Siemens bribery scandal raises further questions

An isolated criminal enterprise or a wider culture of corruption?

That is increasingly the central question in the investigation into an alleged €420m ($553m) bribery scandal at Siemens, the German industrial group.

Two diametrically opposed positions are emerging between the dozen people under suspicion by state prosecutors in Munich and the current and former senior Siemens executives fighting to save their reputations and that of the company.

The suspects, according to several of their lawyers, are taking the line that paying bribes out of slush funds was just part of the ordinary way of doing business at Siemens’ telecommunications division. In so doing, they are attempting to push knowledge and responsibility for the alleged bribes as far up the organisation as they can.

“We have to believe that very many people in the company knew about these slush funds,” says Steffen Ufer, a lawyer for one of the suspects, the chief accountant of the telecoms division. Another lawyer for a different suspect says: “It was a normal business practice. The defence will be built up on the idea that it was not just a Siemens-specific problem but that when you do business in countries like Nigeria or South America that everybody is doing it, whether they be British, French or American.”

The question for prosecutors is how far up the Siemens’ chain of command knowledge of such activities might have gone. Says the second lawyer: “They want to get people in the top management board but I don’t know how far they will get.”

Those at the top of Siemens – from chief executive Klaus Kleinfeld and chairman Heinrich von Pierer downwards – have a different opinion of what happened. They believe that the suspects represented a criminal group intent on defrauding Siemens. That was the line the two top executives took in mid-December when they both said the first they had known of the alleged bribery was when Siemens’ offices, including Mr Kleinfeld’s, was raided in mid-November by prosecutors.

Prosecutors say that Siemens and Mr Kleinfeld and Mr von Pierer are witnesses and not suspects in the investigation.

Mr Kleinfeld says that individual acts of bribery occasionally came to his attention. One case in Liechtenstein – now part of the wider investigation – he first heard of in January when he was appraised of an internal probe by Siemens. But his discovery that this was part of a wider pattern, he says, only came following the prosecutors’ raids.

Mr Kleinfeld himself was briefly responsible for the telecoms unit in 2004 on the central management board; the current chief financial officer, Joe Kaeser, was formerly an executive in one of the telecoms units; many other senior executives either worked for the division or were responsible for one of the regions such as Africa or South America where the bribes are alleged to have been paid.

Mr von Pierer was chief executive when most of the alleged bribery supposedly took place. His role has strengthened the case of those opposed to chief executives becoming chairmen and could provoke the German government to ban such moves.

In determining how far up the scandal reaches, the figure of Thomas Ganswindt could be crucial. Mr Ganswindt was a former member of the central management board responsible for the telecoms division and since his arrest has talked to prosecutors. What he says could potentially incriminate or clear his former colleagues.

One of the wider questions provoked by the allegations is what it says about Siemens’ corporate culture. Mr Kaeser has admitted the group’s financial controls were inadequate. Siemens has hired an external law firm, auditor and anti-corruption expert to try to clear things up.

Mr Kleinfeld now has the opportunity to show he is serious in his attempts to clean up Siemens.