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First Steps at Siemens

July 29, 2008

The first defendant to be tried in the Siemens corruption scandal has been sentenced. But DW's Karl Zawadzky argues that it will take a lot more time and money to find and punish those ultimately responsible.

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Munich judge Peter Noll summed up the Siemens bribery affair very succinctly when he said that a "system of organized irresponsibility" had developed over time in the international conglomerate. A total of 1.3 billion euros was diverted into slush funds held in banks in Switzerland and Liechtenstein and the money used as kickbacks to win big contracts in many countries abroad.

Karl Zawadzky
Karl ZawadzkyImage: DW

The first trial centered on 57-year-old Reinhard Siekaczek, a former manager in the telecommunications division COM. He was responsible with filling one of the numerous slush funds -- on 49 occasions with a total of 48.8 million euros. Other people used the cash in a bid to swing decisions in Siemens' favor when the competition for contracts was tough. The court sentenced him to two years on probation and fined him 108,000 euros. The sentence was so lenient because Siekaczek was acting on the instructions of his superiors and had made a full confession.

Long and difficult process ahead

Siekaczek's trial may be over, but the courts will continue to probe the "system of organized irresponsibility" at Siemens. This is going to be a difficult and protracted process. For example, it was not possible to determine which of the former Siemens bosses were involved in the corruption affair and in what way. Nor was it possible to find out exactly where the money went.

It is not only the German legal system that is concerned with resolving this issue. The new company management under the leadership of board chairman Peter Loescher is investing a lot of money and energy into clearing up the matter. It has already cost the company more than 500 million euros in lawyers' and management consultants' fees and fines. This is set to rise considerably.

But the main aim must be to call to account those ultimately responsible for creating this slush fund -- either by explicit decree, or by tacit agreement with the practice -- scandal in one of Germany's oldest and most reputable corporate groups. After all, it is barely imaginable that boardroom members did not notice the disappearance of huge sums of money or the everyday practice of handing out kickbacks.

Top managers being called to account

The board of directors and the current Siemens chairman want to prosecute the entire former top management of the group so that they can determine exactly who knew what and who did what in every single case. State prosecutors are already investigating whether executives acted with the duty of care laid down in stock corporation law. If the former board of directors are shown to have neglected that duty, then the board members will be held jointly liable.

In addition, there are also allegations of certain individuals embezzling millions of euros. Even if executives were not actively involved in the bribery payments, they are accused of not doing everything they could to nip this kind of slush fund system in the bud. Siemens anti-corruption department was completely inadequate to this task and not commensurate with the importance of this topic in an international conglomerate.

Under German law, it is illegal for German companies to make bribes. Some 10 years ago, this legislation only applied to Germany itself, but it was then extended to cover corporate activities abroad.

Everyone knows that it is impossible to gain large contracts in many countries without kickbacks. In the past, such payments could even be offset against tax for that very reason. But increasingly, it has become accepted knowledge that corruption is one of biggest problems facing developing countries. It stands in the way of democracy and the rule of law. It is also clear that corruption involves two parties: one that demands kickbacks and the other that supplies them. Industrialized nations agreed to ban the practice in the mid-1990s in a bid to root out this evil. The ban also applies to Siemens.

Karl Zawadzky is DW-RADIO's business editor (jg)