REINHARD SIEKACZEK was half asleep in bed when his doorbell rang here early one morning two years ago.
Still in his pajamas, he peeked out his bedroom window, hurried
downstairs and flung open the front door. Standing before him in the
cool, crisp dark were six German police officers and a prosecutor. They
held a warrant for his arrest.
At that moment, Mr. Siekaczek, a stout, graying former accountant for Siemens A.G., the German engineering giant, knew that his secret life had ended.
“I know what this is about,” Mr. Siekaczek told the officers crowded around his door. “I have been expecting you.”
To understand how Siemens, one of the world’s biggest companies,
last week ended up paying $1.6 billion in the largest fine for bribery
in modern corporate history, it’s worth delving into Mr. Siekaczek’s
A former midlevel executive at Siemens, he was one of several people
who arranged a torrent of payments that eventually streamed to
well-placed officials around the globe, from Vietnam to Venezuela and
from Italy to Israel, according to interviews with Mr. Siekaczek and
court records in Germany and the United States.
What is striking about Mr. Siekaczek’s and prosecutors’ accounts of
those dealings, which flowed through a web of secret bank accounts and
shadowy consultants, is how entrenched corruption had become at a
sprawling, sophisticated corporation that externally embraced the
nostrums of a transparent global marketplace built on legitimate
Mr. Siekaczek (pronounced SEE-kah-chek) says that from 2002 to 2006
he oversaw an annual bribery budget of about $40 million to $50 million
at Siemens. Company managers and sales staff used the slush fund to
cozy up to corrupt government officials worldwide.
The payments, he says, were vital to maintaining the competitiveness
of Siemens overseas, particularly in his subsidiary, which sold
telecommunications equipment. “It was about keeping the business unit
alive and not jeopardizing thousands of jobs overnight,” he said in an
Siemens is hardly the only corporate giant caught in prosecutors’ cross hairs.
Three decades after Congress passed a law barring American companies
from paying bribes to secure foreign business, law enforcement
authorities around the world are bearing down on major enterprises like
Daimler AG" href="http://topics.nytimes.com/top/news/business/companies/daimler_ag/index.html?inline=nyt-org">Daimler and Johnson & Johnson, with scores of cases now under investigation. Both companies declined comment, citing continuing investigations.
Albert J. Stanley, a legendary figure in the oil patch and the former chief executive of the KBR Inc." href="http://topics.nytimes.com/top/news/business/companies/kellogg_brown_root/index.html?inline=nyt-org">KBR subsidiary of Halliburton Co" href="http://topics.nytimes.com/top/news/business/companies/halliburton_company/index.html?inline=nyt-org">Halliburton,
recently pleaded guilty to charges of paying bribes and skimming
millions for himself. More charges are coming in that case, officials
But the Siemens case is notable for its breadth, the sums of money
involved, and the raw organizational zeal with which the company
deployed bribes to secure contracts. It is also a model of something
that was once extremely rare: cross-border cooperation among law
German prosecutors initially opened the Siemens case in 2005.
American authorities became involved in 2006 because the company’s
shares are traded on the New York Stock Exchange.
In its settlement last week with the Justice Department and the
Securities and Exchange Commission, Siemens pleaded guilty to violating
accounting provisions of the Foreign Corrupt Practices Act, which
outlaws bribery abroad.
Although court documents are salted throughout with the word
“bribes,” the Justice Department allowed Siemens to plead to accounting
violations because it cooperated with the investigation and because
pleading to bribery violations would have barred Siemens from bidding
on government contracts in the United States. Siemens doesn’t dispute
the government’s account of its actions.
Matthew W. Friedrich, the acting chief of the Justice Department’s
criminal division, called corruption at Siemens “systematic and
widespread.” Linda C. Thomsen, the S.E.C.’s enforcement director, said
it was “egregious and brazen.” Joseph Persichini Jr., the director of
the F.B.I.’s Washington field office, which led the investigation, called it “massive, willful and carefully orchestrated.”
