SEC Charges Siemens AG for Engaging in Worldwide Bribery
FOR IMMEDIATE RELEASE
Washington, D.C., Dec. 15, 2008 — The Securities and Exchange Commission today announced an unprecedented settlement with Siemens AG to resolve SEC charges that the Munich, Germany-based manufacturer of industrial and consumer products violated the Foreign Corrupt Practices Act (FCPA) by engaging in a systematic practice of paying bribes to foreign government officials to obtain business.
The SEC alleges that Siemens paid bribes on such widespread transactions as the design and construction of metro transit lines in Venezuela, power plants in Israel, and refineries in Mexico. Siemens also used bribes to obtain such business as developing mobile telephone networks in Bangladesh, national identity cards in Argentina, and medical devices in Vietnam, China, and Russia. According to the SEC's complaint, Siemens also paid kickbacks to Iraqi ministries in connection with sales of power stations and equipment to Iraq under the United Nations Oil for Food Program. Siemens earned more than $1.1 billion in profits on these and several other transactions.
Siemens has agreed to pay $350 million in disgorgement to settle the SEC's charges, and a $450 million fine to the U.S. Department of Justice to settle criminal charges. Siemens also will pay a fine of approximately $569 million to the Office of the Prosecutor General in Munich, to whom the company previously paid an approximately $285 million fine in October 2007.
"Public companies that bribe foreign officials are confronting an increasingly well-coordinated international law enforcement effort," said SEC Chairman Christopher Cox. "The SEC has brought a record number of enforcement actions for foreign bribery during the past two years, and heightened international cooperation has been critical to those successful efforts. Seimens paid staggering amounts of money to circumvent the rules and gain business. Now, they will pay for it with the largest settlement in the history of the Foreign Corrupt Practices Act since it became law in 1977."
Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, said, "This pattern of bribery by Siemens was unprecedented in scale and geographic reach. The corruption alleged in the SEC's complaint involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East, and the Americas. Our success in bringing the company to justice is a testament to the close, coordinated working relationship among the SEC, the U.S. Department of Justice, and international law enforcement, particularly the Office of the Prosecutor General in Munich."
Cheryl J. Scarboro, an Associate Director in the SEC's Division of Enforcement, said, "The day is past when multi-national corporations could regard illicit payments to foreign officials as simply another cost of doing business. The $1.6 billion in combined sanctions that Siemens will pay in the U.S. and Germany should make clear that these corrupt business practices will be rooted out wherever they take place, and the sanctions for them will be severe."
The SEC's complaint alleges that between March 12, 2001, and Sept. 30, 2007, Siemens created elaborate payment schemes to conceal the nature of its corrupt payments, and the company's inadequate internal controls allowed the conduct to flourish. Siemens made thousands of payments to third parties in ways that obscured the purpose for, and the ultimate recipients of, the money. Employees obtained large amounts of cash from cash desks, which were sometimes transported in suitcases across international borders for bribery. The authorizations for payments were placed on post-it notes and later removed to eradicate any permanent record. Siemens used numerous slush funds, off-books accounts maintained at unconsolidated entities, and a system of business consultants and intermediaries to facilitate the corrupt payments. Siemens made at least 4,283 payments, totaling approximately $1.4 billion, to bribe government officials in return for business to Siemens around the world. In addition, Siemens made approximately 1,185 separate payments to third parties totaling approximately $391 million, which were not properly controlled and were used, at least in part, for such illicit purposes as commercial bribery and embezzlement.
The misconduct involved employees at all levels, including former senior management, and revealed a corporate culture long at odds with the FCPA. The SEC's complaint alleges that despite the company's knowledge of bribery at two of its largest groups — Communications and Power Generation — the tone at the top at Siemens was inconsistent with an effective FCPA compliance program and created a corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company. In November 2006, Siemens' current management began to implement reforms to the company's internal controls, which substantially reduced, but did not entirely eliminate, corrupt payments. All but $27.5 million of the corrupt payments occurred before Nov. 15, 2006.
Siemens violated Section 30A of the Securities Exchange Act of 1934 (Exchange Act) by making illicit payments to foreign government officials in order to obtain or retain business. Siemens violated Section 13(b)(2)(B) of the Exchange Act by failing to have adequate internal controls to detect and prevent the payments. Siemens violated Section 13(b)(2)(A) of the Exchange Act by improperly recording the payments in its books and records.
Without admitting or denying the SEC's allegations, Siemens has consented to the entry of a court order permanently enjoining it from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act; ordering it to pay $350 million in disgorgement of wrongful profits, which does not include profits factored into Munich's fine; and ordering it to comply with certain undertakings regarding its FCPA compliance program, including an independent monitor for a period of four years. Since being approached by SEC staff, Siemens has cooperated fully with the ongoing investigation. Siemens' massive internal investigation and lower level employee amnesty program was essential in gathering facts regarding the full extent of Siemens' FCPA violations.
The SEC acknowledges the assistance of the U.S. Department of Justice, Fraud Section; the U.S. Attorney's Office for the District of Columbia, Fraud and Public Corruption Section; the Federal Bureau of Investigation; the Internal Revenue Service; the Office of the Prosecutor General in Munich, Germany; the U.K. Financial Services Authority; and the Hong Kong Securities and Futures Commission.
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For more information, contact:
Cheryl J. Scarboro
Associate Director, SEC's Division of Enforcement