Siemens' ‘Black Money’ Scandal Spin Control

By Colleen Taylor -- Electronic News, 12/12/2006

Germany-based engineering maven Siemens AG is launching an effort to begin picking up the pieces after a large-scale corruption case that has rocked the company, rivaling the myriad of recent stock options backdating cases in scale and scandal.

Reports emerged last month that the company used a $265 million (200 million Euros) network of "black accounts" for bribery around the world after more than 200 police raided a network of offices and private homes, carting off 36,000 pages of documents, according to a report in the U.K.'s Telegraph newspaper.

Munich police have reportedly uncovered suspicious payments made mostly through Swiss and Austrian accounts, and at least six employees have been arrested. The offices of CEO Klaus Kleinfeld were also raided, the Telegraph reported, although he is considered a co-operating witness.

The incidents are currently being further investigated by the Munich Department of Public Prosecution.

"Siemens tolerates absolutely no illegal or irregular conduct by employees -- and I really mean zero tolerance," Siemens' CEO Klaus Kleinfeld said in a statement Monday. "We are employing the knowledge and experience of external and independent experts to track down specific cases of misconduct and gaps in Siemens' regulations, structures and processes and to make our compliance system absolutely watertight."

To clean up its now sullied reputation, the company has put in a motion several initiatives with an "anti-corruption" focus. Siemens said it has enlisted the help of international law firm Debevoise & Plimpton LLP to conduct an independent investigation of the compliance and control system of Siemens. KPMG, Siemens' independent auditor, will support Debevoise in its efforts. Results of the investigation will be reported directly to the audit committee. In addition, Debevoise will commission an independent auditor to support the investigation of Siemens' internal control systems and individual cases with forensic accounting experts.

Also, in addition to setting up an internal compliance task force with a focus on anti-corruption, Siemens has appointed anti-corruption expert and co-founder of Transparency International (TI) Michael J. Hershman as compliance advisor.

The company has also appointed what it said is an "external legal expert" to head up the Siemens compliance office. Although the company did not disclose his identity, it did say he has experience investigating white-collar crime.