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GERMANY:Siemens Settlement Sets Off Criticism of German Inquiries

by David Crawford and Mike EsterlWall Street Journal
October 8th, 2007

In the wake of a settlement between Siemens AG and German authorities over one aspect of a bribes-for-business scandal, critics are saying the sanction is light given the scale of the alleged crime and reflects how difficult it is for local law enforcement to pursue corporate corruption.

A Munich court last week ordered the German conglomerate to pay €201 million ($284 million) for alleged bribery at its telecommunications-equipment unit -- a big fine for a bribery case in any country. The fine doesn't preclude further punitive action as prosecutors in Germany and other countries -- primarily the U.S. -- continue to investigate alleged corruption in other parts of Siemens's far-flung business empire that has rocked the engineering giant for much of the past year.

But critics say the sanction isn't much of a deterrent for companies like Siemens with deep pocketbooks. Outside investigators hired by Siemens already have flagged about €1.6 billion in suspicious payments companywide dating back to the mid-1990s, including €1.15 billion in the telecom unit alone, according to people familiar with the matter. The initial settlement, reached nearly 11 months after police raided Siemens's Munich headquarters, also highlights how German prosecutors are hobbled by weak laws and limited manpower in pursuing big foreign bribery cases -- cases they have only recently begun to pursue in earnest.

Uwe Dolata, a spokesman for the German Association of Police Detectives, said such shortcomings lie at the root of last week's fine, which he dismissed as "a joke and insignificant" given the scope of alleged wrongdoing. Prosecutors believe company managers funneled money through sham consulting contracts to bribe potential clients.

Mr. Dolata said local authorities are poorly equipped to carry out investigations against firms as large as Siemens, which is active in 190 countries. Unlike in the U.S., where federal prosecutors can pool resources from around the nation for major inquiries, prosecutions in Germany typically are handled by state authorities. That was the case in the telecom probe, where the Munich prosecutors' office worked on its own.

Law-enforcement experts say locally run investigations also face greater political pressure. A Siemens official with knowledge of the criminal inquiries said the Munich court's fine was designed to punish the company without crippling it. Siemens, founded in 1847, is a major employer and a powerful lobbyist in its home state of Bavaria. According to two people familiar with the investigation, Munich prosecutors asked the state of Bavaria for additional resources earlier this year to expand the probe against Siemens. That request was rejected, these people said.

A spokesman for the Munich prosecutors' office denied staff resources were an issue. The spokesman also denied local authorities decided to go easy on Siemens. He said prosecutors petitioned the court for a judgment based on evidence that complied with statute-of-limitations requirements. Under German law, it also wasn't illegal to bribe foreign officials until 1999. Much of the alleged bribery at Siemens dates back further than that.

In a statement last week, Siemens said it wouldn't appeal the court-ordered fine and accepted responsibility for improper activities. It didn't acknowledge outright, however, that it had paid bribes.

German prosecutors have a tougher time convicting companies of wrongdoing than do prosecutors in other countries. U.S. prosecutors need to prove a company only paid bribes to impose large fines. In Germany, simply proving guilt results in a maximum fine of €1 million. To fine a company more, prosecutors also have to prove how much profit the company accrued from the illegal actions in order to strip it of that profit.

Determining how much a company profited from illicit activities can be difficult and time-consuming, legal experts said. As a result, German prosecutors tend to focus more on hunting down individuals involved in wrongdoing, not companies. Munich prosecutors have closed their investigation of Siemens's role in wrongdoing at the telecom unit, but they continue to press cases against longtime Siemens managers. Among the suspects are a former chief financial officer and ex-management board member.

Peter von Blomberg, deputy chairman of the German chapter of Transparency International, the nongovernmental corruption watchdog, said that isn't enough. "Companies that use corruption as a way of doing business must suffer penalties that they can feel," he said.

Siemens is Europe's largest engineering company, booking €87 billion in revenue and a net profit of €3 billion for the fiscal year that ended Sept. 30, 2006. But some international observers say it is too early to criticize Germany's handling of the Siemens inquiry.

Mark Pieth, chairman of the Organization for Economic Cooperation and Development Working Group on Bribery, said it is important to see if German authorities pursue alleged wrongdoing at other units.

Mr. Pieth said Thursday's ruling is a good start in a country that, like many other nations, has been slow to prosecute companies since OECD member countries agreed to crack down on bribery in 1997. "It could be viewed as a turning point," said Mr. Pieth, a professor of criminal law in Basel, Switzerland.

In contrast with Germany, prosecutors in the U.S. have built up three decades of experience pursuing corporate-bribery cases since the introduction of the Foreign Corrupt Practices Act.




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