Managing corruption has added benefits for a company. In 2010, when faced with hundreds of incidents of bribing government officials across multiple nations, Panalpina, the Swiss leader in logistics, admitted a culture of corruption had emanated from its senior level management who “tolerated bribery as business as usual.”
Entries in Peter Löscher (4)
Its historic settlement on Monday of Foreign Corrupt Practices Act violations was bound to raise the questions: Did Siemens enjoy checkbook justice? Did it achieve something ordinary criminal defendants can't? Did it use its extraordinary wealth and power to arrange a rather painless resolution with the U.S. government? By paying $800 million in penalties and disgorgement, did the German giant get off easy?
By any measure, Siemens' crimes were terrible. Evidence the company itself gathered and disclosed shows that for at least ten years it operated as a corrupt global enterprise. How much of its profit came through kick-backs and bribes we'll never know, but it amounted to billions. The company spread sleaze all over the globe, distorting government decisions and hurting millions by its lawlessness. But how many of its 400,000 employees were directly involved in the criminal acts? How many arranged or paid the bribes? How many had a hand in cooking the books to cover up the fraud? Was it a dozen employees? Or more like a hundred, or even a thousand? Whatever the number, the crooked ones were a minuscule part of Siemens' total workforce.
The question, then, is how much punishment should be inflicted on the corporation because of a few bad apples, relatively speaking? Should the DOJ have put Siemens on trial for bribery and sought the harshest sanctions available? Prosecutors, after all, had the company cold. Under the doctrine of respondeat superior, an organization is generally guilty per se when one of its employees commits a crime within the scope of his or her employment. In this case, then, Siemens was defenseless -- a sitting duck awaiting execution.
But the DOJ is understandably reluctant to hit corporations head on. The Arthur Andersen prosecution in the aftermath of the Enron scandal demonstrated the catastrophic consequences that can result from a corporate felony charge. For Andersen it was an instant death sentence, even though the firm was later exonerated. That's why the DOJ has since adopted a softer approach to FCPA and other white collar offenses. It offers companies that want to cooperate alternatives in the form of negotiated settlements.
The idea is that no company is beyond redemption. That each one can change -- most dramatically by changing its board and top management, as Siemens had already done. Schnitzer Steel did that a couple of years ago in an FCPA case involving outrageous criminal conduct, and it saved itself. Like Siemens, Schnitzer wasn't charged with bribery. Instead a subsidiary was allowed to plead guilty to violating the FCPA's antibribery and books and records provisions. And Bristow Group Inc. settled serious FCPA violations last year with the SEC without paying a dollar in penalties, mainly because its all-new management showed their commitment to compliance. Is there anything more a corporate body can do?
And even though corporations might escape the harshest aspects of the law, their culpable employees aren't always so fortunate. From the time the DOJ began backing off its stiff-armed approach to corporate prosecutions, the number of individuals held accountable under the FCPA has shot up. So nobody's getting away with anything.
In Siemens' case, were the goals of criminal sentencing -- retribution, deterrence, incapacitation and rehabilitation -- all met? Once the company had new leaders who uncovered and confessed its crimes, who adopted an effective compliance program, accepted a monitor, agreed to pay fines and disgorge profits, was there any reason to punish the organization further? Wouldn't more strokes of the cane merely have bloodied innocent employees, partners, shareholders and customers, while doing nothing about the long-gone crooks?
Peter Löscher became Siemens' CEO in July 2007, just as the frightening scope of its wrongdoing was becoming clear. In an interview a year ago this week, this was his assessment:
It's completely clear that the management culture failed. Managers broke the law. But this has nothing to do with a lack of rules. Siemens had and still has an outstanding set of rules. The only problem is that they were apparently being violated on an ongoing basis. The management culture was simply not practiced consistently and uniformly. This is why my job now is to install a new culture. And I can guarantee you that senior management will practice what it preaches -- to a T.Löscher committed himself and everyone around him to a clean company. That's what saved Siemens -- not its money or its power. The most important ingredient in its survival was its leader's decision to fix things by demanding real change. As Löscher said last year: Siemens endorses clean business. Period. I am not interested in deals that can only be had through corruption. That's it, then. Compliance first, profit second.
We believe in corporate redemption -- in well-earned second chances. And we're glad Siemens is getting one now.
For some great observations about Siemens' sentence, take a look at Ellen Podgor's post on the White Collar Crime Prof Blog here.
Siemens AG -- the German industrial giant enmeshed in a global corruption scandal -- said this week that for fiscal 2007 it will delay ratifying acts of individuals who have served on its managing board at any time since 1999. President and CEO Peter Löscher, who joined Siemens after the events under investigation occurred, and who's leading the effort to clean up the company, is exempt from the ratification's postponement.
The move may preserve Siemens' ability to act against managers who knowingly participated in the fraud, which allegedly involves illegal payments amounting to €1.3 billion. In the United States, the Securities and Exchange Commission and the Department of Justice are investigating whether Siemens violated the Foreign Corrupt Practices Act. The company is also facing possible charges of public corruption in Italy, China, Hungary, Indonesia and Norway. Before settling any eventual charges against Siemens, U.S. prosecutors will want assurances that the company has taken proportionate corrective action, including identifying those responsible for the illegal payments and imposing on them some level of work-place discipline.
