STAR INFO – SEC Files Settled Foreign Corrupt Practices Act Charges Against Siemens AG for Engaging in Worldwide Bribery



 

December 27, 2008

 

 

My People:

 

QUOTE

 

Between March 12, 2001 and September 30, 2007, Siemens violated the FCPA by engaging in a widespread and systematic practice of paying bribes to foreign government officials to obtain business. 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. The misconduct involved employees at all levels, including former senior management, and revealed a corporate culture long at odds with the FCPA. During this period, Siemens made thousands of payments to third parties in ways that obscured the purpose for, and the ultimate recipients of, the money. At least 4,283 of those payments, totaling approximately $1.4 billion, were used to bribe government officials in return for business to Siemens around the world. Among others, Siemens paid bribes on transactions to design and build metro transit lines in Venezuela; metro trains and signaling devices in China; power plants in Israel; high voltage transmission lines in China; mobile telephone networks in Bangladesh; telecommunications projects in Nigeria; national identity cards in Argentina; medical devices in Vietnam, China, and Russia; traffic control systems in Russia; refineries in Mexico; and mobile communications networks in Vietnam. 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 over $1.1 billion in profits on these transactions.

UNQUOTE

 

 

QUOTE

 

 

6. Four Telecommunications Proiects in Nigeria

 

49. Siemens COM made approximately $12.7 million in suspicious payments in connection with Nigerian projects, with at least $4.5 million paid as bribes in connection with four telecommunications projects with government customers in Nigeria, including Nigeria Telecommunications Limited and the Ministry of Communications. The total value of the four contracts was approximately $130 million. The practice of paying bribes by Siemens COM in Nigeria was long-standing and systematic. According to a high ranking official within Siemens Limited Nigeria, a regional company, corrupt payments in 2000 and 2001 commonly reached 15 to 30% of the contracts’ value. Bribe payments were typically documented using fictitious business consultant agreements under which no actual services were performed. The CEO of Siemens Limited Nigeria forwarded requests for “commission” payments to Siemens headquarters in Germany. The illicit payments were then made through a number of means, frequently including large cash withdrawals from cash desks that were then hand-carried in suitcases to Nigeria.

 

50. In the four telecommunications projects, approximately $2.8 million of the bribe payments was routed through a bank account in Potomac, Maryland, in the name of the wife of a former Nigerian Vice President. The Vice President’s wife, a dual U.S.-Nigerian citizen living in the United States, served as the representative of a business consultant that entered into fictitious business consultant agreements to perform “supply, installation, and commissioning” services but did no actual work for Siemens. The purpose of these payments was to bribe government officials. Other corrupt payments included the purchase of approximately $172,000 in watches for Nigerian officials designated in internal Siemens records as “P.” and “V.P.,” likely referring to the President and Vice-President of Nigeria…….

 

UNQUOTE

 

QUOTE

 

C. Breakdown of Third Partv Pavments

 

36. During the Relevant Period, Siemens made 4,283 separate payments totaling approximately $1 -4billion to bribe government officials in foreign countries throughout the world. An additional approximately 1,185 separate payments to third parties totaling approximately $39lmillion were not properly controlled and were used, at least in part, for illicit purposes, including commercial bribery and embezzlement. The following chart breaks down the $1-4billion in illicit payments to foreign government officials by business group.

 

 

Business Group……………………………………………..Bribes to Foreign Officials

………………………………………………………..Number of Payments……………..$Millions

Communications (COM)…………………………………2,505……………………………$813.5

Industrial & Solutions (I&S)…………………………………89……………………………..$22.5

Medical Solution (MED)……………………………………705……………………………..$92.6

Power Generation (PG)…………………………………….353…………………………….$208.7

Power Transmission (PT)………………………………….356…………………………….$148.2

Transportation Systems (TS)……………………………..154……………………………..$70.0

Other …………………………………………………………..121……………………………..$44.8

Total………………………………………………………….4,283…………………………$1,400.7

UNQUOTE

 

 

There are many questions to answer here, folks…..the questions MUST be asked.

