The biggest corruption scandal in German corporate history

In our daily corruption report of today, Global anti-corruption watchdog, Transparency International has warned that Jamaica is likely to succumb to what it calls state capture, while Siemens AG, emerging from the biggest corruption scandal in German corporate history, reached a settlement with managers including two former chief executive officers accused of failing to halt a culture of bribery.

Heinrich von Pierer, who led Munich-based Siemens from 1992 to 2005, will pay 5 million euros ($7.55 million), Siemens spokesman Mark Langendorf said. Klaus Kleinfeld, his successor, will pay 2 million euros. Both men resigned within the space of a week in mid 2007, and Kleinfeld is now CEO of Alcoa Inc., the largest U.S. aluminum producer. Von Pierer, 68, is retired.

Your Daily Corruption News team – Wednesday 2 December 2009 

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The Guardian 

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Germany: Siemens Settles With Two Former CEOs in Connection With Corruption Cases

Indonesia: Corruption in Goods Procurement Reaps Rp 688 Billion

Jamaica: Transparency International warns that Jamaica faces state capture
Go Jamaica (TI mention)

— News from the TI movement 

The bribery case rocked Siemens starting in 2006, when investigations in more than a dozen countries revealed kickbacks and bribes to win contracts. Siemens agreed to pay $1.6 billion to settle probes in the U.S. and Germany last year. The scandal prompted von Pierer to sever all ties with his former employer, where he rose through the ranks in a career spanning 38 years.

“It’s good they are closing the books on this,” said Daniela Bergdolt, a representative for the German DSW association of private investors that include Siemens shareholders. “Any litigation would have turned into mudslinging that could have taken years and would have hurt Siemens more than it would have benefited.”

Trains, Factories

Siemens, which makes high-speed trains, power equipment and factory automation gear, said it reached a settlement with six former board members. Besides von Pierer and Kleinfeld, they include Johannes Feldmayer, Juergen Radomski and Uriel Sharef, as well as former Chairman Karl Hermann Baumann, Siemens said.

At the time when Kleinfeld and von Pierer tendered their resignations, both men had spent most of their working lives at Siemens. Kleinfeld accelerated a retreat from unprofitable areas such as mobile phones, and put the network unit into a joint venture. Von Pierer became chairman after leaving the CEO post.

“Accepting Siemens’s suggestion doesn’t mean Mr. von Pierer accepts the allegations against him,” his lawyer, Winfried Seibert, said in a statement. “Rather, he still vigorously rejects them.” Von Pierer had to take into account the risks and costs of litigation as well as the conflict’s toll on his personal life, Seibert said.

No Agreement

Sharef agreed to pay 4 million euros, Radomski and Feldmayer paid 3 million euros, and Baumann agreed to pay 1 million euros, the company said. Siemens had previously settled with former board members Edward Krubasik, Rudi Lamprecht and Klaus Wucherer. A spokesman for Kleinfeld declined to comment.

No agreements were reached with former management board member Thomas Ganswindt and former Chief Financial Officer Heinz-Joachim Neubuerger. Neubuerger’s attorney, Eberhard Wahle, didn’t immediately return a call seeking comment. Andreas Wirth, Ganswindt’s attorney, said there is “a big interest from both sides to come to an agreement.”

“The Siemens case has changed the landscape, putting more pressure on companies to go after former executives in cases of wrongdoings,” said Jens Wagner, a corporate law attorney at Allen & Overy LLP in Munich, who isn’t involved in the case. “We may see more such actions against ex-managers in Germany.”

For decades, the company paid kickbacks and bribes to win contracts from Iraq’s government in the United Nations oil-for- food program and for projects including commuter rail in Venezuela, mobile-phone networks in Bangladesh, power plants in Israel and traffic-control systems in Russia.

At Peace

The company has had about 2.5 billion euros in costs related to the scandal. Siemens used off-book accounts to conceal the illegal payments, U.S. prosecutors said in the charging documents.

“The course of action we took was legally necessary,” Siemens CEO Peter Loescher said. “I have always emphasized that we would follow this process through to the end. Our goal was also for the company to be at peace.”

Kleinfeld, whose previous jobs at Siemens included running the U.S. unit and global strategy, and von Pierer are being investigated for administrative offenses by Munich prosecutors. Both have denied wrongdoing. Von Pierer said in a Nov. 10 interview that he had “taken political responsibility” for the events and that he will defend himself against the allegations.

The engineering company had originally set a deadline for the middle of last month for managers to declare if they are willing to settle the case or face a lawsuit.

Loescher, the first outsider to run the company in its 160- year history, overhauled the structure and replaced half of the top 100 executives. The annual general meeting scheduled for Jan. 26 will decide on the agreement.

“We can expect a turbulent, emotional meeting over this,” said Mathias Habersack, a corporate law professor at Tuebingen University in Germany. Still, the accord is “an elegant solution for the supervisory board and Siemens, and certainly much better than years of litigation with uncertain outcome.”

In the Jamaican story, the term, state capture,  is used to describe a situation where powerful individuals, institutions, companies or groups within or outside a country use corruption to influence policies, the legal environment and economy to benefit their own private interests.

The information is contained in a report which the organization compiled following its five-day visit to Jamaica in September.

While in the country, representatives from the organization held talks with key reformers, on the corruption challenges affecting Jamaica.

The extensive drug and arms trade and associated gang operations in Jamaica, which fuel corruption through bribery, extortion and payoffs were highlighted.

Additionally, the lack of transparency and accountability in the funding of political parties was another issue raised during the dialogue.

It is felt that this could facilitate peddling by elites, and corrupt economic interests.

When combined the group said the two conditions suggest a clear and present danger of state capture in the country.

It has also argued that the extra burden of paying bribes, which amounts to a corruption tax, affects major investment and hinders economic development.

Transparency International was invited by Professor Trevor Munroe, the Director of the National Integrity Action Forum.

The forum was established to bring together leaders from the public and private sectors, and civil society to play their part in the fight against corruption.

Just last month, the global anti-corruption body gave Jamaica another low ranking in its corruption index, for a third consecutive year.