lOMoARcPSD|55707645
Mgc case study copy
Operations Management (Monash University)
Scan to open on Studocu
Studocu is not sponsored or endorsed by any college or university
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
lOMoARcPSD|55707645
IMD
v. 08.04.2011
INTERNATIONAL
CORRUPTION AT SIEMENS (A)
In November 2006, 200 German policemen and prosecutors
raided 30 offices and homes of Siemens managers to investigate
allegations of embezzlement at Siemens’ fixed-line phone unit.
Six suspects were arrested, among them current and former
high-ranking managers.
In 2007 a German court fined Siemens €201 million in relation
to illegal payments of €12 million made by its information and
communication business unit to government officials in Nigeria,
Russia and Libya. At the same time prosecutors in at least 10
This case won the Responsible
countries, including the US, were investigating allegations that
Leadership Award in the 2010
Europe’s largest engineering company by sales had bribed
EFMD Annual Case Writing
officials to win big infrastructure contracts around the globe.1
Research
Associate
Anna
Eckardt prepared this case
under the supervision of
Professor Stewart Hamilton as a
basis for class discussion rather
than to illustrate either effective
or ineffective handling of a
business situation.
Competition organized by the
European
Foundation
for
Management Development.
This case was a Finalist in the
CMS 2010 “Dark Side IX” Case
Writing Competition organized
by the Academy of Management,
Critical Management Studies
Division.
Also in 2007, in the wake of internal investigations started at the
end of 2006, Siemens finally admitted to having identified
dubious payments amounting to €1.3 billion from the years 1999
to 2006. As a result, the “trains-to-lightbulbs” conglomerate
replaced all but one of its managing board members.
At the end of July 2008, Reinhard Siekaczek, a former sales
manager at Siemens’ telecoms division, was convicted for his
role in setting up the slush funds used to win contracts. He was
found guilty on 49 counts of breach of trust involving more than
US$76 million. The same day, the supervisory board approved
the recommendations of Hengeler & Müller, a well-known law
firm, to sue almost all executive committee members in charge
between 2003 and 2006:
On July 29, 2008, the Supervisory Board of Siemens AG resolved to
claim damages from former members of the former Central Executive
Committee of the Managing Board of Siemens AG.
The claims are based on alleged breaches of their organizational and
supervisory duties following the accusations of illegal business
practices and extensive bribery that occurred in the course of
international business transactions, and the resulting financial burdens
on the company.
On the basis of information available to date, claims are being made
against ten former executives, including two former chief executive
officers (CEOs) of Siemens and a former chief financial officer.2
Copyright © 2008 by IMD - International Institute for Management
Development, Lausanne, Switzerland. Not to be used or reproduced without
written permission directly from IMD.
1
2
See also Appendix 4, Siemens: Legal Proceedings – Third Quarter Fiscal 2008, Munich, July 29, 2008.
Siemens: Legal Proceedings – Third Quarter Fiscal 2008, Munich July 29, 2008, pp. 1 ff.
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
lOMoARcPSD|55707645
-2-
INTERNATIONAL
IMD-1-0278
The two CEOs to be sued by Siemens were Heinrich von Pierer (CEO from 1992
to 2005) and his successor Klaus Kleinfeld (CEO from 2005 to 2007).
Von Pierer and Kleinfeld had always denied any wrongdoing.
It would be the first time the chief executive of a company listed in the German Dax
index of blue-chip companies had been sued for compensation by his former
employer.
Background
Corporate Background3
Siemens AG was founded in Berlin in 1847 as the Telegraphenbauanstalt von
Siemens & Halske (Siemens & Halske). Within the space of a few decades, the
enterprise developed from a small precision-engineering workshop primarily
producing electrical telegraph systems into one of the world’s largest electrical
engineering and electronics companies. The company’s policy was to service the
whole field of electrical engineering by assigning individual areas of business to
specialized subsidiaries and related companies.
By the end of World War II, most of Siemens’ buildings and manufacturing
facilities in Berlin had been destroyed, representing a loss of 80% of the
company’s assets. Nevertheless, the company started functioning again
remarkably quickly after 1945. Given the uncertainty of the political situation in
Berlin, it was decided in April 1949 to relocate the various headquarters: Siemens
& Halske moved to Munich; Siemens-Schuckertwerke4 moved to Erlangen. In
both cases, secondary company headquarters were retained in Berlin.
From 1950 to the early 1990s Siemens continued to grow and diversify its
business. Its innovations were evident in all its fields of operation: from electric
hair dryers, heart pacemakers and ICE high-velocity trains with a top speed of
300km/h to megabit chips and much more.
At the end of the 1980s, management embarked on one of several restructurings.
The business units were reorganized, with the 7 major product groups5 divided into
15 smaller entities. Within this decentralized structure, the operative units were
given more autonomy – each group was responsible for worldwide operations in
development, manufacturing, sales activities and earnings. From the 1990s on,
Siemens began developing from a company with mainly public-sector customers in
regulated markets into one that had a more varied customer base worldwide. By
3
Siemens company website www.siemens.com (accessed October 16, 2008).
4
In 1903 Siemens & Halske had acquired the company Elektrizitäts-Aktiengesellschaft vorm.
Schuckert & Co. and merged it with its own power engineering unit to form SiemensSchuckertwerke GmbH.
5
Information and communication, power engineering, industrial automation, mobility, health care,
lighting and home appliances.
