In December 2008 Siemens the large German electronic firm agreed to pay 106 billion $ in fines to settle legal suits bought by the U.S. and German governments. The governments assure that Siemens had used bribes to win business in countries around the world. These were the largest fines ever levied against a company for bribes, reflecting the scale of the problem at Siemens. Since 1999, the company had apparently paid 1.4 $ billion in bribes. in Bangladesh, Siemens paid 5$ million to the son of the prime minister to win a mobile phone contract. In Nigeria, it paid 12.7$ million to various officials to win government telecommunications contracts. In Argentina, Siemens paid at least 40$ million in bribes to win a 1$ billion contract to product national identity cards. In Israel the company provided 20 $ million to senior government official in order to win a contract to build power plants. In China, it paid 14$ million to government officials to win a contract to supply medical equipment and so on.
Corruption at Siemens was apparently deeply embedded in the business culture. Before 1999, bribery of foreign officials was not illegal in Germany and bribes could be deducted as a business expense under the German tax code. In this permissive environment, Siemens subscribed to the straightforward rule of adhering to local practices. If bribery was common in a country, Siemens would routinely use bribes to win business. Inside Siemens, bribes were referred to as useful money.
When the German law changed I 1999, Siemens carried on as before, but put in place elaborate mechanism to hide what it was doing. Money was transferred into hard to race bank accounts in Switzerland. These funds were then used to hire an outside consultant to help win a contract. The consultant would in turn deliver the cash to the ultimate recipient, typically a government official. Siemens apparently had more than 2700 such consultants worldwide. Bribes, which were viewed as a cost of doing business, typically ranged between 5 and 6 percent of a contracts value, although in corrupt countries bribes could be as much as 40 percent of the value of contract. In justifying this behavior, one former Siemens employee state “ It was about keeping the business alive and not jeopardizing thousands of jobs overnight “. But the practice left behind angry competitors who were shut out of contracts and local residents in poor countries who paid too much foe government services because of rigged deals. Also, by engaging in bribery, Siemens helped to foster a culture of corruption in those countries where it made all illegal payouts. During this time period, in a cynical move, Siemens put in a place a formal process for monitoring payment to make sure that no illegal payments were made. Senior executive even made some of the individuals responsible for managing the bribery fund sign compliance forms stating that they had not engaged in any such activity, while knowing full well that this was not the case.
This scheme began to collapse at Siemens when investigators in several countries began to examine suspicious transactions. Prosecutors in Italy, Liechtenstein, and Switzerland sent requests for help to counterparts in Germany, providing a list of Siemens employees who were implicated in making illegal payments. In late 2006 the Germany police acted, raiding the company, seizing data and arresting several executives. Shortly, afterward, the United States started to look into these charges.
Since Siemens had to adhere to the Foreign Corrupt Practices Act, which outlaws payments to government officials to win contracts. At the end of the day, Siemens had to pay not only 1.6$ billion in fines, but also commit to spending another 1$ billion to improve its internal compliance process, while several executives went to jail.
1. What explains the high level of corruptions at Siemens? How did managers engaged in corruption rationalize it?
2. What do you think would have happened to a manager at Siemens if he or she had taken a stand against corrupt practices?
3. How does the kind of corruption Siemens engaged in distort competition?
4. What is the impact of corrupt behavior by Siemens on the countries where it does business?
5. If you were a manager at Siemens, and you become aware of these activates, what would you have done?
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Siemens Bribery Scandal
The main reason for the high level of corruption at Siemens was the deeply embedded culture of bribery within the organization which was further exacerbated by the lack of laws forbidding bribery in Germany prior to 1999. The company’s management viewed bribery as an acceptable business practice, and bribes paid out were viewed as a cost of business. Managers engaged in corruption rationalized it as a way of keeping the business alive and safeguarding...
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