Scams cost Siemens $1.6 billion

18 December 2008

The Securities and Exchange Commission (SEC) has announced an unprecedented settlement with Siemens to resolve SEC charges that the company violated the Foreign Corrupt Practices Act (FCPA) by engaging in a systematic practice of paying bribes to foreign government officials to obtain business.
The SEC 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 such business as developing mobile telephone networks in Bangladesh, national identity cards in Argentina, and medical devices in Vietnam, China, and Russia. It is alleged that Siemens also paid kickbacks to Iraqi ministries in connection with sales of power stations and equipment to Iraq under the United Nations Oil for Food Program. Siemens earned more than $1.1 billion in profits on these and several other transactions.

Siemens has agreed to pay $350 million in disgorgement to settle the SEC’s charges, and a $450 million fine to the U.S. Department of Justice to settle criminal charges. Siemens also will pay a fine of approximately $569 million to the Office of the Prosecutor General in Munich, to whom the company previously paid an approximately $285 million fine in October 2007.

“Public companies that bribe foreign officials are confronting an increasingly well-coordinated international law enforcement effort,” said SEC Chairman Christopher Cox. “The SEC has brought a record number of enforcement actions for foreign bribery during the past two years, and heightened international cooperation has been critical to those successful efforts. Siemens paid staggering amounts of money to circumvent the rules and gain business. Now, they will pay for it with the largest settlement in the history of the Foreign Corrupt Practices Act since it became law in 1977.”

Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement, said, “This pattern of bribery by Siemens was unprecedented in scale and geographic reach. The corruption alleged in the SEC’s complaint involved more than $1.4 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 U.S. Department of Justice, and international law enforcement, particularly the Office of the Prosecutor General in Munich.”

The SEC’s complaint alleges 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. Siemens made thousands of payments to third parties in ways that obscured the purpose for, and the ultimate recipients of, the money. Employees obtained large amounts of cash from cash desks, which were sometimes transported in suitcases across international borders for bribery. The authorisations for payments were placed on post-it notes and later removed to eradicate any permanent record. 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, totalling approximately $1.4 billion, to bribe government officials in return for business to Siemens around the world. In addition, Siemens made approximately 1,185 separate payments to third parties totalling approximately $391 million, which were not properly controlled and were used, at least in part, for such illicit purposes as commercial bribery and embezzlement.

Siemens has not admitted or denied these allegations.