 

 

 

Bolaji Aluko

Shaking his head

 

—————————————-

 

http://sec.gov/litigation/litreleases/2008/lr20829.htm

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20829 / December 15, 2008
Accounting and Auditing Enforcement Release No. 2911 / December 15, 2008
Securities and Exchange Commission v. Siemens Aktiengesellschaft, Civil Action No. 08 CV 02167 (D.D.C.)
SEC Files Settled Foreign Corrupt Practices Act Charges Against Siemens AG for Engaging in Worldwide Bribery With Total Disgorgement and Criminal Fines of Over $1.6 Billion

During this period, Siemens made thousands of payments to third parties in ways that obscured the purpose for, and the ultimate recipients of, the money. At least 4,283 of those payments, totaling approximately $1.4 billion, were used to bribe government officials in return for business to Siemens around the world. Among others, Siemens paid bribes on transactions to design and build metro transit lines in Venezuela; metro trains and signaling devices in China; power plants in Israel; high voltage transmission lines in China; mobile telephone networks in Bangladesh; telecommunications projects in Nigeria; national identity cards in Argentina; medical devices in Vietnam, China, and Russia; traffic control systems in Russia; refineries in Mexico; and mobile communications networks in Vietnam. 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 over $1.1 billion in profits on these transactions.

An additional approximately 1,185 separate payments to third parties totaling approximately $391 million were not properly controlled and were used, at least in part, for illicit purposes, including commercial bribery and embezzlement.

Siemens failed to implement adequate internal controls to detect and prevent violations of the FCPA. Elaborate payment mechanisms were used to conceal the fact that bribe payments were made around the globe to obtain business. False invoices and payment documentation was created to make payments to business consultants under false business consultant agreements that identified services that were never intended to be rendered. Illicit payments were falsely recorded as expenses for management fees, consulting fees, supply contracts, room preparation fees, and commissions. Siemens inflated U.N. contracts, signed side agreements with Iraqi ministries that were not disclosed to the U.N., and recorded the ASSF payments as legitimate commissions despite U.N., U.S., and international sanctions against such payments.

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.

SEC Complaint in this matter

 

http://www.sec.gov/litigation/litreleases/2008/lr20829.htm

—————————————————

 

 

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

1

 

Assign. Date : 1211212008

Description: General Civil

 Case: 1 :08-cv-02167

Assigned To

: Leon, Richard J.

 

 

Plaintiff,

U.S.

SECURITIES AND EXCHANGE COMMISSION, 

100 F. Street, NE 

Washington, D.C. 20549

 

V.

 

Defendant.

SIEMENS AKTIENGESELLSCHAFT J

Wittelsbacherplatz 2 

D-80333 Munich 

Federal Republic of Germany 

 

 

COMPLAINT

Plaintiff, U.S. Securities and Exchange Commission (the “Commission7′), alleges:

 

SUMMARY

 

1. Between March 12,2001 and September 30,2007 (the “Relevant Period”), Siemens Aktiengesellschaft (“Siemens” or the “Company7′) violated the Foreign Corrupt Practices Act 115 U.S.C. 5 78dd-11 (the “FCPA”) by engaging in a widespread and systematic practice of paying bribes to foreign government oEcials to obtain business. Siemens created elaborate payment schemes to conceal the nature of its corrupt payments, and the Company’s inadequate internal controls allowed the illicit conduct to flourish. The misconduct involved employees at all levels of the Company, including former senior management, and reveals a corporate culture that had long been at odds with the FCPA.

 

2. During this period, Siemens made thousands of separate payments to third parties in ways that obscured the purpose for, and the ultimate recipients of, the money. At least 4,283 of those payments, totaling approximately $1.4 billion, were used to bribe government officials in return for business to Siemens around the world. Among the transactions on which Siemens paid bribes were those to design and build metro transit lines in Venezuela; metro trains and signaling devices in China; power plants in Israel; high voltage transmission lines in China; mobile telephone networks in Bangladesh; telecommunications projects in Nigeria; national identity cards in Argentina; medical devices in Vietnam, China, and Russia; traffic control systems in Russia; refineries in Mexico; and mobile communications networks in Vietnam. 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 over $1.1 billion in profits on these fourteen categories of transactions that comprised 332 individual projects or individual sales.