MR. SIEKACZEK’S telecommunications unit was awash in easy money. It
paid $5 million in bribes to win a mobile phone contract in Bangladesh,
to the son of the prime minister at the time and other senior
officials, according to court documents. Mr. Siekaczek’s group also
made $12.7 million in payments to senior officials in Nigeria for
In Argentina, a different Siemens subsidiary paid at least $40
million in bribes to win a $1 billion contract to produce national
identity cards. In Israel, the company provided $20 million to senior
government officials to build power plants. In Venezuela, it was $16
million for urban rail lines. In China, $14 million for medical
equipment. And in Iraq, $1.7 million to Saddam Hussein and his cronies.
The bribes left behind angry competitors who were shut out of
contracts and local residents in poor countries who, because of rigged
deals, paid too much for necessities like roads, power plants and
hospitals, prosecutors said.
Because government contracting is an opaque process and losers don’t
typically file formal protests, it’s difficult to know the identity of
competitors who lost out to Siemens. Companies in the United States
have long complained, however, that they face an uneven playing field
Ben W. Heineman Jr., a former general counsel at General Electric Co" href="http://topics.nytimes.com/top/news/business/companies/general_electric_company/index.html?inline=nyt-org">General Electric
and a member of the American chapter of Transparency International, a
nonprofit group that tracks corruption, says the enforcement of some
antibribery conventions still remains scattershot. “Until you have
energetic enforcement by the developed-world nations, you won’t get
strong antibribery programs or high-integrity corporate culture,” he
Afghanistan, Haiti, Iraq, Myanmar and Somalia are the five countries
where corporate bribery is most common, according to Transparency
International. The S.E.C. complaint said Siemens paid its heftiest
bribes in China, Russia, Argentina, Israel and Venezuela.
“Crimes of official corruption threaten the integrity of the global
marketplace and undermine the rule of law in the host countries,” said
Lori Weinstein, the Justice Department prosecutor who oversaw the
All told, Siemens will pay more than $2.6 billion to clear its name:
$1.6 billion in fines and fees in Germany and the United States and
more than $1 billion for internal investigations and reforms.
Siemens’s general counsel, Peter Y. Solmssen, in an interview
outside a marble-lined courtroom in Washington, said the company
acknowledged that bribes were at the heart of the case. “This is the
end of a difficult chapter in the company’s history,” he said. “We’re
glad to get it behind us.”
Mr. Siekaczek, who cooperated with German authorities after his
arrest in 2006, has already been sentenced in Germany to two years’
probation and a $150,000 fine. During a lengthy interview in Munich, a
few blocks from the Siemens world headquarters, he provided an
insider’s account of corruption at the company. The interview was his
first with English-language news outlets.
“I would never have thought I’d go to jail for my company,” Mr.
Siekaczek said. “Sure, we joked about it, but we thought if our actions
ever came to light, we’d all go together and there would be enough
people to play a game of cards.”
Mr. Siekaczek isn’t a stereotype of a white-collar villain. There
are no Ferraris in his driveway, or villas in Monaco. He dresses in
jeans, loafers and leather jackets. With white hair and gold-rimmed
glasses, he passes for a kindly grandfather — albeit one who can
discuss the advantages of offshore bank accounts as easily as last
night’s soccer match.
SIEMENS began bribing long before Mr. Siekaczek applied his accounting skills to the task of organizing the payments.
World War II left the company shattered, its factories bombed and
its trademark patents confiscated, according to American prosecutors.
The company turned to markets in less developed countries to compete,
and bribery became a reliable and ubiquitous sales technique.
“Bribery was Siemens’s business model,” said Uwe Dolata, the
spokesman for the association of federal criminal investigators in
Germany. “Siemens had institutionalized corruption.”
Before 1999, bribes were deductible as business expenses under the
German tax code, and paying off a foreign official was not a criminal
offense. In such an environment, Siemens officials subscribed to a
straightforward rule in pursuing business abroad, according to one
former executive. They played by local rules.
