Economic Crime Rampant in German Companies | Germany | News and in-depth reporting from Berlin and beyond | DW | 20.10.2007

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Economic Crime Rampant in German Companies

Half of all German companies are affected by white-collar crime, according to a recent study. German companies lose more than 6 billion euros ($8.6 billion) each year due to corruption, embezzlement and fraud.

Man in handcuffs holds money

Many companies don't want problems made public

It never feels good to get passed over for a promotion or a pay raise, but an increasing number of German employees are taking out their frustrations on employers by engaging in forms of economic crime. The theft usually takes the form of pocketing company funds or deliberately sabotaging lucrative business deals, a new study found.

White-collar crime causes German companies to lose more than 6 billion euros ($8.6 billion) each year due to corruption, embezzlement and fraud, according to a study conducted by the German Martin Luther University of Halle-Wittenberg in conjunction with the auditing firm PricewaterhouseCoopers and Germany's TNS-Emnid.

Attempt made to keep problems private

Man with a suitcase

From walking away with cash to short-changing clients, white-collar crimes take different forms

"German companies do not want to make these problems public, so there seems to be no problem," Professor Kai Bussmann from the University of Halle told DW-RADIO. "Many believe that they are immune to white collar crime. Especially medium-sized companies are a little naive."

Companies are interested in making money quickly. This causes them to underestimate the risks involved and they can be in danger of going bankrupt, Bussmann said.

"Half of the culprits work in the firm, the other half are customers, business partners or suppliers," Bussmann added. "Often German companies realize too late that their investments in, let's say China have been embezzled."

The study shows it's extremely risky to do business with China, India, Brazil and Turkey. But crime prevention needs to start within the company, the study said. Most German companies do have a code of conduct for their employees, but they don't have sufficient control mechanisms to monitor whether employees are following the rules.

German corruption scandals, and more generally in all of Europe, become public only by coincidence. This is in contrast to the United States, where most companies have compliance programs. Although expensive, these programs make employees think twice before trying to embezzle and when it does happen, they are detected relatively quickly, Bussmann said.

Better oversight advantageous

The Siemens company's logo

Siemens has been rocked by a corruption scandal recently

The US has obligatory reporting requirements that create a different corporate culture. That is in contrast to Europe.

"In western Europe, there are fewer regulations," Bussmann said. "But the companies here are learning from their mistakes."

While compliance programs don't completely stop white-collar crime, less than 30 percent of companies with compliance programs become victims of embezzlement or other misappropriation, the study found.

In Germany, companies often keep quiet when they uncover misdeeds out of worry about the firm's reputation. While the study put the annual loss at 6 billion euros, the real losses could be significantly higher, the study said.

Engineering giant Siemens was one German company that couldn't keep its corruption scandal secret under wraps. It has been making headlines for shady deals and bribery that amount to several million euros.

The company's reputation has suffered tremendously and has scared away investors. But there are signs that Siemens learned its lesson. Management has been replaced and a new department has been created that deals only with corruption and monitoring suspicious activity.

The biennial survey of 5,400 global companies, the most comprehensive study of its kind, found that economic crime affected all different types of companies around the globe. Reported fraud levels have not dropped in the eight years since the study was initiated. Yet companies are feeling more confident about their ability to catch criminal employees, the findings show.

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