Siemens Fined in Bribery Scandal

Implications: The Siemens group is currently manoeuvring in troubled waters as the bribery scandal finally starts to enter the courtrooms in Germany and abroad. But the payment charges against Siemens are not limited to fines for the punishable misconduct or neglect. The figures for levies on illegally made profits and tax arrears resulting from the unlawful booking of the payments in question have the potential to exceed the regular fines by far and in the first case to be decided the actual fine was comparatively negligible. Nevertheless, the management seems to be prepared to cope with the big figures of (expected) fines, reimbursements and back duties.

Analysis:

Already in October the regional court of Munich ruled in the bribery scandal regarding Siemens’ telecommunications unit and sentenced the company to pay 201 million Euros which consists of a fine amounting to 1 million Euros and a levy on the profits achieved by the bribery of 200 million Euros. Siemens also agreed to pay 179 million Euros to the tax authorities – largely covered by a 168 million Euros charge it has already taken – to compensate for the 450 million Euros in non-deductible payments which it falsely booked in regard to the bribes. Siemens stated that it would not appeal the decision.

Siemens CEO Peter Löscher said the company would accept full responsibility in this matter knowing that the bribery case is still far from being settled. The mentioned payments only mark the end of the German investigation into bribery payments in the company’s telecommunications unit; German regional prosecutors are still investigating alleged bribery in its power generation unit as well as whether the group illegally helped finance a rival to its main trade union.

Authorities in the US, Italy, Switzerland and Liechtenstein are also investigating and Siemens faces antitrust probes in other countries. Although the German decision is important, the findings of the SEC and the US justice department will be crucial to the overall financial effect on Siemens. We expect the overall fine to exceed the amount of 1 billion Euros.