Siemens How The Greased Wheel Slid

Seimens:
How the
Greased
Wheels Slid
Case Study # 2
Group # 6
Presented by:
Moammil Zafar 2018-BBAE-042

Hamza Badar 2018-BBAE-048
Shahzaib Ali 2018-BBAE-028
Javeria Tahir 2018-BBAE-027
Junaid Afzal 2018-BBAE-045
Presented to:
Mr. Shehzad Ahmad

Table of Contents
Summary
1 Introduction
2 The Allegations Start
3 A Culture Built on “Don’t Ask, Don’t Tell”
4 The Consequences Begin
5 A New Beginning
6 The Fines Continue
7 An Amnesty Plan
8 The Investigation Continues
9 The Cost of Corruption
Questions for Thought

1 Should bribery be considered an unethical?
2 How to change a bribery culture?
3 Does an amnesty program really work?
4 Do you agree with former CEO’s statement?
4
5
Summary
Introduction
Siemens is an electronic company based in Munich, Germany. Siemens’s
customers are other companies and governments around the world and have
long term contracts with clients worth million or billions of dollars. They have to
convince relatively small group of people to sell their product and use whatever
means possible to sign contract with firm including illegal financial incentives.
The Allegations Start

Siemens was exposed when its six executives were arrested for bribery in
telecommunications industry including Thomas Ganswindt, head of
telecommunications equipment unit. The bribes were of 200 million euros to
obtain security systems contract at 2004 Olympic games.
Siemens’s senior executive, Michael kutschenreuter, was phones by Beit Al

Etisalat demanding $910 million as commission for winning telecommunication
contract. Siemens paid Al Etisalat $50 million in January 2005 including hush
money to make sure information was not sent to SEC. Siemens used fake
consulting contracts to transfer money as bribe to client. If fraud was found,
siemens would no longer bid on public sector and prosecutors found it not
isolated to one group but was widespread and were very well organized.
Siemens had to pause the merger with Nokia until the results of investigations
were knows.
A Culture Built on “Don’t Ask, Don’t Tell”

Before anti-corruption law 1999, bribes were very common in Germany. Both
Kleinfeld and von Pierer denied any bribe to Al Etisalat. Bribes were so wide
spread that coding system for them using phrase “Make Profit”. Kutschenreuter
stated he witnessed bribes being paid for power project contract in Russia and
Slovakia and to Argentine government for electronically scannable passport
contract from 1999 till 2001 due to change ion government. He said bribe was
considered small sin for larger benefit for the company.
Reinhardt Siekaczek was ordered to establish account used for bribery. One
account was used to transfer more than 75 million euros annually for contract in
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Cameroon, Egypt, Greece, Indonesia, Kazakhstan, Kuwait, Nigeria, Saudi Arabia,
and Vietnam. Former CEO Heinrich von Pierer stated he had taken major steps
to control bribery and corruption but failed.
Siemens decentralized structure allowed bribery without check and balance and
unit business managers were given autonomy in decision making which
weakened the potential accountability of manager’s actions.
The Consequences Begin

In march 2007, former siemens executive stood trial for paying 6 million euros
to secure power generation equipment contract with Italian utility Enel. Both
siemens managers and former finance chief admitted bribe but argued not
guilty. They argued siemens benefited greatly and Enel is hybrid company.
Italian government controlled 68% of Enel’s stock during bribes. In 2002,
Germany passed law to forbid bribes regardless of public or private entity.
Siemens managers were charged for breach of trust and were convicted of
giving bribes. Siemens paid $51.4 million, equivalent to profit made, and
managers received suspended prison sentences.
A New Beginning
In April 2007, von Pierer resigned as chairman of supervisory board due to his
duty to siemens. 6 days later, Kleinfeld stepped down as CEO as his contract
expired. In July, 2007, siemens chief compliance office, Daniel Nao stepped
down due to lack of support and was not given enough power to investigate
illegal activities at siemens. Peter Loescher was named CEO and he promised to
ensure no bribery and he was first CEO outside of Siemens. Loescher stated
that Siemens’s strategic focus would be based on “performance with ethics”.
The Fines Continue

