Siemens prepares to pay $2bn fine to clear up slush fund scandal

Siemens prepares to pay $2bn fine to clear up slush fund scandal

Siemens, Europe's biggest technology group, is in talks with the securities and exchange commission, the US market regulator, and the department of justice on a settlement of the long-running bribery scandal that could have brought a record multibillion dollar fine.

Gerhard Cromme, Siemens chairman, told 10,000 shareholders at the annual meeting yesterday in a crammed Olympiahalle that negotiations would begin next month with the aim of reaching "a comprehensive and fair settlement". Estimates of any fine range from $2bn to $5bn.

As internal and external investigations pointed to the involvement of former senior executives in the scandal and future damages claims by Siemens, Cromme appealed for SEC leniency regarding "prosecution and punishment" given the group's cooperation during the extensive inquiries. The chairman said the discussions could last several months as his aides said both sides expected a settlement.

Siemens, listed in New York, has annual sales approaching €15bn (£11.2bn) in the US, which it fears could be at risk because the SEC could propose its exclusion from public contracts. Under pressure from shareholders to de-list, Joe Kaeser, finance director, said there were no such plans.

The breakthrough with the SEC and DOJ follows an employee amnesty launched in November under which about 40 workers had come forward - in effect blowing the whistle on senior managers and executives.

The chairman and Peter Löscher, chief executive, linked the breakthrough to the establishment of a new management board in November, including the appointment of US lawyer Peter Solmssen as compliance director. Cromme said new information had come on almost a daily basis, with a picture showing "more clearly what happened and who was responsible". New facts would emerge in the coming weeks. The amnesty ends this month and, Löscher said, explicitly excludes former directors.

The scandal, stretching back over several years, involved "systematic bribery" of public officials via slush funds to win contracts in more than 20 countries and has cost Siemens at least €1.6bn, according to new figures given by Löscher. He refused to comment on reports that prosecutors had uncovered a €140m slush fund in the healthcare divison. The scale of the investigations, conducted by US lawyers Debevoise & Plimpton and Deloitte Touche, indicates that several former senior executives could face criminal prosecution.

The lawyers told Cromme on January 16, in a letter posted on the Siemens website, that they had "significant new information and leads pertaining to individuals who in the past several years served on the managing board." They refused to identify individuals.

Demanding more information, an array of shareholders said Siemens had become a byword for corruption, not innovation. "Who is responsible? Why don't the former senior managers own up to what they knew?" said one. "Werner von Siemens, who founded a company renowned for its honour and integrity for 160 years, would be turning in his grave," said another.

The Siemens supervisory board urged the restless shareholders, on the advice of Debevoise, to postpone any decision on the traditional move to "ratify" the actions of the previous executive board - and of Heinrich von Pierer, the former chief executive and chairman, who stepped down last year because of the scandal. He denied any personal involvement.

The moves came as Siemens boosted investor confidence by reporting a 16% jump in first-quarter profits to €1.72bn. Sales in the three months to December 31 last year leapt 10% to €18.45bn and orders 9% to €24.2bn - well above expectations. Löscher, who said he expected no direct fallout from the US sub-prime crisis, confirmed his outlook for the full year of sales growing twice as fast as global GDP and operating profit increasing at least twice as fast as sales.