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
lOMoARcPSD|55707645
-3-
INTERNATIONAL
IMD-1-0278
1992 it had revamped its portfolio of businesses, expanded its reach into 192
countries and created a more local-market-driven culture, gaining recognition as
one of the best-managed and most competitive companies in the world.6
In order to build a stronger position in the US, the world’s largest market for
electrical and electronic products, Siemens obtained a listing on the New York
stock exchange in 2001.
In fiscal 2007, Siemens had around 400,000 employees worldwide. Revenues
totalled €72.4 billion, with profits of €3.9 billion. . Almost half of the revenue was
generated within Europe (including Germany with 17%). The Americas accounted
for 27%, Asia-Pacific for 15% and the rest of the world for 9%.
Personalities at Siemens
Heinrich von Pierer
Heinrich von Pierer studied law and economics in Germany before joining
Siemens in 1969, working in the legal department. In 1977 he was transferred to
Kraftwerk Union AG (KWU), the company’s power generation subsidiary, where
he was involved with major power plant projects worldwide. Von Pierer took over
as head of business administration at KWU in 1988 and was appointed to the
board. The following year, he was named president of KWU and a member of the
managing board of Siemens AG. He was appointed to the Siemens corporate
executive committee in 1990, and served as president and CEO from 1992 to
2005. During his tenure as CEO, he transformed the company from a “sprawling
bureaucracy that largely lived off fat contracts from Germany’s state-owned
firms”7 into a company “fit to prevail in global competition and increasingly able
to satisfy shareholder expectations”.8 In order to face the challenges after the
collapse of the Eastern bloc and sudden price erosion, von Pierer launched the
“top+” programme which concentrated on three things: cost reduction, innovation
and growth.
At the annual shareholders meeting on January 27, 2005, von Pierer was elected
to the supervisory board, and subsequently held the post of chairman until April
25, 2007.
Von Pierer was also politically involved in Germany, even – as a staunch member
of the conservative CSU party, the Bavarian sister of the Christian Democratic
Union or CDU – being considered as a possible candidate for the country’s
president in 2004.
6
Stewart, Thomas A.. and Louise O’Brien. “Interview with Heinrich von Pierer.” Harvard
Business Review, February 2005.
7
Boston, William. “Siemens Goes Mega.” Time: The Time 100, May 14, 2007.
8
Siemens history on the company website: http://w4.siemens.de/archiv/en/persoenlichkeiten/
vorstand_ag.html#3 (accessed 20 October 2008).
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
lOMoARcPSD|55707645
-4-
INTERNATIONAL
IMD-1-0278
He was chairman of the highly regarded Council of Innovation and Growth,
launched to advise the federal government – and especially the Chancellor – on
questions of innovation. He not only advised the Chancellor Angela Merkel but
was also on excellent terms with her Social Democrat predecessor, Gerhard
Schroeder.
Von Pierer was often described as extrovert, friendly and frank. As one Siemens
executive commented: “Von Pierer’s not one to yell, but he can say things that
make you pretty hot under the collar.”'9
Klaus Kleinfeld
Klaus Kleinfeld earned a master’s degree in economics followed by a PhD in
strategic management at German universities before beginning his career as a
consultant. Prior to joining Siemens’ corporate sales and marketing group in 1987,
Kleinfeld was a strategic product manager at CIBA-GEIGY Pharmaceuticals. In
1988 he moved to Siemens’ corporate planning and strategy group. In 1997 he
was tasked with structuring and leading Siemens’ worldwide corporate
revitalization programme, “top+”.
Upon moving to the US in 2001, Kleinfeld served first as chief operating officer
(COO) and then – from 2002 to 2004 – as president and CEO of Siemens USA. In
2004 he was appointed to Siemens’ corporate executive committee, he was in
charge of the information and communication business unit (Com unit) as well as
of Siemens corporations in Africa, the Middle East and the CIS. In January 2005
Kleinfeld succeeded von Pierer as the 11th CEO of Siemens. Under Kleinfeld’s
tenure, Siemens’ sales rose by 16% from €75.45 billion in 2005 to €87.33 billion
in 2006, profits went up by 35% to €5.3 billion and the operating profit margin
increased by 49% for the first quarter in 2007.
Legal Background
Until the end of 1980s in Germany, corruption was considered a “gentlemen’s
offence”. Bribing a foreign office bearer carried no penalties and the bribe money
was even tax deductible.
In 1998 Germany enacted the International Bribery Law10 aimed at combating
the bribery of foreign office bearers in international business dealings. Since then
both foreign and national office bearers involved in bribery in international
business affairs have been equally punishable (Para. 2 Article 1). Furthermore, the
Tax Exemption Law came into effect in 1999, making bribe money no longer tax
deductible in Germany.
9
Ewing, Jack. “Siemens Climbs Back.” BusinessWeek online, International Edition, 5 June 2000.
http://www.businessweek.com/2000/00_23/b3684011.htm (accessed 21 October 2008).
10
This law was passed following a 1997 convention of the Organization for Economic
Cooperation and Development (OECD) convention on Combating Bribery of Foreign Public
Officials in International Business Transactions.
