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 unusual journey.
Excerpts
from a Frontline interview with Reinhard Siekaczek, a
former mid-level Siemens executive, discussing a culture
of bribery at the German conglomerate.
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 transactions.
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 interview.
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 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 subsidiary of
Halliburton, recently pleaded guilty to charges of paying bribes and
skimming millions for himself. More charges are coming in that case,
officials say.
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 enforcement officials.
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 government contracts.
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 competing overseas.
Ben W. Heineman Jr., a
former general counsel at
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 said.
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 Siemens case.
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 illegal bribery.
“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 jobs.
“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 bank accounts.
“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 Virgin Islands.
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 officials.
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 executives.
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 investigators.
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 seriously.”
For his part, Mr.
Siekaczek is uncertain about the impact of the Siemens case. After all, he
said, bribery and corruption are still widespread.
“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.
This special project addressing issues
presented for voting by shareholders of Siemens AG is being conducted
in cooperation with the Shareholder Forum's independently managed German affiliate,
Aktionaersforum AG. Information about the issues, including
company reports and investor views, can be found on the
Aktionaersforum web
site for Siemens. Inquiries about the project, requests to be included in
Forum email distributions, and suggestions of
issues that may be relevant to shareholder interests can be
addressed to
siemens@shareholderforum.com.
It is the
policy of Forum programs to be open to all shareholders of a subject company
and to any fiduciaries or professionals concerned with their decisions,
according to the Forum’s stated "Conditions
of Participation." In all cases, each participant is
expected to make independent use of information obtained through the Forum,
and participation is considered private unless the party specifically
authorizes identification.
The information provided to Forum participants
is intended for their private reference, and permission has not been
granted for the republishing of any copyrighted material. The material presented on this web site is
the responsibility of
Gary
Lutin, as chairman of the Shareholder Forum.