In September 2007, there were reports that Siemens' internal investigation was stalling, hampered by the stonewalling of its managers in various countries. A dead-end internal investigation would have jeopardized Siemens' ability to work out a deal with U.S. prosecutors. The company then announced an internal amnesty for most employees. Last month, President and CEO Löscher said: "We have implemented an internal amnesty program that runs until the end of January. In addition, any employee can anonymously report confidential information. This could raise new suspicions that haven't even been part of the discussion until now. I want a comprehensive inquiry and the complete truth."
It appears the amnesty has worked as intended. Siemens' counsel, Debevoise & Plimpton, says the investigation is on track. In a January 16, 2008 letter to the chairman of Siemens' supervisory board's compliance committee, Debevoise said this:
"Since November 28, 2007, we have obtained significant new information and developed very substantial leads from participants in Siemens' amnesty program, as well as other sources, regarding topics relevant to our investigation. In particular, certain of this new information pertains to the conduct and knowledge of a number of individuals who have served on the Managing Board during the past several years. We do not consider it necessary or appropriate to identify these individuals at this time for several reasons. First, significant new information continues to be developed on virtually a daily basis and disclosure could impede the flow of information to us. Second, the investigation is ongoing and we are following up on the new information recently received. Third, in order to protect the reputations of individuals (and not to expose Siemens to any claims from such individuals), we do not believe it appropriate to identify anyone prior to conclusions being reached by us and the Compliance Committee. And fourth, information developed in the investigation may be relevant for governmental or judicial proceedings relating to these or other individuals or to Siemens, and for this reason, consistent with Siemens' commitment to cooperate with public officials, should not be made public at this time."
These latest revelations raise expectations that Siemens' internal report -- when it's finally produced -- will be comprehensive enough to help the company clean up its internal mess and reach a final resolution with prosecutors in the U.S. and elsewhere.
View Siemens' January 16, 2008 News Release Here.
View Debevoise & Plimpton's January 16, 2008 Letter Here.
View Prior Posts About Siemens Here.
Spiegel's December 12, 2007 online edition has a fascinating interview with Peter Löscher (left), who became ceo of Siemens AG in July 2007. There's lots for him to talk about. In October 2007, the German engineering and industrial giant settled global corruption charges with Munich prosecutors for €201 million, based on questionable payments of €420 million -- an amount the company later revised upward to €1.3 billion. In the United States, the Securities and Exchange Commission and the Department of Justice are investigating whether Siemens violated the Foreign Corrupt Practices Act. The company is also facing possible charges of public corruption in Italy, China, Hungary, Indonesia and Norway.
In the interview, Mr. Löscher slams Siemens' former culture. He also provides a neat preview of arguments the company will marshal in talks with U.S. prosecutors early next year. It's always a good idea when facing FCPA charges to stress corrective measures already taken -- such as aggressive house cleaning among management and real efforts to create a new culture of compliance. Mr. Löscher apparently will be doing just that.
Here are excerpts from the interview:
SPIEGEL: Siemens has been shaken by what has probably been the biggest corruption scandal ever made public. Were you truly aware of what you were getting yourself into?
Löscher: To be honest, I underestimated the scope of the problem. The sum of questionable payments has now increased to €1.3 billion ($1.9 billion). In the summer, the charges centered on the Com division, that is, the communications business. But it's now clear that other parts of the company were clearly infected, as well.
SPIEGEL: The company has already incurred costs of €1.5 billion in penalties, back taxes and legal and consultants' fees.
Löscher: And the investigation is still underway.
* * *
SPIEGEL: So it was a system based on a shadow economy. How could something like this have developed in the first place?
Löscher: It's completely clear that the management culture failed. Managers broke the law. But this has nothing to do with a lack of rules. Siemens had and still has an outstanding set of rules. The only problem is that they were apparently being violated on an ongoing basis. The management culture was simply not practiced consistently and uniformly. This is why my job now is to install a new culture. And I can guarantee you that senior management will practice what it preaches -- to a T.
* * *
SPIEGEL: Why did corruption at Siemens continue for so many years, even after the laws had been toughened in Germany, and after Siemens had been listed on US stock exchange, thereby subjecting itself to tighter American controls?
Löscher: Once again, our management culture failed. And that's something we will address -- all of it. Four-hundred-seventy executives have already been sanctioned, and we have parted ways with 130. It is important that every Siemens employee knows that rules and laws must be observed. Anyone who fails to comply can expect the most serious of consequences.
SPIEGEL: What if someone confesses to old sins and asks for a second chance?
Löscher: We have implemented an internal amnesty program that runs until the end of January. In addition, any employee can anonymously report confidential information. This could raise new suspicions that haven't even been part of the discussion until now. I want a comprehensive inquiry and the complete truth.
* * *
SPIEGEL: Siemens is a company with global operations. What will you do in the future in regions or in situations where landing a contract may depend on paying bribes?
Löscher: Siemens endorses clean business. Period. I am not interested in deals that can only be had through corruption. This doesn't necessarily mean that we have to stop doing business in an entire country, but perhaps it does mean turning down specific projects or customers.
SPIEGEL: You would turn down the prospect of sales voluntarily?
Löscher: Do I even have to? Our orders were up by 19 percent last quarter. Infrastructure projects worth €500 billion will be awarded in the coming years in India alone. Business is booming. Our worldwide opportunities are promising and by no means exhausted.
SPIEGEL: The Nigerian government has imposed a moratorium on doing business with Siemens. Do you expect other countries to follow its lead?
Löscher: I would rather not speculate about that.
* * *
View prior posts about Siemens Here.
View Spiegel's Interview with Siemens' CEO Peter Löscher Here.