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Siemens bribery deal close

Former managers agree to pay £18m compensation after three-year investigation

One of Germany's biggest-ever corporate bribery scandals moved close to a settlement yesterday after six former senior managers of the Siemens electrical engineering giant agreed to pay out nearly €20m (£18m) to compensate for their role in a huge kickbacks for contracts scam.

Widespread corruption was exposed at Siemens in 2006. Investigations in more than a dozen countries revealed that the concern was operating a system of cash handouts totalling an estimated €1.3bn in return for contracts. Only last year the company agreed to pay more than $1.6bn to settle the US and German investigations.

Yesterday, however, it was announced that 68-year-old Heinrich von Pierer, Siemens chairman from 1992 until 2005 and one of the main protagonists in the bribery scandal, had agreed to pay €5m to compensate for his conduct. His decision followed the expiry of last month's deadline for ex-managers to declare whether they were willing to settle or face legal action. Five other former Siemens managers who were also involved agreed to pay out the remaining sum of almost €20m. Siemens named the five in a statement released yesterday as former board members Johannes Feldmayer, Klaus Kleinfeld, Jürgen Radomiski and Uriel Sharef and the former supervisory board chairman Karl Hermann Baumann.

"The course of action we took was legally necessary," said Siemens' chief executive, Peter Loescher, who replaced half of Siemens' top 100 executives after taking over in the wake of the scandal. "I have always emphasised that we would follow this process through to the end. Our goal was for the company to be at peace," he added.

Siemens claims that the scandal incurred some €2.5bn in costs. For decades it paid illicit kickbacks and bribes for contracts in such diverse projects as the United Nations oil for food programme, mobile phone networks in Bangladesh, Russian traffic control systems and Israeli power stations. The concern was also shown to have bribed the Iraqi government for contracts. US investigators said Siemens used off book accounts to conceal the payments.

Two of the ringleaders in the affair, Mr Von Pierer and his successor Klaus Kleinfeld, who ran the company's US division, resigned within the space of a week in 2007 when the extent of their role in the scandal was made public. Mr Kleinfeld is currently chief executive of Alcoa, America's largest aluminium producer.

Both men are being investigated for administrative offences by the Munich state prosecutor, but both have denied wrong doing. Mr Von Pierer, who is now retired, said in an interview last month that he has assumed "political responsibility" for the affair. He has pledged to defend himself against allegations against him.

However, Siemens said it had been unable to reach a settlement with two other former board company members, Thomas Ganswindt and Heinz-Joachim Neubürger, who were also involved. Both are currently being investigated by Munich state prosecutors. Siemens is expected to decide whether or not to take legal action against them at the company's annual general meeting on 26 January. Mr Ganswindt's lawyer was reported as saying yesterday that both men had a "big interest" in reaching agreement soon.

"We can expect a turbulent and emotional meeting over this," predicted Matthias Habersack, a professor of corporate law at Germany's Tübingen University.

The initial reaction to the Siemens compensation deal was positive yesterday. "It is good that they are closing the books on this," said Daniela Bergdolt of Germany's DSW private investors group.

"Litigation would have turned into mudslinging that could have taken years and would have hurt Siemens more that it would have benefited the concern," she added.

Analysts described the Siemens bribery scandal as a benchmark case. " It has changed the landscape," said Jens Wagner, a corporate lawyer at Allen and Overy in Munich, who is not involved in the case. "It is likely to put more pressure on companies to go after former executives in cases of wrongdoing in future."