In the News. Foreign Corrupt Practices Act

The Comeback Company; Siemens tries to recover from a bribery scandal by striking integrity pacts with its rivals. IN ATTEMPTING TO REBOUND from the biggest antibribery enforcement action in memory, Siemens AG is trying to write a redemption story on the same scale. And in doing so, it’s not only trying to show that it’s built a world-class compliance program, it’s also testing its competitors’ appetite for fighting corruption. Since the bribery scandal erupted in 2006, the giant Munich-based electronics and industrial engineering firm has come clean and faced its regulators in both the United States and Germany.

It’s assembled a compliance team of 600— one of the largest anywhere—and talked it up. But now Siemens is doing more than talking; it’s trying to join with competitors to create “collective actions. ” The concept is defined on the World Bank Institute’s Web site as a collaboration that “levels the playing field between competitors. ” Approaches can vary. Companies may sign an “integrity pact” when bidding for a specific contract. Or the effort may encompass an entire industry. In either case, businesses agree to compete cleanly and be accountable. Peter Solmssen, Siemens’s general counsel (and, since September, acting CEO of its U.

S. division), is a big proponent of collective actions. In most markets, he notes, Siemens competes with only two or three other companies. “We’re convinced that if we link arms, we can affect business practices in those markets for the better,” Solmssen says. Siemens is currently trying to negotiate a collective action with ABB Ltd, Alstom, and General Electric Company, its competitors in the global power generation industry. The talks are noteworthy because a similar effort among the same players collapsed six years ago, and Siemens’s reputation was a major factor.

General Electric’s representative had been negotiating without the knowledge of Ben Heineman, GE’s general counsel at the time, and Heineman wouldn’t sign off on the deal. “What, are you kidding me? ” Heineman recalls saying when he saw the deal. “I’m not signing this. It’s Siemens—their practices are crappy. ” Now the four companies are back at the table. And Mark Pieth, a Swiss law professor who presided over the first effort under the auspices of the Basel Institute on Governance, is again leading the way. Pieth declined to discuss specifics, but says, “I believe we’re at a different point with all these companies.

They are making an effort. ” Of Siemens’s leaders, Pieth adds: “I’m convinced they’re trying to change their approach. ” But he isn’t ready to predict success—for Siemens or the talks. IT ISN’T UNPRECEDENTED for companies caught up in scandal to play a role in the reforms that follow. Embarrassed leaders are often eager to restore their firm’s reputation. In 1986, after a blue-ribbon commission disclosed widespread waste and fraud in the defense industry, GE chief executive Jack Welch, whose own company had been tarnished, helped create the Defense Industry Initiative on Business Ethics and Conduct.

Nearly three dozen companies agreed to create systems to monitor employee compliance. It was one of the first examples of an industry-wide collective action. What distinguished the Siemens bribery scandal was the scope of both the problem and the response. According to a criminal information filed by the U. S. Department of Justice, from the mid-1990s to 2007 the company paid hundreds of millions of dollars in bribes to officials around the world, and engaged in “systematic efforts to falsify its corporate books and records and circumvent existing internal controls.

” The Justice document also noted that as late as 1999, German law not only failed to prohibit overseas bribery, it actually allowed companies to take tax deductions for bribes. Siemens pled guilty in the U. S. to violations of the Foreign Corrupt Practices Act. Yet, even as the Justice Department described the culture of corruption that led to the $1. 6 billion fine jointly imposed last December by U. S. and German courts, it gave credit to the company for “extraordinary” cooperation and remediation. The scandal has had a huge impact in Germany and much of Europe, which have lagged far behind the United States in antibribery enforcement.

The disparity has been so great that, according to Heineman, “In Germany, a lot of people think this was a U. S. plot, and that GE turned in Siemens—which is bullshit. ” Michael Wiehen, a longtime leader of the German chapter of the anticorruption organization Transparency International, says the size of the penalty got people’s attention. While Germany doesn’t have laws that hold corporations criminally liable, Wiehen explains that German authorities dusted off rarely used administrative rules to impose “unheard-of” fines. Less well-known are Siemens’s efforts to champion reform.

Compliance chief Andreas Pohlmann speaks about compliance and collective action “at every conceivable opportunity,” Wiehen says. Still, Wiehen believes that Siemens “needs to come up with a couple of winners,” like a collective action for a high-profile project such as a sports stadium. IT PROBABLY ISN’T a coincidence that when Siemens needed a GC to help it recover, it hired Solmssen, an American-born-and-educated lawyer who had been general counsel of three divisions at General Electric. Solmssen says that it was at GE that he first became a believer in collective actions.

In 2004 GE and four competitors in the diagnostic imaging business cobbled together an agreement to keep them from running afoul of antikickback rules. Their pact was given further reach when it became part of the National Electrical Manufacturers Association code. Heineman wishes Solmssen well at Siemens, but is skeptical about the value of collective actions. “The problem with all these arrangements is accountability and enforcement,” Heineman says. “Everyone can sign up, but how do you know what they’re doing?

” GE’s current general counsel, Brackett Denniston, also speaks of the need for enforcement. Had GE signed the power generation agreement with Siemens in 2003, he observes, it “would have been a German law not only failed to prohibit overseas bribery, it actually allowed companies to take tax deductions for bribes. waste of paper. We now know that Siemens wasn’t adhering to the rules. ” All Denniston will say about Siemens today is: “I am convinced that they have changed the leadership and the tone dramatically. But I can’t tell you what’s happening on the ground. ” Solmssen recognizes the challenges.

A compliance staff of 600 sounds like a lot, but not for a company with 430,000 employees in 190 countries. He, too, believes in enforcement. Siemens has its own enforcer —a corporate monitor appointed as part of its plea agreement with the Justice Department. For collective actions, government agencies or an auditable process could be required to ensure fair competition, he suggests. “It’s still early,” Solmssen says. “It’s easy to write a code. It’s a lot of work to implement it—you have to build trust among the competitors who are actually living it. ” ALM Media, Inc. Document CCNSEL0020091102e5b100002