1

Siemens corruption scandal: Germany

Armaan Agarwal

School of Business and Management, Christ (Deemed to be University)

BECO 161 B: Economics of Corruption

Dr. Yadu C R

22nd October 2022

 2

INTRODUCTION

With its headquarters in Munich and branch offices across the world, Siemens AG is a
German multinational conglomerate corporation and the largest industrial manufacturing
enterprise in Europe.

The company's four core divisions—Industry, Energy, Healthcare (Siemens Healthineers),

and Infrastructure & Cities—represent its primary business operations. The company is a
well-known producer of medical diagnostic equipment, and its medical healthcare segment—
which accounts for around 12% of the company's overall sales—is its second-most lucrative
business after the industrial automation sector. The company is a part of the Euro Stoxx 50
stock market index. According to its results announcement, Siemens and its affiliates employ
about 303,000 people globally and generated about €62 billion in revenue in 2021.

CORPORATE CORRUPTION

Criminal acts undertaken on behalf of a company or other business entity are referred to as
corporate crimes. A corporation is a commercial entity that has a separate legal personality
from the people who run its operations (see vicarious liability and corporate liability). The
"corporate death sentence," or judicial dissolution, is a legal process where a corporation is
forced to dissolve or cease to exist, and it may be used as punishment for the worst corporate
offenses.

Due to different regulations in different countries, some unethical corporate behavior may not
actually be illegal. Insider trading, for instance, is permitted in some states.

Corporate crime is related to: White-collar crime because most people who may act on behalf
of or represent the corporation's interests are experts in this industry; organized crime is
because of the ease with which criminals can create corporations for illicit reasons or launder
the proceeds of illicit activity. According to estimates, 20 percent of global trade is made up
of the gross criminal product. (de Brie 2000); and state-corporate crime because in many
situations, the connection between the corporation and the state creates the chance for
criminal activity. Political sensitivity surrounding corporate crime has increased in various
nations. The word is frequently used to allude to corporate manslaughter and to include a
broader discussion about the technical risks posed by business companies in the United
Kingdom, for instance, following greater publicity of deadly accidents on the rail network
and at sea (see Wells: 2001).

Following the widely publicized and extremely damaging (to victims) scandals of Enron,
WorldCom, Freddie Mac, Lehman Brothers, and Bernie Madoff, the Sarbanes-Oxley Act of
2002 was passed in the US to reform business practices, including enhanced corporate
responsibility, financial disclosures, and fraud prevention.
 3

Either the civil law, which includes administrative law, or criminal law can govern behaviour.
When the legislature decides to criminalize a certain action, it is making the political
determination that this activity is sufficiently wrong to merit the stigma of being classified as
a crime. The same crimes that apply to natural individuals in law also apply to businesses.
Simpson (2002) asserts that this procedure should be simple because a state should only
participate in victimology to determine whose behavior causes the greatest loss and harm to
its residents, and then represent the majority view that justice necessitates the involvement of
the criminal law.

Bribery and corruption are issues in the industrialized world, and it is believed that public
official corruption is a major issue and a development barrier in developing nations.

THE SCAM

The world was shocked ten years ago by a massive corruption scandal involving Siemens,
one of the biggest electrical engineering businesses in the world. Its size distinguished it as
the largest corruption case at the time. A few years later, Linda Thomsen, Director of the
Security Exchange Commission, outlined the pattern of bribery in the organisation as
follows:

... unparalleled in breadth and depth. Government officials in Asia, Africa, Europe, the
Middle East, and the Americas received bribes totaling more than $1.4 billion as a result of
corruption.

Why is it crucial to keep this case in mind and how did it happen?

The reputation of Siemens was excellent before the corruption incident. In the fields of
telecommunications, power, transportation, and medical equipment, it was famous for its
sophisticated products and dependable services. It was typical to see articles highlighting its
operations in outlying regions, the creation of brand-new, high-quality items, and winning
bids.

On November 15, 2006, the authorities conducted a surprise raid at the company's Munich
headquarters and other subsidiaries, shocking the entire world. The corporation initially
responded by denying any wrongdoing and blaming the incident on a small "criminal gang."
The business had long purported to conduct itself in accordance with the greatest moral and
legal principles. Siemens had established elaborate codes of conduct, corporate anti-
corruption standards, and stringent operational procedures by at least 1991. Transparency
International, a non-governmental organization founded to combat corruption, even chose it
to become a corporate member of its German chapter in 1998.
 4

Reality turned out to be entirely different.

In order to expand its market dominance and raise its price, Siemens had organised a global
system of corruption at least since the 1990s. Large gaps in the legal systems of numerous
nations, including Germany, allowed it to get away with this.

