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Siemens sign (Photo: Andreas Gebert/dpa - Bildfunk)
Image: picture-alliance/dpa

Corporate corruption?

Andreas Knobloch / db
July 18, 2013

German engineering giant Siemens self-reported to avoid criminal proceedings for its alleged involvement in a railway price-fixing cartel in Sao Paulo and Brasilia.


The Brazilian daily "Folha de Sao Paulo" reported in its Sunday edition (14.07.2013) on allegations that Munich-based Siemens illegally rigged prices and was possibly involved in a cartel in bids for the construction, fitting and maintenance of metro trains in Sao Paulo und the capital city of Brasilia. Siemens voluntarilyself-reported to Brazilian authorities.

Bombardier of Canada (a French Alstom conglomerate), Spain's CAF and Japan's Mitsui corporate group are also reported to have been involved in the cartel. Illegal price-rigging among the global engineering firms is said to have raised bids to 10 to 20 percent higher than quotes typically found on the market.

Folha reported that subcontractors fronted the deception. Early in July, Brazil's antitrust regulator - the Administrative Council for Economic Defence (CADE) - searched offices in Sao Paulo, Diadema, Hortolandia and Brasilia, confiscating evidence at 13 firms allegedly involved. Assessment of the secured documents is expected to take up to three months.

Uncertainty remains

According to the newspaper, the cartel is said to have made an appearance in at least six contract placements. It added, however, that the total extent of the deals, the time period and possible damage amount are still not clear. The bidding in which Siemens participated involved several hundred million euros, the paper said.

In the late 1990s, the German engineering firm was awarded the contract for the construction of Sao Paulo's metro line number 5, amounting to 600 million reais (about 204 million euros, or $268 million). There is said to have been an arrangement with Alstom in this case.

Siemens high-speed trains (Photo: Siemens dpa - Report)
Siemens is among a few companies globally that has the ability to produce high-speed trainsImage: picture-alliance/dpa

Irregularities are also mentioned concerning a contract in 2000 for shipment of 10 suburban trains, built by Siemens and Mitsui. Siemens reportedly also did not play by the rules when it won the bid in 2007 for maintenance of the subway in the capital Brasilia, to the tune of 96 million reais annually (about 33 million euros): Germany's Siemens and French competitor Alstom agreed to share the contract.

Protection from criminal proceedings

The Folha reported that Siemens and Brazilian law enforcement authorities agreed to leniency in light of the firm's self-reporting. In return for cooperating with the probe, Siemens and its leading managers were promised protection from criminal proceedings, should the suspicion of involvement in a cartel be confirmed. It is not clear when Siemens alerted authorities - that information will be kept from public light as part of the deal.

First indications of irregularities arose as early as June 2008, when a Brazilian member of parliament and a former Siemens employee disclosed detailed information on how the German industrial giant fixed prices with other global enterprises - even inolving bribes. The ensuing probe, however, did not produce concrete evidence. New suspicious facts emerged in the fall of 2010, but Siemens conducted an internal probe that came out empty-handed.

Massive payoffs

Earlier, the company was embroiled in one of the largest corruption scandals in German economic history. In November 2006, what has become known as the "Siemens affair" shed light on an extensive bribery scheme.

The resulting fallout forced CEOs to step down, and in October 2007, a Munich court fined the firm 201 million euros ($263 million). Even the US Securities and Exchange Commission investigated Siemens, since it is traded on Wall Street. An extrajudicial settlement cost the Munich company 800 million dollars.

Earlier that year, in January 2007, the EU levied a 750 million euro fine against 11 multinational firms for illegal price-fixing and involvement in cartels; Siemens was forced to pay the lion's share of 400 million euros.

Peter Löscher (Photo: Peter Kneffel/lby)
Peter Löscher has been at the helm of the company for six yearsImage: picture-alliance/dpa

The company consequently introduced an anti-corruption system, while new management headed by Peter Löscher pledged to forgo lucrative deals rather than resorting to illegal practices again in the future.

The case in Brazil shows that it is not always easy to act on promises. When news of the self-report broke, Siemens issued a statement saying the firm had been aware of the probe. The statement mentioned efforts made since 2007 toward developing an effective compliance system while adhering to "the commitment of all employees to comply with antitrust guidelines," adding that the firm would cooperate "fully with the authorities."

Tender for high-speed route

Siemens' voluntary disclosure surfaced just weeks before a contract for a 511-kilometer (318-mile) high-speed line between the cities of Sao Paulo and Rio de Janeiro - the first of its kind in Latin America - will come up for bidding in August. The companies accused in the cartel are among the most promising candidates to win the bid for the mega-project that would link the country's two most significant cities.

The Brazilian government expects costs of 35 billion reais (12 billion euros or $16 billion). Apart from the five multinational conglomerates allegedly entangled in the illegal price-fixing scandal, only five other companies worldwide are even capable of producing such high-speed trains.

Of those five, only South Korea's Rotem company has shown an interest in the contract. Against that background, the government in Brasilia as well as Siemens may prefer a quiet settlement.

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