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
lOMoARcPSD|55707645
INTERNATIONAL
-5-
IMD-1-0278
The “Siemens System”
In the 1980s Siemens’ transport networks business unit11 was one of the leading
export companies in the field worldwide. Managing diverse business transactions
outside Germany was professionalized, and a separate, independent system of
“discreet payments” was developed. In many countries it was only possible to do
business if a promoter, living in that country, was involved. These promoters
charged a commission – as payment for their own performance and in order to
have money to pay other “helping” hands.
To depersonalize the issue and protect the people involved, the agreed terms of
payment were never written down, only discussed. Every contract including a
commission charge was accompanied by a position paper which stated the
ordering country, the project, the project value, commission charges and duration
of the contract. These papers were signed by the country managers. The payment
recipients often did not sign on the paper itself, but on a Post-it, which was
attached to the paper after signature.
When a particular milestone in a project was reached, the relevant manager
arranged the payments. At the Siemens Com unit the two managers in charge of
arranging the “discreet payments” were Heinz Keil von Jagemann (responsible for
Europe and Nigeria) and Wolfgang Rudolph (responsible for all other countries).
The payments, however, were only made on the authorization of the unit’s CFO.12
The depersonalization of payments was arranged in two ways. The easiest way was
to pay cash; the other way involved managers withdrawing money from Siemens’
bank account and transporting it in a suitcase to another bank. There they
transferred the money to their own current, but secret, bank accounts in Austria.
All documents concerning such transactions (position paper, demand for payment
and receipt) were kept separate from the regular books. Once a transaction was
closed, the documentation was stored in a hidden basement.
In 1998, when the International Bribery Law took effect, Siemens implemented a
new compliance programme and employees and managers were asked to sign
compliance agreements. But instead of following the new rules, managers simply
invented increasingly complicated manoeuvres to allow them to win new tenders
and they increased their efforts to hide the payment methods.
Since bribery was now a criminal offence, the CFO was increasingly reluctant to
be involved in the payment arrangements and finally delegated the slush fund
management to Reinhard Siekaczek, a long-term employee and a regional sales
manager in the Com unit.
11
The name was changed to information and communication networks (IC networks) following a
restructuring in 1998. In 2004 Siemens restructured again and the business unit was finally called
the information and communication unit (Com).
12
Michael Kutschenreuter became CFO of IC networks (later the Com unit) in April 2001.
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
lOMoARcPSD|55707645
INTERNATIONAL
-6-
IMD-1-0278
It emerged during the course of his trial that Siekaczek knew about the secret
Austrian accounts, but in view of the changing money laundering directives in
Austria,13 he decided to adapt the procedures. He was given an unusual power of
attorney so that, together with local partners, he could create shell companies in
Dubai, Sharjah, Guernsey and the British Virgin Islands. When money was
needed to pay a commission, payments were first made to one of the shell
companies for business consulting agreements that had no legitimate business
purpose and for which the recipient could not be clearly defined. Once the money
arrived in the shell company account, it was routed via the Caribbean to the secret
account of a subsidiary of a Lichtenstein bank based in Switzerland. This account
was managed by a Swiss fiduciary, Filippo Floriani. Another Swiss bank account
was held by a former manager of Siemens Greece.
In August 2002 Kutschenreuter, the Com CFO, invited Siekaczek, along with the
Com director of accounting and finance, the director of internal audit and the
telecommunications equipment manager to meet in a typical Bavarian tavern. The
purpose of the meeting was to introduce the system elaborated by Siekaczek to the
others and ensure their full support. Everyone agreed to support the discreet
payment systems as part of their responsibilities.
In late 2004 an investigation into the slush funds began in Liechtenstein. The bank
accounts of Siemens’ employees were checked, following bank suspicions of
money laundering and corruption. The investigations extended to Switzerland,
where Swiss prosecutors suspected that funds from Siemens’ Com unit had been
secretly diverted into accounts and were subsequently used to pay bribes to secure
contracts. Siekaczek was asked to leave the company.
In autumn 2005 an anonymous Siemens employee filed a criminal complaint
because of a suspected breach of trust. As a result, the prosecution in Munich
started investigations against current and former managers of Siemens Germany.
Separately, a regional court near Frankfurt was scheduled to hear a case in early
2006 about whether two former executives at Siemens’ power generation business
unit had paid bribes to win orders. The Frankfurt public prosecutor accused the
two high-ranking managers of paying €6 million in bribes to two managers at
Italy’s Enel between 1999 and 2002 in order to secure an order for gas turbines.
Both were convicted in May 2007.
But the most important breakthrough came as a result of a request for legal
assistance from Swiss prosecutors. The staff at a Zurich-based unit of Dresdner
Bank noticed that Siemens representatives were attempting to use one of their
own bank accounts to send more than €10 million to a “dubious” recipient. The
Swiss investigation ended up at Siemens headquarters in Munich as well as in 30
offices and homes of Siemens managers, which the investigators, armed with
search warrants, raided in the early hours of the morning. Six current and former
managers were arrested, including Siekaczek, Kutschenreuter – the unit’s former
CFO – and the heads of the unit’s internal audit and accounting departments.
13
After 2000 Austrian law forbade anonymous bank transactions, and from 2002 no transactions
on previously unidentified accounts could be made without the identity of the holder being known.
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
lOMoARcPSD|55707645
INTERNATIONAL
-7-
IMD-1-0278
Kleinfeld’s office was among those searched. Prosecutors interviewed him, but
only as a possible witness.
