FCPAméricas Blog

Siemens Speaks to FCPAméricas, Part I: Compliance Lessons after the Biggest Enforcement Action in History

Author: Matteson Ellis

More than four years have passed since Siemens settled charges of international anti-corruption violations. The German engineering company still holds the record for the largest anti-bribery related penalties in history — $800 million with U.S. authorities, $800 million with German authorities, and $100 million with The World Bank. The enforcement actions were based on illicit payments made throughout the world, including Argentina, Mexico, and Venezuela.

In the years following these penalties, Siemens has very publicly engaged in a detailed (and expensive) review of its anti-corruption policies and practices. In the process, it has exemplified a mea culpa approach to responding to a compliance crisis. This is an approach that others currently under investigation and facing potentially significant penalties might want to emulate (cf. Wal-Mart, Go Big on Compliance).

Siemens’ Deputy Head for Compliance Investigations, Mark Gough, shared with FCPAméricas some of the important lessons that Siemens’ Corporate Legal and Compliance Group has learned over the last few years.

FCPAméricas: How did Siemens dramatically revamp its approach to anti-corruption compliance?

After every dark cloud comes sunshine at some point. Our company made several courageous decisions that got us to this point.

First, a complete restructure of the Managing Board and a large number of managers were replaced around the world. This led to a new generation of management and ideas. This was dramatic. For the first time in our history, we had a non-German CEO and a General Counsel from the USA. These were massive changes for a company that has a long and rich German history.

Second, the business model was restructured. We centralized processes so that headquarters could apply greater controls and be better connected to activities in the field. In the past, the CEO of a regional company was always in control of all local company related activities. Now the control has shifted somewhat to Headquarters. These adjustments have also included a dramatic buildup of our compliance function. Before the scandal in 2006, Compliance comprised of approximately 50 part-time staff worldwide. In 2008 this was developed up into nearly 600 global compliance personnel with representation in more than 80 countries. Now there are 570 staff in 94 countries, and our program is constantly under review to place personnel where the highest risks are.

Third, we looked hard at our third party relationships. After reviewing all sales agents under Business Consulting agreements in 2007, we reduced the number from 2600 to 1700. Of the 900 who were taken off of the list, only 20 were due to compliance concerns. Through this process we became more efficient. We also found that many agents were just not needed and increased the risk unnecessarily. The new involvement of Compliance forced our business units to make the business case for their third parties and this resulted in a more streamlined arrangement.

FCPAméricas: How have enhanced compliance efforts affected your bottom line?

The two most profitable years that our company has experienced were after the scandal – 2010 and 2012. Compliance has no doubt been good for the company.

It has also helped boost morale. It cannot be overstated how the enforcement actions shook the company. It had a huge impact on staff who had always considered Siemens to be a wonderful, family-oriented place. These are people whose families had worked for Siemens for three generations or more. Such people were referred to as “Siemensianer” a type of utopia for employees. Then the scandal happened. It caused a deep level of harm to the “Siemensianer” concept.  It has not disappeared though, just finding its way back.

The fact that business can be good under a new compliance structure sends two messages. First, that business can flourish, even in a tightly controlled environment. Second, compliance does pay off – our business partners once again see us as a trustworthy company with whom they want to do business. It also helps that we do have very good products and the cost is only related to the product without any hidden costs.

This is the first of a three-part series. Part 2 discusses how Siemens changed its culture, and Part 3 discusses compliance innovations developed by Siemens. Part 3 discusses compliance innovations made by the company.

The FCPAméricas blog is not intended to provide legal advice to its readers. The blog entries and posts include only the thoughts, ideas, and impressions of its authors and contributors, and should be considered general information only about the Americas, anti-corruption laws including the U.S. Foreign Corrupt Practices Act, issues related to anti-corruption compliance, and any other matters addressed. Nothing in this publication should be interpreted to constitute legal advice or services of any kind. Furthermore, information found on this blog should not be used as the basis for decisions or actions that may affect your business; instead, companies and businesspeople should seek legal counsel from qualified lawyers regarding anti-corruption laws or any other legal issue. The Editor and the contributors to this blog shall not be responsible for any losses incurred by a reader or a company as a result of information provided in this publication. For more information, please contact Info@MattesonEllisLaw.com.

The author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author.

@2013 Matteson Ellis Law, PLLC

Matteson Ellis

Post authored by Matteson Ellis, FCPAméricas Founder & Editor

Categories: Anti-Corruption Compliance, Enforcement, FCPA, Third Parties

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