 

3. In November 2006, Siemens’ current management began to implement reforms to the Company’s internal controls. These reforms substantially reduced, but did’ not entirely eliminate, corrupt payments. All but $27.5 million of the corrupt payments occurred prior to November 15,2006.

 

4. Siemens violated Section 30A of the Securities Exchange Act of 1934 (“Exchange Act7′) [15 U.S.C. 578dd-11 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 an adequate internal control system in place to detect and prevent the illicit payments. Siemens violated Section 13(b)(2)(A) of the Exchange Act by improperly recording each of those payments in its accounting books and records……..

 

13. The term Niitzliche Aufwendungen (“NAY’)or ”useful expenditures” was a commonly used taxlaw term and was commonly listed on Siemens’ cost calculation sheets to denote payments to third parties, including illicit payments to foreign officials. Though asla rule Siemens required two signatures on all major documents in accordance with an inted control known as the “four-eyes” principle, many exceptions to the rule were made to ensure quick access to cash to make illicit payments……….

 

2. Red Flags (Communications Grouv -Nigeria)

 

20. From 2003 to 2006, the thirdperiod, members of the Vorstand failed to respond appropriately to indications that bribery was widespread at Siemens. Red flags that the Vorstand members missed or ignored included substantial cash payments in Nigeria by senior level employees within the COM business group. In the fall of 2003, Siemens’ outside auditor KPMG identified €4.12 million in cashthat was brought to Nigeria by COM employees and flagged the payments for review. A compliance attorney at the Company conducted a one-day investigation of the payments and wrote a report indicating that COM employees admitted that it was not an isolated event and warned of numerous possible violations of law. Though the compliance report was reviewed in November 2003 by Siemens’ then-CFO, no disciplinary action was taken, no further investigative work was conducted, and the report was not provided to or discussed with the Vorstand as a whole or the Company’s audit committee. COM employees identified in the report, including a former COM manager, continued to pay bribes through a series of slush fundsuntil at least November 2006, when they were arrested following a raid of Siemens’ offices (the “Dawn Raid”) by criminal authorities in Munich, Germany. Had senior management responded differently, bribes paid by the COM group could have been reduced or eliminated………

 

B. Illicit Payment Mechanisms Used to Pay Bribes

 

28. During the Relevant Period, Siemens made thousands of payments to third parties in ways that obscured the purpose for, and ultimate recipient of, the money. The principal payment mechanisms used to facilitate illicit were business consultants, payment intermediaries, slush funds, cash, and intercompany accounts.

 

29. Through its use of business consultants and payment intermediaries, Siemens funneled more than $982.7 million to third parties, including government officials. All but $27.5 million of the payments were made prior to November 15,2006. Business consultants were typically hired pursmt to business consultant agreements, contracts that on their face obligated Siemens to pay for legitimate consulting services. In reality, many business consultant agreements were shams in that the business consultants performed no services beyond funneling bribes. PG had specific instructions on how to use a “confidential payment systemyy to conceal payments to business consultants. Payment intermediaries were additional entities and individuals through which Siemens funneled bribes. In many cases, Siemens would pay the intermediary an amount and simultaneously direct that the money be transferred to a third-party bank account, less a small portion as the intermediary’s fee.

 

30. Siemens also funneled more than $21 1 million through slush funds for use as bribes. All but $2.3 million of the piiyments were made prior to September 30,2004. Slush funds were bank accounts held in the name of current or former senior Siemens employees, third parties, or affiliated entities. The most notable slush funds were maintained by a former COM manager recently convicted in Germany for his role in the payment of bribes to foreign officials, which included several slush funds held in the name of U.S. shell companies.

