Peter L?scher, the new CEO of German electronics and engineering giant Siemens (SI), is desperately trying to dig his company out of the biggest bribery scandal in German corporate history. On Nov. 8, Siemens disclosed that its own internal investigation has uncovered $1.9 billion in questionable payments made to outsiders by the company from 2000 to 2006. That staggering sum deeply interests U.S. authorities in Washington who want to make an example of Siemens.
How did the long arm of the U.S. law reach into the offices of Germany's most important company? Because its shares are listed on the New York Stock Exchange (NYX) and it has extensive operations in the U.S., Siemens is subject to the provisions of the U.S. Foreign Corrupt Practices Act. The act has given the Justice Dept. and Securities & Exchange Commission the authority to launch investigations, with which Siemens is cooperating. Munich prosecutors, who uncovered evidence that Siemens used bribes to land contracts around the globe, have already extracted $290 million in fines. But Siemens is bracing for an even nastier bite from the Americans. "The potential fines are much bigger than what companies have been used to in Germany," says Peter von Blomberg, deputy chair of the German chapter of Transparency International.
Washington wants to hold foreign companies to the same standards as their U.S. competitors. To make their point, U.S. regulators have been known to deliberately upstage foreign governments in the penalties they hand out. Dissatisfied with a $3 million penalty Norway imposed on energy producer Statoil (STO) for paying bribes in Iran, U.S. authorities last year hit the company with an additional $18 million in penalties. (The company did not admit guilt in the case.)
The financial penalty may not be the worst of it. As part of a settlement with U.S. authorities, Siemens will likely have to install a team of monitors to make sure the company banishes palm-greasing permanently.
The monitors, who could number in the hundreds, will have carte blanche to snoop anywhere in the company they want, never mind the cost. They will report directly to U.S. authorities, but Siemens will have to pay the bill. Siemens has already spent $500 million on its own internal investigation, which was overseen by New York-based law firm Debevoise & Plimpton.
Given the looming presence of U.S. investigators, it's no surprise that Siemens is showing contrition. "We will go wherever the evidence takes us," says Peter Y. Solmssen, a U.S. lawyer and Siemens board member responsible for compliance.
But before they devise a fitting penalty, Justice and SEC lawyers want to determine how much profit Siemens earned from its bribes??n inquiry that could take months, even years. Says Solmssen: "We still have a long way to go."
Enforcement of anticorruption statutes is on the rise in China, says the November, 2007, issue of legal newspaper The Metropolitan Corporate Counsel. China was required to pass anticorruption laws as a condition of joining the World Trade Organization in 2001 and has turned into one of the world's most aggressive prosecutors of bribery, writes Jeffrey Harfenist, managing director of UHY Advisors, an international tax consultancy. Since 2005, Beijing has prosecuted more than 21,000 cases of commercial bribery, creating huge headaches and potential liabilities for U.S. companies that rely on local agents to get deals done. The U.S. Justice Dept. is interested in following up on Chinese investigations involving the local representatives of U.S. companies.
By Jack Ewing, with Eamon Javers in Washington