Siemens AG is a German company with a long history of success and a good reputation in the technology industry. It is also one of Europe’s largest technology firms with a revenue base of over $77 billion. 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. In the first incidence, Siemens was caught having bribed foreign officials in a bid to win contracts and create a slush fund. 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. 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. 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. It was at the time that Siemens acknowledged that some of its employees were indeed involved in the alleged fraud.
Cases of tax evasion, bribery, and money laundering have been laid against Siemens AG by authorities globally. It was noted that Siemens AG had paid approximately $1.9 billion in improper disbursements to outsiders from 2001 through 2007 using various mechanisms. The company and its three subsidiaries had pleaded guilty to breach of charges associated with the Foreign Corrupt Practices Act (FCPA) as the U.S. Securities and Exchange Commission, and the Department of Justice stated. The firm pleaded guilty to a two-count information charging criminal violations of the FCPA’s internal controls and records and books provisions. Further, Siemens Argentina pleaded guilty to a single account of information charging conspiracy to breach the records and books provisions of the FCPA. Siemens Venezuela and Siemens Bangladesh each pleaded guilty to different single-count information charging conspiracy to breach the FCPA’s anti-bribery, records, and books provisions. Siemens AG decided to pay $448.5 million as a fine while Siemens Bangladesh, Venezuela, and Argentina each approved to pay a $500,000 fine, all amounting to $450 million as a total criminal fine. Therefore, it is most likely to offer brides by MNCs to establish relationships and obtain contracts in global business transactions.
Furthermore, based on the court documents, starting from the mid-1990s, the corporation was involved in organized efforts to fabricate its company records and books and knowingly failed to execute and circumvent current internal controls. The knowing failures in and circumvention of internal controls of Siemens AG from the time of its listing on the New York Stock Exchange (NYSE) on March 12, 2001, to 2007, the company had disbursed a total of close to $1.36 billion using different mechanisms. Close to $554.5 million was remitted for unknown purposes comprising an estimated $341 million in direct payments to business consultants for unknown purposes. The company used the remaining $805.5 as corrupt payments to foreign officials using mechanisms such as slush funds and cash desks.
Moreover, the company management made another lucrative business from contracts overseas through bribery. The four Siemens AG subsidiaries from 2000 to 2002 were awarded 42 contracts that amounted to a combined value of over $80 million with Iraq’s government under the United Nations Oil for Food Program. The company had to pay kickbacks to the government of Iraq amounting to $1,736,076 and they attained profits of over $38 million on the 42 contracts. Siemens AG subsidiaries inflated the contract price by approximately 10% before submitting it to the United Nations for consent and improperly channeled payments to alleged business consultants.
Consequently, as the plea and charging documents reveal, from September 1998 to 2007, Siemens Argentina made substantial payments to different Argentine officials. This was paid directly and indirectly in exchange for favorable business considerations concerning the $1 billion national identity card project. In this case, it was discovered that Siemens Argentina remitted close to $31,263,000 to different Argentine officials as corrupt payments using different payment mechanisms. All of these were included in Siemens AG’s books and records containing the falsified corrupt payments. Based on the court documents, from November 2001 through May 2007, Siemens Venezuela admitted to having paid $18,782,965 as corrupt payments to different Venezuelan officials. Siemens Bangladesh in the plea and charging documents admitted from May 2001 to August 2006 paid $5,319,839 in bribery. It was purported as payments for business consultants to different Bangladeshi officials to obtain favoritism in the bidding process.
The Siemens AG bribery scandals were key events that had a substantial effect on the operations of the company and its reputation. The scandals led to key ethical issues for the corporation. Being engaged in corruption dealings was a bad image for the firm and affected the confidence of stakeholders. It was discovered that corrupt deals in Siemens AG went beyond what the managers were doing and bribery was an entrenched aspect of the company. Bribery the company becomes a normal way of conducting their business. This implies that corruption goes deeper than the management level and may become part of the organizational culture.
The scandal led to the prosecution of Siemens’ chief executive Kutschenreuter after being found guilty of involvement in the corruption scandal. 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. Other officials found guilty of the scandal included Hans-Werner Hartmann, the manager in charge of accounting of the telecommunication department of the company. Apart from being suspended for 18 months, Hartmann was also fined €40,000 according to Lawler. 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.
Impacts of the Scandal
German law prohibits any official or citizen in the country from engaging in a corruption scandal. This is the general law in most countries. 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. 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. Nonetheless, when the bribe is combined with the fine it paid for the scandal, it totals €450 million.
Siemens’ engagement in the corruption scandal also scared away investors from the company who were afraid of losing their money because of the scandal. In this regard, Siemens is reported to have lost a majority of its market share in the international business in 2006. The operation of the business was also affected as managers, and some employees were engaged in a court tassel. 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. 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. Siemens has experienced a decline in customer base since the scandal was unearthed probably for fear of the same. 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.
The German Co-determination 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. 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, questions have been raised as to the effectiveness of the Co-determination law, 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. 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. 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. These incidences point at a complete failure of the Co-determination law to fulfill its mandates.
Steps Taken by Siemens to Prevent such Incidents in Future
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. Most of these programs are geared towards strengthening compliance controls and its corporate governance structures. 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”. 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. 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.
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. At the same time, the company has become very strict in the way it handles unethical behaviors in the company. 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.