 

31. . Siemens also used cash and cash equivalents to he1 more than $160.4 million to third parties. All but $9.2 million of the payments were made prior to September 30,2004. Siemens COMemployees used cash desks maintained by the Siemens Real Estate Group to obtain large amounts of cash to pay bribes. Often, employees would obtain hundreds of thousands of dollars and, at times, even $1 million in various currencies fiom the cash desks in Germany. The cash was transported, sometimes in suitcases, across international borders into various countries. At times, the cash was then stored in safes maintained by Siemens employees to ensure ready access to cash to pay bribes.

 

32. Lastly, Siemens used various types of internal accounts to funnel more than $16.2 million to third parties. Approximately 99% of the payments were made prior to September 30,2005. An intercompany account is a type of Siemens7 internal account that is used to make payments on transactions between two Siemens entities, i.e., for entity to entity business. Siemens used the intercompany accounts to make third party payments and in a number of instances, Siemens maintained the accounts in the names of unconsolidated entities around the globe, including Ecuador and Nicaragua, in order to avoid detection. Some of the intercompany accounts maintained at unconsolidated entities were known to, and possibly created by, a former member of the Vorstand, who had oversight responsibility for Latin America……………………………

 

 

C. Breakdown of Third Partv Pavments

 

36. During the Relevant Period, Siemens made 4,283 separate payments totaling approximately $1 -4billion to bribe government officials in foreign countries throughout the world. An additional approximately 1,185 separate payments to third parties totaling approximately $39lmillion were not properly controlled and were used, at least in part, for illicit purposes, including commercial bribery and embezzlement. The following chart breaks down the $1-4billion in illicit payments to foreign government officials by business group.

 

 

Business Group……………………………………………..Bribes to Foreign Officials

………………………………………………………..Number of Payments……………..$Millions

Communications (COM)…………………………………2,505……………………………$813.5

Industrial & Solutions (I&S)…………………………………89……………………………..$22.5

Medical Solution (MED)……………………………………705……………………………..$92.6

Power Generation (PG)…………………………………….353…………………………….$208.7

Power Transmission (PT)………………………………….356…………………………….$148.2

Transportation Systems (TS)……………………………..154……………………………..$70.0

Other …………………………………………………………..121……………………………..$44.8

Total………………………………………………………….4,283…………………………$1,400.7

 

 

D. Bribery of Government Officials

 

37. The following paragraphs provide examples of bribery schemes involving projects and individual sales carried out by Siemens using U.S. means during the Relevant Period with profits, of over $1.1 billion…..

 

 

6. Four Telecommunications Proiects in Nigeria

 

49. Siemens COM made approximately $12.7 million in suspicious payments in connection with Nigerian projects, with at least $4.5 million paid as bribes in connection with four telecommunications projects with government customers in Nigeria, including Nigeria Telecommunications Limited and the Ministry of Communications. The total value of the four contracts was approximately $130 million. The practice of paying bribes by Siemens COM in Nigeria was long-standing and systematic. According to a high ranking official within Siemens Limited Nigeria, a regional company, corrupt payments in 2000 and 2001 commonly reached 15 to 30% of the contracts’ value. Bribe payments were typically documented using fictitious business consultant agreements under which no actual services were performed. The CEO of Siemens Limited Nigeria forwarded requests for “commission” payments to Siemens headquarters in Germany. The illicit payments were then made through a number of means, frequently including large cash withdrawals from cash desks that were then hand-carried in suitcases to Nigeria.

 

50. In the four telecommunications projects, approximately $2.8 million of the bribe payments was routed through a bank account in Potomac, Maryland, in the name of the wife of a former Nigerian Vice President. The Vice President’s wife, a dual U.S.-Nigerian citizen living in the United States, served as the representative of a business consultant that entered into fictitious business consultant agreements to perform “supply, installation, and commissioning” services but did no actual work for Siemens. The purpose of these payments was to bribe government officials. Other corrupt payments included the purchase of approximately $172,000 in watches for Nigerian officials designated in internal Siemens records as “P.” and “V.P.,” likely referring to the President and Vice-President of Nigeria…….