In December 2006, the company – in connection with the allegations of
corruption – retained Debevoise & Plimpton LLP (Debevoise & Plimpton), an
independent law firm. The lawyers’ task was to clarify the circumstances relating
to the criminal allegations at Com, to analyse the implications of the current
findings for the efficiency of the company’s compliance and internal control
systems, and to investigate whether similar situations had arisen at any other
Siemens Group companies. Debevoise & Plimpton reported regularly on the
current status and future activities of their investigation directly and exclusively to
the compliance committee of the supervisory board.
In the same month Siemens’ long-time auditor, KPMG Germany, was harshly
criticized for the first time by members of the supervisory board for failing to
detect the company’s black money system. Debevoise & Plimpton told the
company that KPMG Germany had not done enough to flag the improprieties in
recent years. German prosecutors were also investigating whether the auditor had
ignored questionable payments on Siemens books but there was not sufficient
evidence to proceed.
On questioning, Siekaczek provided the authorities with details of bribes to win a
security project at the Olympic Games in Athens 2004 as well as diverse
telecommunications projects in Egypt, Saudi Arabia, Kuwait, Indonesia, Nigeria,
Russia and Vietnam over the course of seven years. The final telecommunication
project in Egypt had been signed by von Pierer himself. Siekaczek also alleged
that Thomas Ganswind, a former head of the Com business unit and member of
Siemens’ executive board, had been aware of the illegal payments.
Kutschenreuter, who cooperated with prosecutors, told the authorities that in 2004
he arranged to pay $50 million to Beit Al Etisallat, a Saudi Arabian consulting
firm that was once one of Siemens’ business partners. He reportedly arranged to
pay the money after receiving a telephone call from a Saudi businessman
representing Beit Al Etisallat. The caller demanded $910 million in commission
payments as part of the consulting firm’s former business partnership with
Siemens. If Siemens did not pay, the caller threatened to forward documents to
the US Securities and Exchange Commission detailing bribes paid on Siemens’
behalf to win telecommunications contracts in Saudi Arabia. Of the $50 million
that was paid, $17 million was allegedly for past obligations and the remainder
was hush money to make the problem disappear. Kutschenreuter alleged that the
payment was arranged with the support of Siemens’ managing board and with the
knowledge of Kleinfeld and von Pierer, CEO at the time of the alleged payment.
In July 2008 Siekaczek was convicted of breach of trust and sentenced to two
years’ probation and a fine of €108,000.
The two managers responsible for making the discreet payments, Von Jagemann
and Rudolph, went on trial in October 2008.
The preliminary investigations against Kutschenreuter and Ganswind were being
carried out by the public prosecutors.
All involved had to stand down from their positions at Siemens.
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
lOMoARcPSD|55707645
INTERNATIONAL
-8-
IMD-1-0278
Appendix 1
Basic Legal Background on German Corporation Law
The legal basis of the stock corporation in Germany is the Aktiengesetz (AktG).
As the law requires all corporations to specify their legal form (indicating the
limitation of liability) in their name, all German stock corporations bear
Aktiengesellschaft or AG as part of their name (usually as a suffix).
As stipulated by the German Codetermination Act, the supervisory board of large
German corporations consists of 20 members, 10 elected by the shareholders, and
10 employee representatives.
Siemens, as a German stock corporation, is subject to German corporate law and
has a two-tier management and oversight structure, consisting of a 10-member
managing board14 and a 20-member supervisory board.
The supervisory board oversees and appoints the members of the managing board
and allocates members’ individual duties. Major business decisions, such as major
acquisitions, divestments and financial measures as well as the remuneration of
the managing board, require supervisory board approval. The supervisory board,
in theory, is intended to provide a monitoring role.
At Siemens the supervisory board’s bylaws establish four committees: the
Chairman’s Committee with the tasks of nominating managing board members,
compensation and corporate governance; the Audit Committee which oversees
the appropriateness and effectiveness of the company’s external and internal
accounting processes and its internal control system; the Mediation Committee,
which submits proposals to the entire supervisory board if the supervisory board
cannot reach the two-thirds majority required to appoint a managing board
member; and the Ownership Rights Committee, which is responsible for
decisions regarding the exercise of Siemens’ shareholder rights.
The managing board is the company’s top management body. It promotes the
interests of the company and defines overall company policy and strategic
orientation. It plans and finalizes the company’s budget and monitors the
executive management.
14
10 members as of 30 September 2006 (9 members as of November 2008).
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Source: Siemens AG Annual Report 2006
OSRAM GmbH
Lighting
Siemens Business Services GmbH & Co. OHG (SBS)
Communications (Com)
Information and Communications
Medical Solutions
Transportation Systems (TS)
Siemens VDO Automotive (SV)
Transportation
Ownership Rights Committee
Corporate Departments
Corporate Centres
Financing & Real Estate
Mediation Committee
20 Members
Supervisory Board
Managing Board
10 Members
Audit Committee
Power Generation (PG)
Power Transmission and Distribution (PTD)
Power
-9-
Appendix 2
Siemens Corporate Structure until November 2006
Automation and Drives (A&D)
Industrial Solutions and Services (I&S)
Siemens Building Technologies (SBT)
Automation and Control
Business Units/Groups:
Chairman’s Committee
INTERNATIONAL
IMD-1-0278
lOMoARcPSD|55707645
- 10 IMD-1-0278
Appendix 3
Scheme of Investigations and Criminal Charges against Siemens AG Germany and the German Siemens Com Unit Related to the
System of Discreet Payments Organized by Siekaczek
INTERNATIONAL
lOMoARcPSD|55707645
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
lOMoARcPSD|55707645
INTERNATIONAL
- 11 -
IMD-1-0278
Appendix 4
Siemens: Legal Proceedings – Third Quarter Fiscal 2008
(quoted from company website)
Munich, July 29, 2008
As previously reported, public prosecutors and other government authorities in
jurisdictions around the world are conducting investigations of Siemens and
certain of our current and former employees regarding allegations of public
corruption, including criminal breaches of fiduciary duty including embezzlement,
as well as bribery, money laundering and tax evasion, among others. These
investigations involve allegations of corruption at a number of Siemens’ business
units.
