Siemens to Settle Corruption Case

Posted by: Jack Ewing on December 15, 2008

German engineering and electronics giant Siemens will pay $800 million to settle corruption charges brought by the U.S. Department of Justice, the company says. A formal announcement will come at a press conference scheduled for late afternoon German time in Munich, after a U.S. Federal Judge approves the settlement between Siemens and U.S. prosecutors.

The penalty blows away the previous record for a violation of the Foreign Corrupt Practices Act, $44 million paid by oilfield service company Baker Hughes in 2007. And Siemens may pay another $400 million to $500 million to German authorities on accusations it bribed foreign officials to win contracts, the Munich daily Süddeutsche Zeitung reports.

Yet the settlement is good news for Siemens. CEO Peter Löscher, hired in 2007 to oversee an aggressive internal cleanup, can now focus all of his attention on steering through a harsh downturn.

The scandal has been deeply painful for Siemens. It swept away a whole generation of Siemens managers, including former Chief Executive Heinrich von Pierer and much of the company’s board of management. They stood accused of at least turning a blind eye to widespread bribery used to win contracts from Nigeria to Norway. Dozens of middle managers have also had to go.

And now comes a global slowdown that is already hitting profit. In the quarter ended Sept. 30 Siemens reported a $3.3 billion loss, including $1.3 billion that Siemens set aside to cover a settlement in the corruption case.

The penalty is big, but not as big as expected. Siemens will not be frozen out of U.S. government contracts, as some had feared. The company’s balance sheet is still fundamentally solid. The most important thing is that Siemens engineers will face less distraction as they focus on making the best X-ray machines, high-speed trains, windmills and other high-tech products. If Siemens can prove that it can win business without greasing palms, the company could emerge from the downturn stronger than ever.