of the significant assistance provided by the staff of the SEC during the course of these parallel investigations. 

Today’s charges follow, in large part, the laudable actions of Siemens AG and its audit committee in disclosing potential FCPA violations to the department after the Munich Public Prosecutor’s Office initiated an investigation.  Siemens AG and its subsidiaries disclosed these violations after initiating an internal FCPA investigation of unprecedented scope; shared the results of that investigation; cooperated extensively and authentically with the department in its ongoing investigation; and took remedial action, including the complete restructuring of Siemens AG and the implementation of a sophisticated compliance program and organization.

The department and the SEC closely collaborated with the Munich Public Prosecutor’s Office in bringing this case.  The high level of cooperation, including sharing information and evidence, was made possible by the use of mutual legal assistance provisions of the 1997 Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

The case is being prosecuted by Principal Deputy Chief Jeffrey H. Knox of the Criminal Division’s Fraud Section, and by Assistant U.S. Attorneys Jason P. Hernandez and Sarah McCallum of the U.S. Attorney’s Office for the Southern District of New York.  The Fraud Section of the Justice Department’s Criminal Division and the Complex Frauds Unit of the U.S. Attorney’s Office for the Southern District of New York are handling the case.  The case was investigated by FBI agents who are part of the Washington Field Office’s dedicated FCPA squad.  The Criminal Division’s Office of International Affairs provided significant assistance in this matter.

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Siemens: Anatomy of Bribery

By: David P. Baron

In November 2006, 200 German police officers raided the headquarters of Siemens AG, Europe's leading engineering company, seeking evidence pertaining to widespread bribery. The raid followed…

• Length: 8 page(s)
• Publication Date: Oct 20, 2008
• Discipline: Operations Management
• Product #: P68-PDF-ENG

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In November 2006, 200 German police officers raided the headquarters of Siemens AG, Europe's leading engineering company, seeking evidence pertaining to widespread bribery. The raid followed extensive investigations of Siemens' activities that originated from a bank's internal scrutiny of accounts believed to be used for money laundering. Amid broadening suspicions, the Siemens initiated its own internal investigation, identifying €420 million in suspicious transactions in its telecommunications unit. The company hired a private law firm to conduct an independent internal investigation. The law firm reported that it had identified €1.3 billion in suspicious payments since 1999 and had received "important ... new information" that could implicate high-ranking executives. This case follows the bribery investigation, touching on possible causes, the company's handling of the allegations, and potential safeguards to protect against future problems.

Learning Objectives

To analyze the bribery scandal at Siemens AG and identify management systems to prevent future bribery and corruption.

Oct 20, 2008

Discipline:

Operations Management

Geographies:

Germany, United States

Stanford Graduate School of Business

P68-PDF-ENG

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Disclosure Responses to a Corruption Scandal: The Case of Siemens AG

• Original Paper
• Published: 22 June 2017
• Volume 156 , pages 545–561, ( 2019 )

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• Renata Blanc 1 ,
• Charles H. Cho 2 ,
• Joanne Sopt 3 , 4 &
• Manuel Castelo Branco 1  

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In the current study, we examine the changes in disclosure practices on compliance and the fight against corruption at Siemens AG, a large German multinational corporation, over the period 2000–2011 during which a major corruption scandal was revealed. More specifically, we conduct a content analysis of the company’s annual reports and sustainability reports during that period to investigate the changes of Siemens’ corruption and compliance disclosure using both quantitative and qualitative methods. Through the lens of legitimacy theory, stakeholder analysis, and organizational façades, we find evidence that Siemens changed its compliance and corruption disclosure practices to repair its legitimacy in the wake of the 2006 corruption scandal. We analyze these strategies more closely by using the rational, progressive, and reputation façades framework (Abrahamson and Baumard in The Oxford Handbook of Organizational Decision Making, pp 437–452, 2008 ). Our primary findings suggest that the annual reports show peaks of disclosure amounts on corruption and compliance disclosures earlier than sustainability reports, which can be partly explained by analyzing the disclosures made about—and to—the different stakeholder groups. We find that the annual report focuses more on internal stakeholders such as employees, while the sustainability report focuses more on external stakeholders such as suppliers. We also find that the company uses the façades differently depending on which report is being analyzed.

