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O C T O B E R 1 5 , 2 0 1 0
P A U L H E A L Y
Fighting Corruption at Siemens
(Screen Text Version)
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Note: This is not a stand-alone document. It must be accompanied by the multimedia case
by the same title, which contains videos and exhibits. Please contact your instructor for
more information.
INTRODUCTION
On November 15, 2006, German prosecutors raided offices and homes of Siemens AG staff as part of
an ongoing investigation into bribery. The subsequent investigations covered businesses representing
60% of Siemens’ revenues and spanned operations in Asia, Africa, Europe, the Middle East, and the
Americas.
Headquartered in Munich, Germany, Siemens AG employed 475, 000 people in approximately 190
countries and generated annual sales of $110.8 billion and net income of $3.8 billion at 2006 year-end.
After two years of investigations, legal proceedings against Siemens AG were concluded in both
Germany and the U.S. and resulted in the company paying $1.6 billion in fines and profit
disgorgements to U.S. and German authorities, as well as $850 million for internal investigations that
involved more than 200 outside lawyers and support staff from the law firm Debevoise & Plimpton,
1,300 forensic investigators from Deloitte & Touche, and 16 full-time Siemens employees.
As a result of the investigation, Siemens dismissed more than 500 employees who were implicated in
corruption and sued nine former members of its Managing Board for $28.3 million for breaching their
duties. Former CEOs Heinrich von Pierer and Klaus Kleinfeld agreed to pay Siemens $7.5 million and
$3 million respectively to settle the case.
How did this happen, and why?
How did Siemens respond to allegations of bribery and corruption?
How are they doing now and what challenges still lay ahead?
Through interviews with key Siemens executives and supporting internal materials, this multimedia
case takes a look at how one of the world’s largest companies faced corruption head-on.
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This document is a copy of the screen text of the HBS multimedia case ―Fighting Corruption at Siemens.‖ Professor Paul
Healy and Djordjija Petkoski (World Bank Institute) prepared this case in conjunction with the HBS Educational Technology
Group. HBS cases are developed solely as the basis for class discussion and are not intended to serve as endorsements, sources
of primary data, or illustrations of effective or ineffective management.
Copyright © 2011 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call
1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators.
This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission
of Harvard Business School.
Fighting Corruption at Siemens
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CORRUPTION
Bribery: What, Why, How?
Until 1999, German law did not specifically prohibit the payment of foreign bribes to secure business.
In fact, these payments were tax-deductible.
After the law changed, greater effort was made to conceal payments. Slush fund monies were
diverted to a network of accounts and shell corporations. Siemens hired local, outside consultants to
help win contracts, setting up business consultant agreements (BCAs) that paid the consultants’
―commissions.‖
How might a bribe be initiated?
Reinhard Sickzek, a former Siemens manager accused of setting up the new payment system for
bribes, testified: ―I was not responsible for the bribery. I organized the cash. I didn’t really look at it
from an ethical standpoint. We did it for the company – it was about keeping the business unit alive
and not jeopardizing thousands of jobs overnight. We always thought top management would back
us up, which unfortunately didn’t happen.‖
What was the calculus of employees like Sickzek?
Who benefitted from the illicit transactions?
Early Warnings
The police raid on Siemens’ headquarters November 15, 2006, was the culmination of a series of
ongoing allegations and investigations into corruption involving Siemens.
Fall 2003. Siemens’ auditor, KPMG, discovered that telecom employees took €4.12 million in cash into
Nigeria and warned of numerous possible legal violations. Siemens’ then-CFO took no disciplinary
action, conducted no investigation, and did not raise the issue with the Managing Board or Audit
Committee.
2003 – 2004. Italian prosecutors investigated Siemens in connection with bribes of €6 million paid to
employees of ENEL, an energy company partially owned by the Italian government, in connection
with two power plant projects. Siemens agreed to pay a €500,000 fine and forfeit €6.2 million in
profits and was barred from doing business with state-owned firms in Italy for one year. The two
Siemens’ managers involved received early retirement with full benefits and the unit’s CFO who
authorized the payments left the company with a €1.8 million severance package.
Late 2004. Liechtenstein investigators seized bank accounts of several employees in Siemens
Communications unit following allegations of money laundering and corruption. The funds in the
accounts were later released and transferred to Siemens.
2005. Siemens was informed of a Swiss investigation into the bank accounts of a former Siemens
Greece officer suspected of corruption. Siemens filed a civil action in Greece against the officer.
October 27, 2005. The UN alleged that Siemens paid $1.6 million in kickbacks to Saddam Hussein’s
government to arrange contracts for an Oil-for-Food Program. Siemens denied any wrongdoing.
January 2006. Siemens’ medical subsidiary was indicted by U.S. authorities for forming a sham
business with a minority firm to win a contract from an Illinois hospital.
Fighting Corruption at Siemens
2006. The offices of a Siemens telecom subsidiary were searched by Swiss prosecutors, revealing
questionable consulting agreements directed through shell companies. Separate investigations led
Italian prosecutors to suspect that Siemens employees had used an Austrian bank account to pay
bribes and secure contracts in Italy, Nigeria, Britain, and the U.S. dating as far back as 1995.
Corporate Culture & Compliance
In 1999, the Act Against International Corruption was passed in Germany, which implemented the
Organization for Economic Co-operation Development (OECD) Convention on Combating Bribery of
Foreign Public Officials. In addition, when Siemens was listed on the New York Stock Exchange in
2001, it became subject to the Foreign Corrupt Practices Act.
How did Siemens respond to these events?
Why did its efforts fall short?
EARLY RESPONSES
Management Actions
November 17, 2006. Siemens’ Managing Board initiated an audit of the existing compliance system
under the direction of the Siemens Compliance Office.
Hans-Otto Jordan of the Nuremburg law firm Kanzlei Beckstein was engaged as an external
ombudsman to allow Siemens’ employees to confidentially and anonymously report improprieties.
November 23, 2006. Siemens set up an internal Compliance Task Force, led by the Corporate
Executive Committee. The task force would support external anti-corruption and control experts in