For more information regarding these and other legal proceedings in which
Siemens is involved, as well as the potential risks associated with such
proceedings and their potential financial impact on the Company, please refer to
Siemens’ Annual Report for the fiscal year ended September 30, 2007 (Annual
Report) and its annual report on Form 20-F for the fiscal year ended September
30, 2007 (Form 20-F), and, in particular, to the information contained in “Item 3:
Key Information – Risk Factors”, “Item 4: Information on the Company – Legal
Proceedings”, “Item 5: Operating Financial Review and Prospects”, and “Item 15:
Controls and Procedures” of the Form 20-F.
Developments regarding investigations and legal proceedings that have occurred
since the publication of Siemens’ Annual Report and Form 20-F include:
!
The investigation of the Munich public prosecutor extends beyond the
former Communications group. To date, the Munich public prosecutor has
announced that groups under investigation include Siemens’ former Power
Transmission and Distribution (PTD) group, in which a former member of
the Managing Board is a suspect, the former Power Generation (PG) group,
the former Medical Solutions (Med) group, the former Transportation
Systems (TS) group and Siemens’ IT Solutions and Services group. The
investigation of the Munich public prosecutor remains ongoing.
!
In May 2008, the Munich prosecutor announced an investigation against the
former Chairman of the Supervisory Board, the former CEO and other
former members of the Supervisory Board and of the Managing Board of
Siemens AG. The investigation is based on Section 130 of the German Law
on Administrative Offences regarding violations of the duty to take
appropriate supervisory measures required to prevent breaches of criminal
and administrative law. On July 29, 2008, the Supervisory Board of
Siemens AG resolved to claim damages from former members of the former
Central Executive Committee of the Managing Board of Siemens AG. The
claims are based on breaches of their organizational and supervisory duties
in view of the accusations of illegal business practices and extensive bribery
that occurred in the course of international business transactions and the
resulting financial burdens to the company. On the basis of information
available to date, claims are being asserted against ten former executives,
including two former Chief Executive Officers of Siemens and a former
Chief Financial Officer. Claims for damages are also being brought against
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
lOMoARcPSD|55707645
INTERNATIONAL
- 12 -
IMD-1-0278
Appendix 4 (continued)
one of the aforementioned ten former executives and one additional former
member of the Managing Board in connection with payments made to the
former head of the independent employee association AUB
(Arbeitsgemeinschaft Unabhängiger Betriebsangehöriger). The former
executives will be invited to respond to the claims before legal action for
damages is taken.
!
Debevoise & Plimpton LLP (Debevoise), an independent external law firm
engaged by the Company to conduct an independent and comprehensive
investigation to determine whether anti-corruption regulations have been
violated and to conduct an independent and comprehensive assessment of
the Company’s compliance and control systems, is investigating leads
generated by the Company’s amnesty program, as well as other sources.
!
In the course of its investigation, Debevoise identifies and reports to the
Company evidence of payments to business consultants, sales-related
intermediaries and cash payments. The Company analyzes whether such
payments were considered in its analysis of income tax non-deductible
payments conducted in fiscal 2007.
!
As previously reported, the Company also investigates evidence of
additional bank accounts at various locations. The Company is currently
investigating the amount of the funds, as well as whether such funds can be
recorded on the Company’s balance sheet.
!
In November 2007, authorities in Nigeria conducted searches of the
premises of Siemens Ltd. Nigeria in connection with an investigation into
alleged illegal payments to Nigerian public officials between 2002 and
2005.
!
In December 2007, the Norwegian public prosecutor’s office conducted a
search of Siemens AS Norway’s offices as well as several private homes in
connection with payments made by Siemens for golf trips in 2003 and 2004,
which were attended by members of the Norwegian Department of Defense.
In light of this and the previously reported investigation of allegations of
bribery and overcharging of the Department of Defense related to the
awarding of a contract for the delivery of communication equipment, the
Department of Defense has announced that it will not conduct further
business with Siemens at this time.
!
The public prosecutor in Milan, Italy is investigating allegations concerning
whether two employees of Siemens S.p.A. made illegal payments to
employees of the state-owned gas and power group ENI. In November
2007, the public prosecutor filed charges against the two employees,
Siemens S.p.A. and one of its subsidiaries, as well as against other
individuals and companies not affiliated with Siemens. The prosecutor is
also investigating suspicions of tax evasion by the former CFO of Siemens
S.p.A. in connection with the non-deductibility for tax purposes of certain
payments.
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
lOMoARcPSD|55707645
INTERNATIONAL
- 13 -
IMD-1-0278
Appendix 4 (continued)
!