Inside Siemens, bribes were referred to as “NA” — a German
abbreviation for the phrase “nützliche Aufwendungen” which means
“useful money.” Siemens bribed wherever executives felt the money was
needed, paying off officials not only in countries known for government
corruption, like Nigeria, but also in countries with reputations for
transparency, like Norway, according to court records.
In February 1999, Germany joined the international convention
banning foreign bribery, a pact signed by most of the world’s
industrial nations. By 2000, authorities in Austria and Switzerland
were suspicious of millions of dollars of Siemens payments flowing to
offshore bank accounts, according to court records.
Rather than comply with the law, Siemens managers created a “paper
program,” a toothless internal system that did little to punish
wrongdoers, according to court documents.
Mr. Siekaczek’s business unit was one of the most egregious
offenders. Court documents show that the telecommunications unit paid
more than $800 million of the $1.4 billion in illegal payments that
Siemens made from 2001 to 2007. Managers in the telecommunications
group decided to deal with the possibility of a crackdown by making its
bribery procedures more difficult to detect.
So, on one winter evening in late 2002, five executives from the
telecommunications group met for dinner at a traditional Bavarian
restaurant in a Munich suburb. Surrounded by dark wood panels and
posters celebrating German engineering, the group discussed how to
better disguise its payments, while making sure that employees didn’t
pocket the money, Mr. Siekaczek said.
To handle the business side of bribery, the executives turned to Mr.
Siekaczek, a man renowned within the company for his personal honesty,
his deep company loyalty — and his experiences in the shadowy world of
“It had nothing to do with being law-abiding, because we all knew
what we did was unlawful.” Mr. Siekaczek said. “What mattered here was
that the person put in charge was stable and wouldn’t go astray.”
Although Mr. Siekaczek was reluctant to take the job offered that
night, he justified it as economic necessity. If Siemens didn’t pay
bribes, it would lose contracts and its employees might lose their
“We thought we had to do it,” Mr. Siekaczek said. “Otherwise, we’d ruin the company.”
Indeed, he considers his personal probity a point of honor. He
describes himself as “the man in the middle,” “the banker” or, with
tongue in cheek, “the master of disaster.” But, he said, he never set
up a bribe. Nor did he directly hand over money to a corrupt official.
German prosecutors say they have no evidence that he personally
enriched himself, though German documents show that Mr. Siekaczek
oversaw the transfer of some $65 million through hard-to-trace offshore
“I was not the man responsible for bribery,” he said. “I organized the cash.”
Mr. Siekaczek set things in motion by moving money out of accounts
in Austria to Liechtenstein and Switzerland, where bank secrecy laws
provided greater cover and anonymity. He said he also reached out to a
trustee in Switzerland who set up front companies to conceal money
trails from Siemens to offshore bank accounts in Dubai and the British
Each year, Mr. Siekaczek said, managers in his unit set aside a
budget of about $40 million to $50 million for the payment of bribes.
For Greece alone, Siemens budgeted $10 million to $15 million a year.
Bribes were as high as 40 percent of the contract cost in especially
corrupt countries. Typically, amounts ranged from 5 percent to 6
percent of a contract’s value.
The most common method of bribery involved hiring an outside
consultant to help “win” a contract. This was typically a local
resident with ties to ruling leaders. Siemens paid a fee to the
consultant, who in turn delivered the cash to the ultimate recipient.
Siemens has acknowledged having more than 2,700 business consultant
agreements, so-called B.C.A.’s, worldwide. Those consultants were at
the heart of the bribery scheme, sending millions to government
MR. SIEKACZEK was painfully aware that he was acting illegally. To
protect evidence that he didn’t act alone, he and a colleague began
copying documents stored in a basement at Siemens’s headquarters in
Munich that detailed the payments. He eventually stashed about three
dozen folders in a secret hiding spot.
In 2004, Siemens executives told him that he had to sign a document
stating he had followed the company’s compliance rules. Reluctantly, he
signed, but he quit soon after. He continued to work for Siemens as a
consultant before finally resigning in 2006. As legal pressure mounted,
he heard rumors that Siemens was setting him up for a fall.