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Corporate Social Responsibility (CSR) Implementation: A Review and a Research Agenda Towards an Integrative Framework

Tahniyath Fatima & Said Elbanna

Corporate Social Responsibility (CSR): The Role of Government in promoting CSR

Asan Vernyuy Wirba

Mandatory CSR and sustainability reporting: economic analysis and literature review

Hans B. Christensen, Luzi Hail & Christian Leuz

The United Nations Global Compact and the Global Reporting Initiative are known to be two of the most important CSR global movements.

Social or CSR reporting is often used as a “corporate veil” to project a positive image of the company and protect its “inner workings” from “external view” (Hopwood 2009 , p. 437) and information therein has in many cases been found biased and reflecting management’s interests rather than what really occurred (Boiral 2013 ). However, one should highlight the importance of such reporting in relation to practice, as best explained through the concepts of decoupling and greenwashing (Graafland and Smid, forthcoming). Whereas the former concept has to do with the “combination of promising policy statements and poor implementation of programs and impact”, the latter is defined as “the intersection of positive communication about performance (e.g., through reporting) and poor performance” (p. 6). According to these authors, higher quality CSR reporting reduces a company’s policy-practice decoupling by way of the inducement to strengthening the quality of its CSR programs.

The study by Cho et al. ( 2015 ) puts a higher emphasis on the theoretical (as opposed to empirical) contribution—namely organized hypocrisy and organizational façades, that provides a more nuanced framework to explain and understand sustainability/social reporting practices.

The US FCPA dates from 1977 and is probably the most widely enforced law pertaining to the fight against corruption. It regulates corruption by (1) prohibiting bribery of foreign officials and (2) requiring companies registered with the SEC to keep accurate books and records (Reilly 2015 ).

While the number of words or the number or percentages of pages (Gray et al. 1995 ) are also both widely used in corporate social disclosure research, Hackston and Milne ( 1996 ) suggest that sentence counts are preferable because they convey a better meaning and may generate fewer errors (Milne and Adler 1999 ).

When referring to employees, the paper is referencing non-management employees only. Siemens distinguishes employees from management, and the paper maintains the same distinction.

The UNGC refers to business partners, including agents, consultants or other intermediaries, joint venture and consortia partners, suppliers and customers. However, a close reading of UNGC ( 2009 ) provides evidence that suppliers are viewed as the most fundamental of these partners.

Results of Deegan and Rankin ( 1996 ) indicate a significant increase in positive disclosure after the successful prosecution of 20 companies by the New South Wales and Victorian Environmental Protection Industries. Deegan et al. ( 2000 ) show a higher increase in disclosure in the year following specific environmental incidents concerning a small sample of Australian firms.

Primary sources

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Acknowledgements

We wish to thank Lisa Baudot, Den Patten and the participants of the 2013 Alternative Accounts Conference, the 36th European Accounting Association Conference, and the 2013 French Congress on Social and Environmental Accounting Research (2nd CSEAR France) for their helpful comments and suggestions provided on earlier versions of this paper. Charles Cho also acknowledges the financial support provided by the Global Research Network program through the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2016S1A2A2912421).

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Blanc, R., Cho, C.H., Sopt, J. et al. Disclosure Responses to a Corruption Scandal: The Case of Siemens AG. J Bus Ethics 156 , 545–561 (2019). https://doi.org/10.1007/s10551-017-3602-7

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SIEMENS SCANDAL ANALYSIS 1

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Slammed for bribery, Siemens continued to ignore red flags

FILE - This Thursday, Nov. 9, 2017 file photo shows the logo of German industrial conglomerate Siemens in front of their headquarters in Munich, Germany. Siemens ignored some of its own red flags for foreign bribery in the aftermath of a major corruption scandal in 2008, according to reports released in 2021 by an independent monitor and other confidential documents. (AP Photo/Matthias Schrader, File)

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German engineering giant Siemens ignored some of its own red flags for foreign bribery in the aftermath of a major corruption scandal in 2008, according to newly released reports by an independent monitor and other confidential documents.

