Editorial: The Siemens case — our analysis

We have read the public comments by Peter Löscher (the press releases, the choreographed interviews) of “Siemens endorses clean business” and we agree they were a tremendous help to their position.  And the Arthur Andersen prosecution in the aftermath of the Enron scandal certainly made the DOJ gun-shy on a full court press.

Löscher has done an admirable job of cleaning up all the corruption issues including the investigation at Com by the Munich Office of Public Prosecution and the final settlement with German tax authorities regarding its questionable payments made under business consulting agreements and under other agreements with third-party intermediaries which resulting in a tax charge (non-deductible by the way) of €179 million.   The financial hit to Siemens is far greater than the reported $1.3 billion figure.

But I maintain (as stated in our earlier post) that the Siemens case is rife with political “behind-the-scenes” issues, confirmed for me by Ellen Podgor’s post on the White Collar Crime Prof Blog about the limits put on Siemens from disseminating information regarding the settlement.  Siemens is a powerful company, with a dramatic history and more dramatic connections. 

And Löscher knows he will be tested in the not-so-distant future.  Just by reading its recently filed Form 6-K and 4th quarter reports we know Siemens envisions its biggest growth (40%) in the CIS, CES and Africa markets – areas rife with corruption issues.

We have seen in the last 2 years a rush by thousands of U.S. companies to install its “code of conduct agreements” into all of its distribution agreements and sales agreements in foreign countries — and the expected “push back” by foreign distributors and sales agents.  These agreements are often 15 pages long and inserted as exhibits to the main agreement and cover the kitchen sink.  The “compliance with laws” section include food and drug laws, laws relating to government health care programs, antitrust and competition laws, insider trading laws, laws relating to political contributions, anti-money laundering laws, etc., etc.

And the “push back” by these foreign distributors and sales agents is to be expected.  They counter “why are we subject to all of provisions which mostly cover U.S. laws/requirements?  We are in [Poland, China, the
Emirates, insert-name-of-country].”

I suspect the next FCPA “surprise” will be somewhere in the medical device/equipment industry where a wide assortment of U.S. companies are battling royally in the (very) lucrative hospital/medical markets in emerging markets such as the Czech Republic, Poland, Romania, and throughout the Middle East.  Initial reports indicate some “conflicts” abound.