Friday, April 27, 2007
The widening criminal and civil probe of foreign bribes paid by Siemens A.G., the giant German telecommunications company, claimed the company's CEO, Dr. Klaus Kleinfeld, who announced that he would not seek a new contract. According to a statement (here) issued by Siemens:
He based his decision on the current discussions about postponing his contract extension once again. “In times like these, the company needs clarity about its leadership. I have therefore decided not to make myself available for an extension of my contract,” said Kleinfeld.
Siemens can show major business successes today, yet at the same time is in the midst of an intensive investigation of corruption. Especially in times of such challenges, employees, customers, and the capital markets expect clear leadership more than ever. “The company must have complete freedom of action,” stressed Kleinfeld.
Siemens has been the subject of a foreign corrupt practices investigation by the Munich prosecutor's office that has included the arrest and interrogation of former senior officers, including its former CFO who prosecutors in Germany identified as a suspect in the overseas bribes paid to obtain contracts. In a quarterly report filed with the SEC (here), the company further disclosed that the SEC and Department of Justice are pursuing investigations of its payments. "The U.S. Department of Justice is conducting an investigation of possible criminal violations of U.S. law by Siemens in connection with these matters. During the second quarter of fiscal 2007, Siemens was advised that the U.S. Securities and Exchange Commission’s enforcement division had converted its informal inquiry into these matters into a formal investigation."
The resignation of Dr. Kleinfeld may signal a change in how European companies view criminal investigations and the responsibility of the corporation's leadership for the conduct. In the United States, it has become almost commonplace for a CEO to resign -- or be forced out -- if there is evidence of a substantial breakdown in the company's legal compliance. European companies long took a different approach, particularly in the area of overseas bribes, which in some countries were deductible business expenses.
The investigation of Siemens for violations of the FCPA by the German prosecutors is a new development because it was only a little more than a decade ago that a number of European nations first adopted statutes similar to the FCPA making foreign bribes a criminal offense for both individuals and corporations. I suspect the SEC and Department of Justice are strongly encouraging the German prosecutors, and certainly the SEC will share information gathered in its investigation with foreign law enforcement officials. While some bemoan the concept of corporate criminal liability, it is a new concept in Europe that may be paying dividends in curbing abusive business practices. (ph)