Europe's biggest railway company, Deutsche Bahn, has called in auditors to investigate bribery allegations at its international consulting arm. Compliance experts say the move is part of a positive management trend.
All-aboard for compliance: Deutsche Bahn moves ahead
Under its new management team, Deutsche Bahn appears more determined than ever to crack down on corruption, especially as the railway operator prepares to expand beyond its home market.
The state-owned company, which has been stung by a string of corruption scandals in recent years, responded to new evidence of bribery in its consulting arm, Deutsche Bahn International, by hiring professional services group KPMG to conduct a special audit.
New evidence uncovered
The unit, which offers consultancy services worldwide to governments and other bodies planning and building railways, has been under investigation since 2005 for allegedly bribing officials in Algeria, Greece and Rwanda. But new evidence uncovered by prosecutors in Frankfurt and presented to Deutsche Bahn last week prompted a decision for "swift action," company spokesman Jens-Oliver Voss told Deutsche Welle.
Deutsche Bahn spied on staff in a scandal that forced CEO Mehdorn to resign
Voss said Deutsche Bahn has a fundamental interest in uncovering the truth about the transactions, noting that the company itself brought details of irregularities to the attention of prosecutors last year. Its new senior management team, he added, "has given compliance the highest possible priority."
In March 2009, Hartmut Mehdorn was forced to resign as chief executive officer of Deutsche Bahn after being accused of breaching privacy laws while monitoring staff contacts with suppliers. His successor Ruediger Grube introduced many changes, including the creation of a new board position for compliance, legal affairs, data protection and security.
Besides the new board position, Grube has hired additional compliance staff and introduced training courses to "modernize compliance" and ensure that business practices across the company meet all legal requirements, according to Peter von Blomberg with Transparency International, an organization that fights global corruption. "Over the past 12 months, Deutsche Bahn has done very much in the area of compliance," he told Deutsche Welle. "But it still needs to implement some steps."
Siemens scandal fallout
Numerous German companies with large international operations have given compliance and anti-corruption initiatives greater focus following the Siemens scandal over bribes for international engineering contracts, according to von Blomberg. "This scandal created a lot of attention – negative attention – and resulted in numerous German companies taking a tougher stance on fighting corruption," he said.
Siemens scandal has prompted tough anti-corruption action
Deutsche Bahn has ambitious international expansion plans. On Thursday, the railway company agreed to buy British train and bus operator Arriva in a strategic push to expand in Europe's increasingly open rail markets. And the company appears to be aware that as it grows abroad, so, too, do the opportunities for corruption.
Earlier last week, Deutsche Bahn joined Siemens, Daimler and several other foreign companies involved in bribery probes in their home countries to sign an anti-corruption pact aimed at curtailing illegal business practices in Russia. Both Siemens and Daimler have also been involved in large-scale bribery cases in Russia, where organized corruption is a huge issue.
Under the pact, the companies agreed to prohibit bribery in their operations - both directly and indirectly through intermediaries- and to encourage their suppliers and local counterparts to do so as well. They also commit to refrain from covert forms of bribery such as donations and support of political parties.
Companies can whistle-blow
"This is a voluntary code of conduct – but one with teeth," said Brook Horowitz, executive director of the International Business Leaders Forum, which also signed on to the project along with the American Chamber of Commerce and the Association of European Businesses. He said the pact includes a number of "tough measures" such as the possibility for companies to whistle-blow.
In Transparency International's annual Corruption Perception Index of 180 countries, Germany ranked 14. New Zealand was awarded the top ranking with the least corruption, while Somalia performed worst. Despite the bribery scandals with a few high-profile companies such as Daimler and Siemens, "Germany has managed to be a global exporter without being a leader in corruption," von Blomberg said.
Author: John Blau
Editor: Sam Edmonds