Bribery trial deepens Siemens woes

DARMSTADT, Germany: Two former managers for the engineering conglomerate Siemens told a German court Tuesday that they meted out €6 million in bribes in Italy as part of the company's strategy to anchor itself in the booming market for power generation equipment.

But the managers, Horst Vigener and Andreas Kley, vigorously defended themselves against the charge of breach of trust regarding an amount equivalent to $7.9 million, arguing that Siemens benefited greatly from them.

Both men also said that they had not violated a German law forbidding bribery of public officials abroad because the Italian utility in question, Enel, was already effectively privatized.

The Darmstadt trial is one of a host of legal difficulties facing Siemens, a pillar of German industry, that has shaken the country unlike any other recent business scandal. One involving its telecommunication arms surfaced late last year, while another involving employee representatives emerged last month.

Prosecutors in Darmstadt, a university town south of Frankfurt, are basing the Italian case on a recent German law derived from a decade-old anti-bribery convention at the Organization for Economic Cooperation & Development. It is one of the first instances that prosecutors in Germany have used the law as the basis for their case.

"Without this accord, we would never have been able to make this case," said Ulrich Busch, the chief prosecutor in Darmstadt.

The case dates to payments made through a web of bank accounts in Liechtenstein and Switzerland to executives in Dubai, Abu Dhabi and Monaco to secure €450 million in equipment supply contracts with Enel between 1999 and 2002. Both men testified that the payments went to two Enel managers who solicited payments in the bidding process.

Prosecutors are charging both former Siemens men with breach of trust, a charge indicating inappropriate stewardship of company money. They are not accused of personal enrichment.

Vigener, an engineer who retired from Siemens in the early 1990s for health reasons and then returned as an independent consultant late in the decade, emphasized his distance from the entire affair despite his brief involvement. "Italy was never my area of responsibility," Vigener told the court.

Kley, the former head of sales for Siemens's power generation division, admitted to approving the payments directly, but he disputed any adverse effect on the company.

"The alternative would have been to turn down the project, which would have denied Siemens not only that business but also a foot in the door in the Italian market," Kley told the court.

Both sides in the trial, which is scheduled to wrap up in early April, geared up for a wrangle over whether Enel managers were public officials.

Prosecutors argued that Germany's OECD-inspired law should apply because the Italian state owned a controlling 68 percent stake in Enel when the bribes were paid. The defense emphasized how Enel was listed on stock exchanges through a public share sale.

Busch said the Darmstadt case was likely to be one of very few in which the definition of a public official becomes an issue in cases of bribery abroad. In 2002, Germany passed an additional law extending the prohibition on bribery to all employees abroad, whether at public or private companies.

If prosecutors win their case, they can petition the courts to make Siemens pay back the roughly €338 million it earned from the contracts.

The Darmstadt case predates an investigation, now proceeding in Munich, where Siemens is headquartered, on whether the company bribed other foreign officials with €420 million to sell telecommunications equipment. The Italian case involves only power generation equipment, a business that had €10.1 billion in sales last year.

"There were no connections to other areas of the company," said Busch, the prosecutor in Darmstadt. "That does not mean they do not exist, but we did not find that."

The Darmstadt case got under way as the details of a new investigation into Siemens, which began on Feb. 14, emerged to reveal a possible plan to bribe employee representatives at the company. Authorities in Nuremberg raided several Siemens offices that day. They have also had Wilhelm Schelsky, who is chairman of a small German labor union, in custody for interrogation, his lawyer, Jürgen Lubojanski, said.

Prosecutors, who have declined to comment on the investigation, are examining whether €14.75 million that was paid to Schelsky for consulting duties might have been aimed at persuading members of the union, known as AUB, to support Siemens policies.

"He disputes the notion that he was supposed to create a tame and lame union for Siemens," Lubojanski said. "More I cannot say."

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