In October 2007, Siemens was fined $284 million for its role in
telecommunication equipment bribed. Siemens paid a total of 77 bribes
equaling approximately 12 million euros to government officials in Nigeria,
Russia and Libya from 2001 to 2004 ranged from 2000 euros to 2.25 million
euros.
8
An Amnesty Plan
To determine full impact of effects of bribes, siemens declared an amnesty for
its employees except top 300 executives. 110 employees offered information
about bribes and siemens finally identified top-level managers involved.
The Investigation Continues

In April 2008, Erich Reinhardt, resigned after new findings and German’s
prosecutors started civil proceedings against former CEO von Peirer that he
failed to implement oversight of the company. In May 2008, Siekaczek went on
trial for 58 counts of breach of trust and he testified bribes as open secret at
Siemens. He argued it was difficult to shut down the bribes after ban in 1999. 5
TB of data was confiscated and Siekaczek was fined $170000 and received
suspended prison of 2 years. Feldmayer went on trial for giving $43.9 million to
AUB. He testified that no law was broken and it didn’t affect the elections of
works council representative at Siemens. Feldmayer was fined $289,300 and
was given 2 year suspended prison sentence.
The Cost of Corruption

In December 2008, siemens was fined $800 million, $450 million was given to
DOJ and $350 million to SEC. The penalty was 20 times higher and DOJ was
considering a fine of $2.7 billion. SEC estimated that Siemens made at least
4283 bribe payments that totaled $1.4 billion to Russian, Argentine, Chinese,
and Israel officials. Siemens has paid $1.63 billion in fines for its corruptions. In
2009, Siemens agreed to pay World Bank $100 million to ensure that fraud and
corruption were not part of the business dealings it financed for next 15 years to
combat corruption through training and education. Von Pierer agreed to pay
Siemens $7.5 million and Kleinfeld agreed to pay $3 million. On December 13,
2011, DOJ fined eight former Siemens executives. On February 6, 2015, former
Siemens CFO Heinz-Joachim Neubürger committed suicide after two months of
settlement with Siemens on his indolent in bribery scandal. His division was for
paying more than $1 billion in bribes globally to win contracts.
9
Questions for
Thought
1 Should bribery be considered an unethical act or just
another cost of doing business? Explain your position.
I do think that bribery should be unethical. If a company does not have a system
in place to either have the premium product on the market or have the ability to
cut cost that will give them a bang for the back then they will eventually die out.
There are shareholders and employees who trust their company and believe
that their company is successful because they have the right or the right
functions.
2 How do you change a culture that is built on bribery to

make sales?
You create a better product or you make a better operation system. A company
built on corruption and only survived because of corruption. Changing a culture
would change employees and policies at the company. New implementations of
rules that would prohibit bribery and it should send consequences to the
individuals involved. Over time there will be a change of mind within the
employees and fresh ideas from new employees and culture will change.
3 Due to the employee amnesty, 110 employees came

forward with reports of wrongdoing. Does an amnesty
program really work? Explain your position.?
I believe that it really does work. These employees were not anything from
these bribes. they were simply following the orders of their managers. The
police use this approach let the lower-level drug dealers to get to the big drug
dealers.
4 Do you agree with former CEO’s statement?

I disagree with the former CEO’s statement. I believe if you knew what was
going on in the company than you played a part in the corruption. Even if he was
new to the company, he knew the changes that needed to be made, but he
continued the same corruption that was going from the beginning.
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Seimens:

Moammil Zafar 2018-BBAE-042

Mr. Shehzad Ahmad

3 A Culture Built on “Don’t Ask, Don’t Tell”

4 The Consequences Begin

6 The Fines Continue

8 The Investigation Continues

9 The Cost of Corruption

Questions for Thought

2 How to change a bribery culture?

3 Does an amnesty program really work?

4 Do you agree with former CEO’s statement?

The Allegations Start

Siemens’s senior executive, Michael kutschenreuter, was phones by Beit Al

A Culture Built on “Don’t Ask, Don’t Tell”

The Consequences Begin

The Fines Continue

The Investigation Continues

The Cost of Corruption

2 How do you change a culture that is built on bribery to

3 Due to the employee amnesty, 110 employees came

4 Do you agree with former CEO’s statement?

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