 

 

F. Siemens Involved U.S. Means to Engage in Bribery

 

74. In total, Siemens made bribe payments directly or indirectly to foreign govemment officials in connectionwith at least 290 projects or individual sales involving business in Venezuela, China, Israel, Bangladesh, Nigeria, Argentina, Vietnam, Russia, and Mexico that employed the mails and other means and instnunentalities of U.S. interstate commerce. The corrupt payments were made to government officials or their designees for the purpose of obtaining or retaining business in connection to the above projects. The use of interstate commerce in connection with bribery included involving U.S.-based Siemens subsidiaries and their employees in the bribery schemes; financing of three underlying projects by the World Bank and the U.S. Export-Import Bank; making illegal payments through U.S. banks; using U-S-based companies asintermediaries, business consultants, and holders of slush funds; conducting meetings in the United States in furtherance of a bribery scheme; and transmitting mail, electronic mail, and facsimile messages into and out of the United States……

 

 

CLAIMS FOR RELIEF

FIRST CLAIM

[Violations of Section 30A of the Exchange Act]

Paragraphs 1through 78 are realleged and incorporated by reference.

 

79. As described above, Siemens, through its officers, agents, and subsidiaries, corruptly offered, promised to pay, or authorized payments to one or more persons, while knowing that all or a portion of those payments would be offered, given, or promised, directly or indirectly, to foreign officials for the purpose of influencing their acts or decisions in their official capacity, inducing them to do or omit to do actions in violation of their official duties, securing an improper advantage, or inducing such foreign officials to use their influence with foreign governments or instrumentalities thereof to assist Siemens in obtaining or retaining business.

 

80.

 

By reason of the foregoing, Siemens violated, and unless enjoined will continue to violate, Section 30A of the Exchange Act. [15 U.S.C. S78dd-11

SECOND CLAIM

[Violations of Section 13@)(2)(A) of the Exchange Act]

Paragraphs 1through 80 are realleged and incorporated by reference.

 

81. As described above, Siemens, through its officers, agents and subsidiaries, failed to keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflected its transactions and dispositions of its assets.

 

82. By reason of the foregoing, Siemens violated, and unless enjoined will continue to violate, Section 13(b)(2)(A) of the Exchange Act. [15 U.S.C. § 78m~(2)(~)1

 

THIRD CLAIM

[Violations of Section 13(b))(2(B) of the Exchange Act]

Paragraphs 1through 82 are realleged and incorporated by reference.

 

83. As described above, Siemens failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that:

(i) transactions were executed in accordance with management’s general or specific authorization; and (ii) transactions were recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (II) to maintain accountability for its assets.

 

84. By reason of the foregoing, Siemens violated, and unless enjoined will continue to violate, Section 13(b)(2)(B) of the Exchange Act. [15 U.S.C. &78m(b)(2)(A)]

 

 

PRAYER FOR RELIEF

 

WHEREFORE, the Commission respectfully requests that this Court enter a final judgment:

 

A. Permanently restraining and enjoining Siemens from violating Sections 30A, 13@)(2)(~) and 13@)(2)@) of the Exchange Act [15 U.S.C. 8578dd-1,

 

B. Ordering Siemens to disgorge ill-gotten gains wrongfully obtained as a result of its illegal conduct; and

 

C.. Granting such further relief as the Cow may deem just and appropriate.

 

Dated: 2008 Respectfully submitted,

 

 

 

Cheryl J. Scarboro (D.C. Bar No. 422175) 

Reid A. Muoio 

Tracy L. Price 

Denise Hansberry 

Robert I. Dodge

,

Attorneys for Plaintiff,

U.S; Securities and Exchange Commission

100F Street, NE

Mail Stop 6030 SPII

Washington, .DC 20549-6030

(202) 551-4403 (Scarboro)


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