Siemens Ran a $50 Million-a-Year Bribery Budget Out of One Division. The Man Who Ran It Got a Suspended Sentence.

On November 15, 2006, six German police officers and a prosecutor arrived at the Munich home of Reinhard Siekaczek, a mid-level Siemens finance manager, with a warrant for his arrest. Investigators had traced suspicious bank transfers running through Liechtenstein and Switzerland to offshore accounts from Dubai to the British Virgin Islands. Siekaczek told them he had personally overseen an annual bribery budget of roughly $40 million to $50 million inside Siemens's telecommunications division alone.

By the time investigators finished tallying the full picture, Siemens — one of the world's largest engineering conglomerates, maker of everything from power turbines to medical scanners to metro trains — had made at least 4,283 separate payments totaling approximately $1.4 billion to government officials in at least ten countries over roughly a decade. The U.S. Department of Justice would later put it more simply: at Siemens, bribery was "nothing less than standard operating procedure."

How the Money Moved

Siekaczek's system, which he described in detail to investigators after his arrest, funneled cash out of Siemens through sham consulting contracts and off-books accounts, then routed it through a chain of jurisdictions designed to make the money's origin and destination equally hard to trace. Investigators estimated that roughly €1.3 billion (about $2 billion) moved through Siemens slush funds between 2000 and 2006 alone.

The payments bought business across a striking range of sectors and countries: metro transit lines in Venezuela, power plants in Israel, oil refinery contracts in Mexico, mobile telephone networks in Bangladesh, national identity card systems in Argentina, and medical equipment contracts in Vietnam, China, and Russia, according to the SEC's later complaint. Munich prosecutors got their first conviction on a small piece of it in 2007, fining Siemens €201 million over roughly €12 million in improper payments tied to telecom contracts in Nigeria, Russia, and Libya — a fraction of what turned out to be underneath it.

The Resignations

Siemens's supervisory board hired the law firm Debevoise & Plimpton in December 2006 to run an independent internal investigation, backed by forensic accountants from Deloitte. Within months it had identified hundreds of millions of euros in suspicious transactions and, per contemporaneous reporting, information implicating executives well above Siekaczek's level.

On April 25, 2007, both Heinrich von Pierer — who had led Siemens as CEO from 1992 to 2005 and then chaired its supervisory board — and Klaus Kleinfeld, his successor as CEO, resigned within the same week. Neither was criminally charged over the bribery itself. More than two years later, in December 2009, von Pierer, Kleinfeld, and nine other former board members agreed to pay Siemens a combined settlement for breaching their supervisory duties; von Pierer's share, the largest, was €5 million, and Kleinfeld's was €2 million.

The Settlement

• December 15, 2008: Siemens AG and three subsidiaries plead guilty in U.S. federal court to violating the Foreign Corrupt Practices Act's books-and-records and internal-controls provisions, and agree to pay $450 million in criminal fines to the Department of Justice plus $350 million in disgorgement to the SEC — $800 million combined, at the time the largest FCPA penalty ever imposed, nearly 20 times the prior record.
• The same day, German prosecutors in Munich fine Siemens roughly €395 million (about $569 million) for breach of duty tied to the bribery, on top of the €201 million already paid in 2007.
• Combined worldwide, Siemens's fines, penalties, and disgorgement from the scandal topped $1.6 billion.
• July 2009: Siemens separately agrees to pay $100 million over 15 years to anti-corruption and fraud-fighting initiatives as part of a settlement with the World Bank Group, which had threatened to debar Siemens entities from bidding on Bank-financed projects.
• December 2011: The SEC files civil fraud charges against eight former Siemens executives and agents, alleging they authorized or helped conceal bribe payments in Argentina, Bangladesh, and Venezuela; several settle without admitting wrongdoing.

What Happened to People

Reinhard Siekaczek, the manager whose arrest broke the case open, was convicted by a Munich court of breach of trust and received a two-year suspended prison sentence plus a €108,000 fine — for running a bribery operation investigators valued in the hundreds of millions of dollars. He did not go to prison. No Siemens executive, in Germany or the United States, was sentenced to prison time over the bribery scheme itself; the corporate penalties were criminal, the individual consequences were overwhelmingly civil.

The Rebuild

As part of its settlements, Siemens accepted an independent compliance monitor — former German Federal Finance Minister Theo Waigel — who spent more than four years, from 2009 into 2012, reviewing and certifying the company's new anti-corruption controls before signing off with a "Year Four" report. Siemens built out a compliance organization that grew to more than 500 dedicated staff worldwide and, by later company and outside accounts, invested over $1 billion rebuilding the function from scratch: a chief compliance officer, mandatory business-partner due diligence, and an internal reporting system that by some later counts generated more flagged cases per year than the company had ever seen before, even as penalties against employees declined.

The Munich prosecutor's initial 2007 fine, for the bribes investigators could prove first, was €201 million. The bribery budget Reinhard Siekaczek ran by himself, in one division, for one year, was up to $50 million. What Siemens spent afterward building a department to make sure it never happened again ran past $1 billion — spread out, audited, and signed off on year by year by a former government minister hired for the job.

Filed from public reporting:

• U.S. Department of Justice — Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines
• U.S. Securities and Exchange Commission — SEC Charges Siemens AG for Engaging in Worldwide Bribery
• NPR — Siemens Hit With $1.6 Billion Fine In Bribery Case
• CorpWatch — Germany: At Siemens, Bribery Was Just a Line Item
• Courthouse News Service — Former Siemens Manager Convicted in Bribery Case
• Bloomberg — Siemens Settles Bribery Case With Former Executives
• Wikipedia — Heinrich von Pierer
• World Bank — Siemens to Pay $100 Million to Fight Fraud and Corruption as Part of World Bank Group Settlement
• U.S. Securities and Exchange Commission — SEC Charges Former Siemens Executives With Bribing Leaders of Argentina
• 100Reporters — Slammed for Bribery, Siemens Continued to Ignore Red Flags
• The Conversation — Lessons From the Massive Siemens Corruption Scandal One Decade Later
• Miller & Chevalier — Siemens Agrees To Landmark $800 Million Settlement