The warnings involved the company’s use of third-party resellers, who have often served as conduits for bribing foreign officials, according to former company insiders and company internal assessments. Evidence from public records in China suggests that problems with resellers have continued during the pandemic, and resulted in the sale of medical equipment to Chinese state-owned hospitals at vastly inflated prices.

The monitoring reports, which Siemens was obliged to commission from 2009 to 2012, stem from a $1.6 billion landmark settlement of bribery charges by the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) in 2008. During their investigation, US and German authorities found over $1 billion of bribes paid to foreign government officials in return for business, in what the SEC called a “systematic practice” spanning decades and virtually every region in which Siemens operated, violating the Foreign Corrupt Practices Act (FCPA). Siemens admitted to failures of internal controls and record-keeping.

This story was provided to the Associated Press by 100Reporters, a nonprofit news organization based in Washington, D.C.

The nonprofit news organization 100Reporters, represented by the law firm Davis Wright Tremaine, sued the Justice Department for the release of the monitoring reports under the Freedom of Information Act. The DOJ, Siemens, and its independent monitor, former German Finance Minister Theo Waigel, all fought to keep the contents of the monitoring reports secret, and despite the court-ordered release, much of the material remains cloaked behind heavy redactions

Waigel declined comment, saying he did not remember details of his monitorship. Nevertheless, Waigel has since gained a reputation in Germany as a compliance troubleshooter for major international corporations, partly as a result of his oversight at Siemens.

In a statement, Siemens said that the company has “an extensive global compliance program designed to prevent, identify, and eliminate corruption,” and that it was “making extensive efforts to identify and eliminate business practices that promote corruption (in China). This includes ending the use of sales partners and consultants in the event of misconduct.”

The appointment of Waigel, a highly-regarded figure in German government and business circles, reflected the importance of Siemens’ reputation and worldwide business to Germany’s political establishment.

RED FLAGS: ATTENTION OPTIONAL

Evidence from one lucrative sector, the sale of healthcare equipment in China, suggests that even during the four years of Waigel’s monitorship and the rebuilding of the company’s reputation, Siemens was intentionally relaxing rules where it could.

In his initial report, Waigel made 114 recommendations for changes in Siemens’ compliance practices to prevent bribery. The court permitted the Justice Department to redact all of those recommendations in the current release, but a former Siemens employee, Meng-Lin Liu, disclosed one key issue: a review of the company’s internal controls for scrutinizing business partners, particularly the use of resellers or distributors in contracts that would otherwise be handled directly between Siemens and the purchaser.

The alleged bribery by third-party resellers to advance Siemens’ business interests represented a main plank of the SEC’s criminal complaint against Siemens in 2008, and a problem that would continue to dog Siemens, prompting subsequent investigations in Brazil and China. The problem was not unique to Siemens. According to a 2014 briefing by the law firm Clifford Chance, over 90 percent of all FCPA prosecutions in China involve such third-party agents.

Waigel raised the same point in an October 2011 monitoring report, alerting Siemens to the risk that resellers carry with respect to “relationships with current and former government officials.” He added, “An organization should take steps to monitor its third-party relationships continuously for corruption red flags and terminate relationships that expose the organization to liability.”

A 34-page “Special Review,” of the company’s system for scrutiny of potential partners completed in January 2010, called the Business Partner Tool (BPT), showed that in November 2009, Siemens assembled a team to examine how the company vetted these third parties, referred to as import/export companies in the documents.

When the team interviewed Liu that December, Liu said that he expressed concern that Siemens was allowing some business partners to sidestep vetting through the BPT, thus allowing what were, according to Siemens’s own definition, “high-risk” entities to conduct the company’s business in China without proper due diligence. It appeared that the review team listened to Liu. The review stated that a 2008 decision to “exclude (import/export companies) related to sales and tendering business from the BPT approval” should be reexamined.

The team even noted other red flags that should, in its view, intensify scrutiny of import/export companies. One such red flag was the fact that Chinese hospitals chose a “partner of trust” from which to buy equipment and assigned that partner of trust to a respective Siemens unit. A second flag was that some import/export companies used by bigger hospitals were actually former purchasing departments of those hospitals.

