Electronics News
- Siemens bribery scandal hits China
Date: 30-Aug-2007 Sources: (Shenzhen Daily)
SIEMENS' bribery scandal has spread to China, after hitting its operations in Germany, Switzerland, Italy, Greece, the United States and Russia.
A report in the German weekly WirtschaftsWoche last weekend quoted unnamed sources as saying that around half of the German industrial group's business in China was tainted by bribery. The report did not give a timetable or say how much money was involved. But the newspaper reported that Siemens' heads in China are essentially operating out of control of its headquarters in Munich.
Richard Hausmann, president of Siemens China, denied the report at a news conference in Shanghai on Aug. 22.
'In terms of the statement made in the German press about Siemens' China business being influenced by bribery, this statement cannot be made,' said Hausmann.
But he said a company-wide investigation into allegations that its staff had paid bribes had uncovered some cases of improper business activities in China. He warned that such behavior would have clear consequences. He said that the company took a zero-tolerance approach to anyone who violates its internal policy.
Over the past year, Siemens has cut ties with 20 employees in China who had done things which the company did not approve, Hausmann said, without elaborating.
Siemens has been rocked by investigations by German and U.S. authorities into suspected bribery involving hundreds of millions of euros. Last month, it said it was extending its internal investigation into the bribery issue.
China is a major growth driver for Siemens, which makes a wide range of products in the country, from industrial automation systems to washing machines and hearing aids.
The German conglomerate said in May that it had invested more than 15 billion yuan (US$2 billion) in China and planned to invest a further 10 billion yuan, doubling its annual sales in 2010 from 50.4 billion yuan in 2006. Shenzhen Metro relies on Siemens' technologies although there is no suggestion the city's transport company is involved in the bribery allegations.
Siemens received new orders worth 5.6 billion yuan from China in 2005, a 34 percent jump from a year before. Its sales volume jumped 15 percent to 44.3 billion yuan in the year.
Bribery scandal emerges
Half a year ago, Hausmann said the company's China operations were not involved in the bribery scandal.
But earlier this month, Siemens spokesman Andreas Schwab acknowledged instances of 'inappropriate business' in China had been revealed in the internal probe.
In a report completed Nov. 9, 2006, KPMG auditors wrote that several million euros worth of 'old business consulting contracts' were paid to nine companies such as Shaanxi Sanhuan, Everloyal, ICC, and I.B.F Business Services Ltd.
The KPMG document stated that there is a 'high risk' that these contracts were really used for bribes. It is unclear who was responsible for the payments, some of which were made a number of years ago.
According to report by German portal Spiegel Online, Siemens had three accounts in Liechtenstein through which hundreds of millions of euros were transferred.
One of the accounts is named Waigaoqiao, which received 4.1 million euros (US$5.58 million) in 1998 in six transactions. It is suspected that the money was used to attract contracts for the Waigaoqiao power project in Shanghai.
The WirtschaftsWoche quoted a Siemens manager as saying that 90 percent of the firm's business with China was being conducted by middlemen.
The Chinese newspaper Southern Metropolis Daily quoted unnamed industry insiders as saying that many multinational companies sought the help of middlemen to get Chinese contracts. The middlemen, who usually have strong relations in the government, would receive bribes through a shell company, said the newspaper.
The bidder would give the bribes to the middlemen through the shell company under the names of consultancy fees, service fees, or installation fees. The middlemen would then bribe the companies inviting the bids by giving them cash or arranging trips abroad, said the newspaper.
The newspaper cited industry insiders who said that bribes could amount to 2-3 percent of the project value.
Yu Jianjun, a lawyer in Guangdong, said it was difficult to trace the bribes. 'Through fabricating transactions with shell companies, the bribers could hide evidence,' said Yu.
'The only possibility of digging out evidence is to find an insider to speak as a witness, but that is hard,' said Yu.
No probe results
But bribery cannot always be hidden. Early this year, Chen Yuwei, former president of the No. 4 Changsha People's Hospital in Central China's Hunan Province, was convicted of receiving bribery from Siemens and another company. The amount totaled 1.28 million yuan.
In 2000, a court in East China's Jinan City, Shandong Province, convicted Cui Zhongliang, a technical official of the provincial communications bureau, of receiving 10,000 yuan in bribery from a Siemens salesman.
Pan Xiaoying, a spokesperson of Siemens China, said the company
had appointed New York-based law firm Debevoise and Plimpton to carry out an internal investigation and probes in China were launched in June this year.
It will still take a while for investors to reach a conclusion due to the high number and the complexity of the accounts, said Pan.
Siemens China would not say whether police had started investigating Siemens China. But a source close to the company told the Southern Metropolis Daily that legal investigations had been mostly carried out in Germany, because of necessary procedures required for cross-border legal actions. But all the documents related to Siemens China will be investigated, said the source.
Shady payments
U.S. law firm Debevoise & Plimpton, which presently screens Siemens' financial transactions, has found that the bribery scandal at the German conglomerate is far larger than previously believed.
According to a report in German newspaper Sueddeutsche Zeitung, payments of 'far more than 1 billion euros' (US$1.37 billion) have probably been spent on bribery.
While hitherto the sum used for bribery was estimated to already be a breathtaking 20 million euros, Debevoise & Plimpton experts have now found that the telecommunications arm alone spent some 900 million euros as slush money.
Besides the telecommunications unit, the power plant unit was very generous when it came to spending money on attracting orders. Debevoise & Plimpton lawyers found presumable illicit earnings amounting to 50 to 100 million euros.
They found that Siemens used a wide network of front companies, mostly in Liechtenstein and the United Arab Emirates.
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