Authorities in Russia are conducting an investigation into alleged
embezzlement of public funds in connection with the award of contracts to
Siemens for the delivery of medical equipment to public authorities in
Ekaterinburg in the years 2003 to 2005. An employee of Siemens Russia
was previously arrested in connection with this investigation.
!
In January 2008, the Vienna, Austria public prosecutor announced an
investigation into payments relating to Siemens AG Austria and its
subsidiary VAI for which valid consideration could not be identified.
!
In January 2008, the Malaysian Anti-Corruption Agency executed a search
warrant at the premises of Siemens Malaysia and requested interviews with
several employees of Siemens Malaysia in connection with an investigation
into a project involving the PTD group.
!
As previously disclosed, Siemens was contacted by representatives of
regional development banks, including the Inter-American Development
Bank, the Asian Development Bank, the African Development Bank, the
European Bank for Reconstruction and Development and the European
Investment Bank, regarding anti-corruption inquiries and other matters of
relevance to them.
!
As previously reported, in connection with the investigation relating to an
agreement entered into by Siemens with an entity controlled by the former
head of the independent employee association AUB (Arbeitsgemeinschaft
Unabhängiger Betriebsangehöriger), in April 2007, a former member of the
Managing Board of Siemens AG was arrested and subsequently posted bail
in the amount of €5 million and was released from custody. In connection
with the posting of bail, a bank issued a bond (Bankbürgschaft) in the
amount of €5 million, €4.5 million of which was guaranteed by the
Company pursuant to the provisions of German law. The warrant associated
with the arrest of the former member of the Managing Board has since been
revoked and the bank bond, as well as the Company’s guarantee thereof, has
been released. In July 2008, the Nürnberg-Fürth prosecutor brought charges
against this former member of the Managing Board on several counts of
criminal breach of fiduciary duty and tax evasion. According to July 2008
press reports, the Nürnberg-Fürth prosecutor has initiated an investigation
against another former member of the Managing Board on suspicion of
abetting breach of fiduciary duty.
!
In December 2007, a suit and motion for approval of a class action was filed
in Israel to commence a class action based on the fines imposed by the
European Commission for alleged anti-trust violations in connection with
high-voltage gas-insulated switchgear. Thirteen companies have been
named as defendants in the suit and motion, among them Siemens AG
Germany, Siemens AG Austria and Siemens Israel Ltd. The class action
alleges damages to electricity consumers in Israel in the amount of
approximately €575 million related to higher electricity prices claimed to
have been paid because of the alleged anti-trust violations. The court has not
yet ruled on the motion for approval of the class action.
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
lOMoARcPSD|55707645
INTERNATIONAL
- 14 -
IMD-1-0278
Appendix 4 (continued)
!
In January 2008, the Competition Authority of Slovakia imposed a fine of
€3.3 million on Siemens and VA Tech in connection with an investigation
into possible anti-trust violations in the market for high-voltage gasinsulated switchgear. The Company has filed an appeal against this
decision.
!
As previously reported, in December 2006, the Japanese Fair Trade
Commission (FTC) had searched the offices of more than ten producers and
dealers of healthcare equipment, including Siemens Asahi Medical
Technologies Ltd., in connection with an investigation into possible antitrust violations. In February 2008, the FTC announced its findings. Siemens
was found not guilty of participating in anti-trust violations, and was
therefore not fined or otherwise punished.
!
As previously reported, the Polish Competition Authority conducted an
investigation against Siemens Sp. z.o.o. Poland regarding possible anti-trust
violations in the market for the maintenance of diagnostic medical
equipment. In May 2008, the Authority issued a final decision finding that
Siemens Poland had not violated anti-trust regulations.
!
In May 2008, Siemens received a decision issued by the Controller of the
United Nations upon the recommendation of the Vendor Review Committee
of the United Nations Secretariat Procurement Division (UNPD). According
to the decision, which is based on the Fifth and Final Report (IIC Report) of
the Independent Inquiry Committee into the United Nations Oil for Food
Program, Siemens Medical Solutions is to be suspended for a minimum
period of six months, effective as of May 23, 2008, from the UNPD Vendor
Roster. Siemens appealed the decision. The review of the decision is
pending.
!
The Company has become aware of media reports that the Republic of Iraq
filed in June 2008 an action requesting unspecified damages against 93
named defendants with the United States District Court for the Southern
District of New York on the basis of findings made in the IIC Report.
Siemens S.A.S France, Siemens A.S. Turkey and Osram Middle East FZE,
Dubai are reported to be among the 93 named defendants. None of the
Siemens affiliates have been served to date.
!
In June 2008, the court of first instance in Kalimantan Province, Indonesia,
found the head of the former Med group of Siemens PT Indonesia not guilty
of allegations of participation in bribery, fraud, and overcharging related to
the awarding of a contract for the delivery of medical equipment to a
hospital in 2003. The decision has been appealed by the prosecutor.
!
In June 2008, a court of first instance in the Czech Republic reversed the
decision by the national competition authority regarding alleged anti-trust
valuations in the high-voltage gas-insulated switchgear market and ordered
the authority to repay to Siemens the €11.7 million fine imposed by the
authority. The authority has the right to appeal the decision.
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
lOMoARcPSD|55707645
INTERNATIONAL
- 15 -
IMD-1-0278
Appendix 4 (continued)
!