In an emailed statement, Siemens did not directly address this review, but insisted that its compliance system was “adequately conceived,” and pointed to Waigel’s positive appraisal of the company at the end of his monitorship.

Otto Geiss, a former compliance officer at various German companies and board member at the European Business Ethics Network Germany (DNWE), said the company was turning a blind eye to a dubious system.

“Of course, if the hospital has an influence on who imports the product I would say right away that kickback payments are being paid,” Geiss said. “What interest could a hospital possibly have in whether Mr. X or Mr. Y. is doing the importing? That means they have an influence on who gets the business.”

Moreover, five months later, a memorandum issued by Siemens’ compliance officers reinforced the 2008 decision to ignore such warning signs. The June 2010 memo, sent to Liu among others, declared that three of the four different ways that Siemens works with import/export companies in China could be exempt from this heightened scrutiny.

“Why would I figure out a methodology for red flags and then not apply it?” Geiss asked. He noted that Siemens was widely praised for developing its IT-based Business Partner Tool to help weed out corruption as part of the comprehensive compliance infrastructure it built after the 2008 scandal. “Why would I make a rule, then define all the exceptions, then say, only the exceptions apply?” he asked.

The June 2010 memo also included a rather alarming footnote to one of the business models. Under what was called “Model B,” in which the import/export company is considered an agent of the hospital rather than Siemens, the officers acknowledged that “it’s not clear to Siemens whether the (import/export company) signs a further contract with the end-customer.” The footnote admits, “We cannot exclude the possibility that the (import/export company) and the end-customer abuse the structure and make other dealings under the table.”

In other words, the memo expressly acknowledged the risk of bribery, but neither addressed how to prevent it nor how to remedy it if it occurred.

Siemens fired Liu in 2010, after he drew attention to the due diligence failures. A Siemens spokesman said that Liu left the company by “mutual termination agreement,” while Klaus Moosmayer, Siemens’ then-Chief Compliance Officer, said at the time that Liu was terminated following “performance issues.”

In November 2010, after Liu learned of his firing, he emailed Waigel and the company’s compliance department, detailing what he said were many compliance failures.

How Waigel dealt with Liu’s concerns in his monitoring reports, or even whether he read Liu’s email, is unknown, thanks to the secrecy he and Siemens insisted upon in fighting against their public release. Nevertheless, Waigel’s second-year workplan reported that “Siemens . . . is working to implement all 114 recommendations (from his initial report) in a timely manner.” In October 2011, after three years of assessing Siemens’ compliance policy and procedures, Waigel concluded that the German company had “fully implemented all of his Year One recommendations”.

To the letter, Waigel was correct. The monitor had recommended a “review” of the company’s practices involving resellers, which Siemens had indeed conducted. However, the spirit and intent behind the recommendation–rooting out practices conducive to bribery–appear to have been largely sidestepped in favor of a more passive approach, of reacting only after corrupt actors had been identified by external parties - such as the Chinese courts.

In the face of Siemens’ apparent inaction, the problem persisted. According to a recently-released Chinese court verdict, in that same year that Waigel gave Siemens a clean bill-of-health, a Siemens business manager offered to pay a hospital president in the Anhui district 2 million renminbi ($300,000) to ensure that Siemens products won bids. The hospital president who made this confession was convicted of taking bribes from 2004 to 2017.

Two years after Waigel’s monitorship of Siemens ended, the most senior sales manager at Siemens China, like Liu before him, blew the whistle on corruption among third-party resellers. In a 2013 email to dozens of senior staff at Siemens China, the manager, Cao Yong Sheng, pointed to a “huge gap between biddings and contracts,” and asked, “Where’s the gap going?”

Sheng, sacked over his own alleged corruption, maintained that Siemens knew full well that intermediaries were overcharging for equipment, building in the cost of bribes to hospital officials. “It made us very uncomfortable and so worried,” he wrote.

This article is an abridged version of an investigation produced by 100Reporters , a nonprofit investigative news organization, in partnership with the McGraw Center for Business Journalism at the Craig Newmark Graduate School of Journalism at the City University of New York. The full investigation can be found at 100R.org.