“On the inside, I was deeply disappointed. But I told myself that
people were going to be surprised when their plan failed,” Mr.
Siekaczek recalled. “It wasn’t going to be possible to make me the only
one guilty because dozens of people in the business unit were involved.
Nobody was going to believe that one person did this on his own.”
The Siemens scheme began to collapse when investigators in several
countries began examining suspicious transactions. Prosecutors in
Italy, Liechtenstein and Switzerland sent requests for help to
counterparts in Germany, providing lists of suspect Siemens employees.
German officials then decided to act in one simultaneous raid.
The police knocked on Mr. Siekaczek’s door on the morning of Nov.
15, 2006. Some 200 other officers were also sweeping across Germany,
into Siemens’s headquarters in Munich and the homes of several
In addition to Mr. Siekaczek’s detailed payment records,
investigators secured five terabytes of data from Siemens’s offices — a
mother lode of information equivalent to five million books. Mr.
Siekaczek turned out to be one of the biggest prizes. After calling his
lawyer, he immediately announced that he would cooperate.
Officials in the United States began investigating the case shortly
after the raids became public. Knowing that it faced steep fines unless
it cooperated, Siemens hired an American law firm, Debevoise &
Plimpton, to conduct an internal investigation and to work with federal
As German and American investigators worked together to develop
leads, Debevoise and its partners dedicated more than 300 lawyers,
forensic analysts and staff members to untangle thousands of payments
across the globe, according to the court records. American
investigators and the Debevoise lawyers conducted more than 1,700
interviews in 34 countries. They collected more than 100 million
documents, creating special facilities in China and Germany to house
records from that single investigation. Debevoise and an outside
auditor racked up 1.5 million billable hours, according to court
documents. Siemens has said that the internal inquiry and related
restructurings have cost it more than $1 billion.
Siemens officials “made it crystal clear that they wanted us to get
to the bottom of this and follow it wherever the evidence led,” said
Bruce E. Yannett, a Debevoise partner.
AT the same time, Siemens worked hard to purge the company of some
senior managers and to reform company policies. Several senior managers
have been arrested. Klaus Kleinfeld, the company’s C.E.O., resigned in
April 2007. He has denied wrongdoing and is now head of Alcoa, the aluminum giant. Alcoa said that the company fully supports Mr. Kleinfeld and declined to comment further.
Last year, Siemens said in S.E.C. filings that it had discovered
evidence that former officials had misappropriated funds and abused
their authority. In August, Siemens said it seeks to recover monetary
damages from 11 former board members for activities related to the
bribery scheme. Negotiations on that matter are continuing.
Earlier this year, Siemens’s current chief executive, Peter Löscher,
vowed to make Siemens “state of the art” in anticorruption measures.
“Operational excellence and ethical behavior are not a contradiction
of terms,” the company said in a statement. “We must get the best
business — and the clean business.”
Siemens still faces legal uncertainties. The Justice Department and
German officials said that investigations were continuing and that
current and former company officials might face prosecution.
Legal experts say Siemens is the latest in a string of high-profile
cases that are changing attitudes about corruption. Still, they said,
much work remains.
“I am not saying the fight against bribing foreign public officials
is a fight full of roses and victories,” said Nicola Bonucci, the
director of legal affairs for the Organization for Economic Cooperation and Development,
which is based in Paris and monitors the global economy. “But I am
convinced that it is something more and more people are taking
For his part, Mr. Siekaczek is uncertain about the impact of the
Siemens case. After all, he said, bribery and corruption are still
“People will only say about Siemens that they were unlucky and that
they broke the 11th Commandment,” he said. “The 11th Commandment is:
‘Don’t get caught.’ ” This article is a joint report by ProPublica, a nonprofit investigative journalism organization, PBS’s "Frontline"
and The New York Times. A related documentary will be broadcast on “Frontline” on April 7.
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