In July 2008, the public prosecutor in Athens, Greece concluded his
preliminary investigation relating to allegations of active and passive
bribery of public officials, money laundering and aiding and abetting the
foregoing, in connection with, among others, a telecom contract relating to
the 2004 Olympic Games awarded by the Greek government to Siemens and
purchases of telecom equipment by the Hellenic Telecommunications
Organization SA (OTE) in the late 1990s. The prosecutor named several
suspects, including a current and several former Siemens employees, and
transferred the case to an investigative Magistrate’s Court in Athens, which
can issue criminal charges against specific individuals. Separately,
preliminary investigations continue into allegations of bribery by Siemens
of Greek national railways and of the Greek Ministry of Defence and the
Military. The Greek Ministry of Finance also announced tax probes into the
local operations of Siemens.
!
In July 2008, the Central Anti-Corruption Office of Poland executed a
search warrant at the premises of Siemens Poland in connection with a
corruption investigation relating to the former Com group.
!
As previously reported, the Company requested arbitration against the
Republic of Argentina before the International Center for Settlement of
Investment Disputes (ICSID) of the World Bank. The Company claimed
that Argentina unlawfully terminated the Company’s contract for the
development and operation of a system for the production of identity cards,
border control, collection of data and voters’ registers and thereby violated
the Bilateral Investment Protection Treaty between Argentina and Germany
(BIT). The Company sought damages for expropriation and violation of the
BIT of approximately $500 million. Argentina disputed jurisdiction of the
ICSID arbitration tribunal and argued in favor of jurisdiction of the
Argentine administrative courts. The arbitration tribunal rendered a decision
on August 4, 2004, finding that it had jurisdiction over the Company’s
claims and that the Company was entitled to present its claims. A hearing on
the merits of the case took place before the ICSID arbitration tribunal in
Washington in October 2005. A unanimous decision on the merits was
rendered on February 6, 2007, awarding the Company compensation in the
amount of $217.8 million on account of the value of its investment and
consequential damages, plus compound interest thereon at a rate of 2.66%
since May 18, 2001. The tribunal also ruled that Argentina is obligated to
indemnify the Company against any claims of subcontractors in relation to
the project (amounting to approximately $44 million) and, furthermore, that
Argentina would be obligated to pay the Company the full amount of the
contract performance bond ($20 million) in the event this bond was not
returned within the time period set by the tribunal (which period
subsequently elapsed without delivery). On June 4, 2007, Argentina filed
with the ICSID an application for the annulment and stay of enforcement of
the award, alleging serious procedural irregularities. An ad hoc committee
has been appointed to consider Argentina’s application. On June 6, 2008,
Argentina filed with the ICSID an application for revision and request for
stay of enforcement of the award alleging the discovery of new, previously
unknown facts that would have decisively affected the award. Argentina relies
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
lOMoARcPSD|55707645
INTERNATIONAL
- 16 -
IMD-1-0278
Appendix 4 (continued)
on information reported in the media alleging bribery by the Company, which it
argues makes the BIT inapplicable. The application was registered by the ICSID
on June 9, 2008 and forwarded to the original members of the ICSID arbitration
tribunal. The application for revision may result in a stay with respect to
Argentina’s application for annulment pending before the ad hoc committee.
!
Pursuant to an agreement of June 6, 2005, the Company sold its mobile
devices business to Qisda Corp. (formerly named BenQ Corp.), a Taiwanese
company. A dispute arose in 2006 between the Company and Qisda
concerning the calculation of the purchase price. Beginning in September
2006, several subsidiaries in different countries used by Qisda for purposes
of the acquisition filed for insolvency protection and failed to fulfill their
obligations under various contracts transferred to them by the Company
under the agreement. On December 8, 2006, the Company initiated
arbitration proceedings against Qisda requesting a declaratory award that
certain allegations made by Qisda in relation to the purchase price
calculation are unjustified. The Company further requested an order that
Qisda perform its obligations and/or the obligations of its local subsidiaries
assumed in connection with the acquisition or, in the alternative, that Qisda
indemnify the Company for any losses. The Company's request for
arbitration was filed with the International Chamber of Commerce in Paris.
The seat of arbitration is Zurich, Switzerland. In March 2007, Qisda raised a
counterclaim alleging that the Company made misrepresentations in
connection with the sale of the mobile devices business and asserted claims
in connection with the purchase price. Qisda amended its counterclaim in
March 2008 by (i) changing its request for declaratory relief with regard to
the alleged misrepresentations to a request for substantial damages, and (ii)
raising further claims for substantial damages and declaratory relief. The
Company will request that the arbitral tribunal dismiss the counterclaim.
The Company remains subject to corruption-related investigations in the United
States and other jurisdictions around the world. As a result, additional criminal or
civil sanctions could be brought against the Company itself or against certain of
its employees in connection with possible violations of law, including the U.S.