Anti-corruption existed only on paper

At Siemens, taking bribes began to be seen as usual over a long period of time. Through
secret bank accounts, enigmatic middlemen, and phony "consultants," they were transferred.
Siemens workers utilized "nützliche aufwendungen," a tax word that is commonly translated
as "useful expenditures" but is more commonly interpreted internally as "bribes," when
figuring out how much a project would cost.
The fact that the German law was drafted in a way that permitted bribes to be claimed as tax-
deductible costs did not assist the problem. When the nation eventually updated its laws to
comply with the 1997 OECD Convention on Combating Bribery, this situation changed in
1999. For a German firm, this made bribing foreign officials unlawful.
A new anti-corruption clause must be inserted in all contracts with agents, consultants,
brokers, or other third parties, according to a new corporate circular from Siemens that was
released on July 5th, 2000. This requirement applies to operational groups and regional
businesses. It then released new rules the following year that stated:
Employees are not allowed to directly or indirectly provide unfair benefits to others in
economic transactions, whether those advantages take the shape of money or something else.
Additionally, the corporation became governed by the 1977 Foreign Corruption Practice Act
when it began trading on the New York Stock Exchange in 2001. Additionally, the
corporation had to abide by the Sarbanes-Oxley Act starting in November 2003, which
included an ethical code requiring chief financial officers and business leaders to act
honorably and responsibly.
A lecture titled "Tone from the Top" was given by Siemens' chief financial officer in July
2004. The objective was to demonstrate that combating corruption was now a top priority and
went against the company's integrity guidelines. The Siemens compliance initiative actually
didn't exist in real life; as a German prosecutor would subsequently remark. Azerbaijan,
Taiwan, China, Israel, Hungary, and Azerbaijan all have government investigations into
corruption underway, while Nigeria, Italy, Greece, and Liechtenstein are also seeing
problems.
However, as US prosecutors found:
A thorough investigation or follow-up on any of these issues by Siemens management was
lacking.
Siemens paid bribes to public servants and government officials all across the world,
including in Bangladesh, Vietnam, Russia, Mexico, Greece, Norway, Iraq, and Nigeria. The
bribing system was extensive in scope. One Siemens employee, Reinhard Siekaczek,
described it this way:
 5

We were all aware of the illegality of our actions. Every business unit of Siemens AG, with
the exception of those that deal with lighting and similar products, had a custom of paying
bribes. The US, Germany, Italy, and Lichtenstein were among the nations that finally took
action against Siemens.
Siemens paid fines, penalties, and disgorgement of profits totaling more than $1.6 billion
after facing US and German legal action, including $800 million to US authorities. Since the
1977 passage of the Foreign Corruption Practice Act, this was the biggest monetary penalty
ever issued in a case under the law.

CAUSES
Let’s highlight the main causes of the entire scandal which shook the entirety of Europe.
Inefficient bureaucracy: One major cause of the entire event is the inefficiency of the
government. The government itself was corrupted because the taxation rules until 2000 were
designed in such a way that was making the company escape any legal issues without any
problem.

Moreover, the government was also taking up bribes from the company just like all other
countries which made the company swiftly pass without any issues.

SIEMENS BRIBERY SCAM IN GREECE

The Siemens Bribery Scandal in Greece is a corruption and bribery scandal involving
agreements made between Siemens and Greek government representatives during the 2004
Summer Olympic Games in Athens, Greece, addressing security equipment and purchases by
OTE in the 1990s.
Although there is no concrete evidence, the scandal has caused a significant shift in the
public's perceptions of Greece, most notably a dissatisfaction with the country's two major
political parties, New Democracy and Panhellenic Socialist Movement (PASOK), and it has
created a "hole of authority" that will inevitably lead to political instability.
The bribes, according to some reports, may have totaled up to 100 million euros. These bribes
allegedly were paid in exchange for public contracts.
Even while this is just a suggestion and nothing has been proven or at least any evidence has
surfaced, it has been suggested that a few PASOK members operating as individuals may
have been involved. On July 1, 2008, a Greek prosecutor filed allegations for money
laundering and bribery following a two-year investigation. According to some reports, the
transactions concerned specific Siemens units.At Kyriakos Mitsotakis' offices on May 30,
2008, a prosecutor conducted an investigation into possible Siemens gifts and grants.
Michalis Christoforakos, a former Siemens chief executive in Greece who was at the centre
of the controversy, fled to Germany in 2009 under mysterious circumstances that involved
Dora Bakogianni, Greece's foreign minister.
On February 24, 2017, a trial for those accused of being part of the scandal was to get
underway. There are 64 suspects in total, including German and Greek nationals. The
 6

scandal's focal point, ex-Siemens chief executive in Greece Michalis Christoforakos, for
whom European arrest warrants are pending, is expected to be conspicuously absent because
Germany still refuses to extradite him. The charges brought against him by German courts
were withdrawn after his initial detention there in 2009. Greece has been requesting his
extradition since 2009 and views him as a wanted criminal. ND and PASOK were both
allegedly bribed by Christoforakos during his trial in Germany by 2% each (through
Geitonas, partner of Kostas Simitis, and Vartholomeos).

LESSONS FROM THE CORRUPTION SCANDAL

The Siemens case serves as a reminder of the past, and we hope that it will be remembered
and used to establish effective compliance programs. Without effective countermeasures,
there is a danger that corruption may spread like a virus, with businesses copying one
another.
The US court system is the only one that truly takes corruption seriously, which is another
lesson. Only the US Department of Justice has been able to adequately penalize businesses.
The US should not, however, act alone in enforcing corporate malfeasance laws.
Governments everywhere should stop merely declaring that corruption is terrible.
Additionally, they must to demonstrate the consequences.

REFERENCES

https://theconversation.com/lessons-from-the-massive-siemens-corruption-scandal-one-
decade-later-108694
https://en.wikipedia.org/wiki/Siemens_Greek_bribery_scandal
https://www.transparency.org/en/news/25-corruption-scandals#Siemens
https://www.amacad.org/publication/problem-monopolies-corporate-public-corruption