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Siemens and the battle against bribery and corruption

W here might businesses make the biggest impact on sustainability? Traditional answers might be fuel consumption and carbon emissions, resource efficiency and waste management. But Peter Y. Solmssen, general counsel for Siemens AG, argues for a broader view of sustainability as something that underlies every aspect of global business culture.

"Sustainability involves more than climate change and the environment," Solmssen says. "Sustainability is about survival. It means clean water and clean air, but it also means having an economic system that works for everyone. It means having responsible citizens, both corporate and individual."

A key part of this culture of responsibility, Solmssen claims, is a global business environment that actively fights corruption and bribery. "There's no point in subsidizing any particular effort to restrict clean water, clean air or energy production in countries which are beset with corruption," Solmssen says. "The money will end up in numbered bank accounts in Switzerland. It won't go where it's supposed to go."

Siemens is well versed in the high cost of corruption: in 2008, following a string of high-profile bribery scandals, it agreed to a record $1.6bn legal settlement with American and European authorities. Solmssen, in fact, was part of the group Siemens CEO Peter Löscher brought in to help clean up the company's institutional culture.

Löscher's team quickly went to work. In an article for the Harvard Business Review, Löscher explained how – in a few months – the company cleaned house, replacing 80% of its top-tier executives, 70% of its second tier and 40% of its third tier.

But Siemens' culture of corruption extended far beyond the executive suite. As one German investigator later put it , "bribery was Siemens' business model". In fact, the company even had a handy accounting euphemism for its bribes: "nützliche Aufwendungen," or "useful money".

Given the corruption that permeated Siemens, it was clear that Löscher's team needed to fundamentally change the culture of the firm. The trouble was, the employees who knew the most about the company's bribery culture and methods were the same ones who were actually involved in it. Changing Siemens' way of doing business would require enlisting help from the very employees who had the most to lose.

Löscher offered his workers a deal : He promised that anyone who came forward to admit their involvement in bribery would get full amnesty. Not only wouldn't they be fired, but the company promised to help with any legal problems stemming from these admissions. On the other hand, those employees who didn't come forward, but were later found guilty of bribery, would be fired. Solmssen estimates that "about 130" employees came forward to admit their role in bribery and to explain where the money had gone.

According to Solmssen, Siemens' anti-corruption efforts have come with minimal cost. In fact, he claims, the company's bottom line has only grown. "That's the important lesson from our case," he says. "There is no tradeoff. Clean business is good business." Siemens' 2012 annual report , which shows steady year-over-year revenue growth between 2010 and 2012, bears this out.

Siemens' internal efforts notwithstanding, Solmssen is quick to point out that corruption is a global problem – and one that requires a global solution. "First you need an internal, leadership commitment to compliance," he says. "Then you can organize concerted, collective action among other companies in your markets."

Collaborating for change

But Solmssen is convinced that the groundwork for industry-wide cooperation already exists. Speaking of General Electric , where he previously worked, Solmssen notes that, although his old company and Siemens "compete vigorously all around the world," they have a deep well of shared values. "We cooperate on many fronts, such as the fight against corruption," he explains. "We cooperate on standard setting, even while we're competing commercially."

This sort of cooperation can lead to significant change, he says: "If we, the major companies and, really, anyone in private industry, link arms, we can drive corruption out of our markets. I call it the Cartel of the Good. If we cooperate, then there is no bribery."

Unsurprisingly, the fight against corruption also extends beyond the business community and into the realm of international governance. "It is principle 10 of the UN Global Compact," Solmssen notes.

Later this week, he will address global business cooperation at the UN Global Compact Leaders Summit , which he says itself is "an example of good companies combining to make their environments better".

Despite the success of Siemens' anti-bribery efforts, Solmssen is quick to note that the problem still exists . The bribery-related fallout – and court proceedings – continues.

"It's a constant struggle," he notes. "The bad guys are clever. You close one door and they try to get through another." The answer, it seems, is to make sure that the doors are closed to bribery and corruption, not only at one company, but across the globe.

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