Foreign Corrupt Practices Act (FCPA). In addition, the scope of pending
investigations may be expanded and new investigations commenced in connection
with allegations of bribery and other illegal acts. The Company’s operating
activities, financial results and reputation may also be negatively affected,
particularly due to imposed penalties, fines, disgorgements, compensatory
damages, the formal or informal exclusion from public procurement contracts or
the loss of business licenses or permits. In addition to the amounts previously
reported, including the fine imposed by the Munich district court, no material
charges or provisions for any such penalties, fines, disgorgements or damages
have been recorded or accrued as management does not yet have enough
information to estimate such amounts reliably. We expect that we will need to
record expenses and provisions in the future for penalties, fines or other charges,
which could be material, in connection with the investigations. On January 24,
2008, the Company announced, at the Annual Shareholders’ Meeting, that the
Securities and Exchange Commission and the Department of Justice had agreed
to begin discussions with the Company regarding a possible settlement of their
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
lOMoARcPSD|55707645
INTERNATIONAL
- 17 -
IMD-1-0278
Appendix 4 (continued)
investigations into possible violations of U.S. law in connection with allegations
of corruption. The Company anticipates that such discussions will continue over
many months. The Company will also have to bear the costs of continuing
investigations and related legal proceedings, as well as the costs of on-going
remediation efforts. Furthermore, changes affecting the Company’s course of
business or changes to its compliance programs beyond those already taken may
be required.
The third quarter of fiscal 2008 included a total of €119 million in expenses for
outside advisors engaged by Siemens in connection with the investigations into
alleged violations of anti-corruption laws and related matters as well as
remediation activities. In the first nine months of fiscal 2008, the total amount of
these expenses was €421 million.
This document contains forward-looking statements and information – that is, statements related to future, not
past, events. These statements may be identified by words such as “expects,” “looks forward to,”
“anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” “project” or words of similar
meaning. Such statements are based on our current expectations and certain assumptions, and are, therefore,
subject to certain risks and uncertainties. A variety of factors, many of which are beyond Siemens’ control,
affect our operations, performance, business strategy and results and could cause the actual results,
performance or achievements of Siemens to be materially different from any future results, performance or
achievements that may be expressed or implied by such forward-looking statements. For us, particular
uncertainties arise, among others, from changes in general economic and business conditions (including
margin developments in major business areas); the challenges of integrating major acquisitions and
implementing joint ventures and other significant portfolio measures; changes in currency exchange rates and
interest rates; introduction of competing products or technologies by other companies; lack of acceptance of
new products or services by customers targeted by Siemens; changes in business strategy; the outcome of
pending investigations and legal proceedings, especially the corruption investigation we are currently subject
to in Germany, the United States and elsewhere; the potential impact of such investigations and proceedings
on our ongoing business including our relationships with governments and other customers; the potential
impact of such matters on our financial statements; as well as various other factors. More detailed information
about certain of these factors is contained throughout this report and in our other filings with the SEC, which
are available on the Siemens website, www.siemens.com, and on the SEC’s website, www.sec.gov. Should
one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described in the relevant forward-looking statement as
expected, anticipated, intended, planned, believed, sought, estimated or projected. Siemens does not intend or
assume any obligation to update or revise these forward-looking statements in light of developments which
differ from those anticipated.
Source: Siemens AG, Corporate Communications Compliance Communications
Munich, July 29, 2008 http://w1.siemens.com/press/pool/de/events/2008-q3/2008-q3-legalproceedings-e.pdf
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)
lOMoARcPSD|55707645
- 18 -
INTERNATIONAL
IMD-1-0278
Appendix 5
Foreign Bribery Cases and Investigations
Enforcement
Cases
Investigations
2008
2007
2008
2007
Country
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Argentina
Australia
Austria
Belgium
Brazil
Bulgaria
Canada
Chile
Czech Rep.
Denmark
Estonia
Finland
France
14. Germany
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
Greece
Hungary
Ireland
Italy
Japan
Korea (South)
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
Slovak Rep.
Slovenia
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States
1
1 (1)
0
4
u
3
1
0
0
17 (17)
0
1
19
0
u
0
4
0
3
1
0
0
1
0
0
9
0
s (s)
2
s
s (s)
0
s
0
1
0
0
3
16
43+
4+
>88
0
23
0
2
1
5
0
7 (7)
0
4
0
u
0
0
2
1
16 (14)
0
0
103
u
18
u
2
1
5
0
0
0
2
0
0
0
0
2
1
1
0
0
67
1 or 0
1
3 (3)
3
u
1
0
3
s (s)
u
0
u
0
0
0
15 (12)
36
1
20
69
0
4 (1)
0
s
1
0
s
0
0
21 (21)
0
1
u
>83
(63)
u
27
3 (3)
1
u
2
0
8 (7)
2 (2)
u
0
2
0
0
1
14 (12)
23 (17)
0
15
60
Share of world
exports
% for 2007
(UNCTAD, 2007)
0.36
1.06
1.25
2.90
1.06
0.14
3.14
0.45
0.73
0.97
0.09
0.64
4.11
8.80
0.38
0.58
1.23
3.44
5.15
2.20
1.80
3.69
0.20
1.04
0.88
0.41
0.32
0.17
2.11
1.34
1.31
0.72
4.56
9.84
( ) = UN Oil for Food cases (Iraq, 1996–2003), some not bribery; u = unknown; s = some
Note: Cases include prosecutions, judicial investigations and civil actions and are recorded on cumulative basis
through end 2007 even if discontinued. Investigations (excluding judicial investigations) are on current basis for
2007. Numbers do not include cases and investigations carried out by OECD countries regarding foreign bribes
paid to their own officials.
Source: Transparency International. “Progress Report 2008: Enforcement of the OECD Convention
on Combating Bribery of Foreign Public Officials in International Business Transactions.”
This document is authorized for use only in Jess Co's MGC1010 Sem 2 2020 Cases at Monash University from Aug 2020 to Feb 2021.
Downloaded by Moon Wai Kwok (elevenbot011@gmail.com)