Big victory against global bribery

A record fine against Siemens hints at success in the US and Europe in curbing payoffs.

from the December 17, 2008 edition

In the world of business and finance, 2008 ranks as a year of superlatives – and not the good kind. Biggest government bailout of Wall Street. Biggest Ponzi scheme (the Madoff case). Now, the biggest US fine for bribery – $800 million levied against Germany's engineering giant, Siemens AG. But at least there's a silver lining to this one.

When Siemens learned in 2006 that it was being investigated, it began to cooperate. It reported frequently and extensively to US authorities, and reinforced its anti-corruption compliance measures.

Siemens had an incentive, of course. The Justice Department said it could have levied $2.7 billion in fines, but settled with the company on the lesser amount because of Siemens's "extraordinary" efforts to help investigators. Still, the cooperation furthers the global anticorruption effort. The size of the fine – almost 20 times higher than any under the 1977 US Foreign Corrupt Practices Act (FCPA) – shows greater determination to attack this widespread problem.

The trail of Siemens's alleged bribery wound around the world to Argentina, China, Mexico, Israel, and elsewhere. Payoffs were reportedly made to government officials via suitcases stuffed with cash and bogus consulting contracts.

Worldwide corruption amounts to roughly $1 trillion a year, including bribes. But like the investments of Bernard Madoff, who was arrested Dec. 11 for defrauding clients in a $50 billion Ponzi scheme, bribery is built on false promises.

Money that goes into the pockets of corrupt individuals could have been spent on roads, schools, and healthcare. Because bribery stifles competition, it suppresses growth.

As a result, more governments are setting up anticorruption programs. And the UN responded with the 2003 Convention Against Corruption – the only global effort to bring corruption under control.

Bribery probes are pushing many Western companies to beef up their anticorruption standards. Corporate chieftains realize the damage to the company image with even a whiff of bribery – perhaps even more damaging than from legal actions. In recent years, Europe has gotten tougher in prohibiting backroom payments to foreign officials to win contracts. That has had a multiplier effect in pushing companies to set up better ethical compliance – and to work harder to compete on quality and price.

A Dec. 12 report by the global law firm Shearman & Sterling found 91 corporations being investigated for corrupt practices internationally, just below the 97 reported in 2007. The report also found US authorities are bringing more FCPA cases against individuals and not just corporations.

Still, enforcement of antibribery laws in developed countries needs improvement, according to Berlin-based Transparency International. Another survey by the same group found a third of Europe's publicly listed companies believe the authorities are not willing enough to prosecute bribery cases.

Which is why, in the Seimens case, the deterrence factor would increase if those culpable actually did jail time. German prosecutors are investigating several former Siemens executives. A fine, even a significant one like this, still lets individuals off the hook, and it is, in the end, individuals who engage in corruption.