Siemens slush fund scandal deepens

Siemens is squirming on the hook of the investigations into bribery, embezzlement and tax evasion.

It has lowered its expected net profit for 2006 by €80 million; another former executive has been arrested; and the total cash used in suspect payments has more than doubled from €200 million to €420 million.

Thomas Ganswindt, a main board executive of Siemens until September last year, has been arrested after several days of interrogation with the police reportedly fearing he might flee Germany. He joins several others in custody.

The suspect payments were used to hire people as external "consultants" and pay them to help get contracts in the fixed line telecommunications area awarded to Siemens. Bribes were also said to be paid to purchasing officials in Italy and elsewhere via shell companies in Puerto Rico and other locations. Other money was simply embezzled, according to what is known of the current investigations. Ganswindt allegedly knew of some of these suspect transactions.

Siemens CFO Joe Kaeser said that €420 million of illegal payments dated back to 1999. Additional income tax charges total €168 million since 1999. The company has restated its 2006 net profit figure as a result, down from €3.11 billion to €3.03 billion. But this may not be the final cost of the affair. If the recipient of external consultancy fees or a bribe cannot be identified then the money cannot be deducted from Siemen's tax liability.

Siemens stated it has "identified a multitude of payments made in connection with these contracts over the course of approximately a seven-year period for which we have either not been able to establish a valid business purpose or clearly identify the recipient. These payments raise concerns under the legislation of the US, Germany and other countries."

Origins of the affair

The history of the affair has become clearer through Siemens' own actions.The current investigation grew out of an anonymous complaint and requests for judicial assistance from Switzerland and Italy.

Bank accounts in Geneva, Switzerland, held by a former officer of Siemens Greece were seized in August 2005. The Company became aware of the seizure at the end of 2005 having been notified by both the officer and the financial institution in which the accounts were held. As part of its internal investigation, the Company filed a civil action in Greece against the officer on Nov. 14, 2006.

Then, in June 2006, the Company also became aware of the existence of an escrow account in Lugano, Switzerland. In July 2006, the trustee was requested to provide documentation of the account and to transfer the funds to the Company: The account was seized prior to receiving the funds.

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