Eight Former Senior Executives and Agents of Siemens Charged in Alleged $100 Million Foreign Bribe Scheme

The Securities and Exchange Commission and the Department of Justice have charged seven former Siemens executives with violating the Foreign Corrupt Practices Act (FCPA) for their involvement in the company’s decade-long bribery scheme to retain a $1 billion government contract to produce national identity cards for Argentine citizens.

Siemens was previously charged with FCPA violations and paid $1.6 billion to resolve the charges with the SEC, U.S. Department of Justice, and Office of the Prosecutor General in Munich.

The SEC alleges that the executives who perpetuated the scheme worked at Siemens and its regional company Siemens Argentina. One of the executives had left Siemens and acted as a payment intermediary in the scheme. Siemens paid more than $100 million in bribes to such high-ranking officials as two former Argentine presidents and former cabinet members. The executives falsified documents including invoices and sham consulting contracts, and participated in meetings in the United States to negotiate the terms of bribe payments. They used U.S. bank accounts to pay some of the bribes.

“Business should flow to the company with the best product and the best price, not the best bribe,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Corruption erodes public trust and the transparency of our commercial markets, and undermines corporate governance.”

According to the SEC’s complaint filed in U.S. District Court in Manhattan, the scheme lasted from approximately 1996 to early 2007. Initially, the bribes were paid to secure a $1 billion contract to produce national identity cards known as Documentos Nacionales de Identidad (DNI) for every Argentine citizen.

After a change in Argentine political administrations resulted in the DNI contract being suspended and then canceled, Siemens paid additional bribes in a failed effort to revive the DNI contract. When the company later instituted an arbitration proceeding to recover its costs and expected profits from the canceled contract, Siemens paid additional bribes to suppress evidence that the contract originally had been obtained through corruption.

The former Siemens and Siemens Argentina executives charged by the SEC each had a role in authorizing, negotiating, facilitating, or concealing bribe payments in connection with the DNI contract:

• Uriel Sharef – A former managing board member at Siemens from July 2000 to December 2007. He met in the United States with payment intermediaries and agreed to pay $27 million in bribes to Argentine officials in connection with the DNI contract.

• Ulrich Bock – Former Commercial Head of Major Projects for Siemens Business Services (SBS) from October 1995 to 2001. As the officer responsible for the DNI contract, he authorized bribe payments to Argentine government officials.

• Stephan Signer –Replaced Bock as Commercial Head of Major Projects for SBS and later became Head of Business Operations and Finance at Siemens IT Solutions and Services. He authorized the payment of bribes to government officials in Argentina.

• Herbert Steffen –CEO of Siemens Argentina from 1983 to 1989 and again in 1991, and Group President of Siemens Transportation Systems from 1996 to 2003. Due to his longstanding connections in Argentina and Latin America, Steffen was recruited by Sharef and met directly with Argentine officials and offered bribe payments on behalf of Siemens.

• Andres Truppel –CFO of Siemens Argentina from 1996 to 2002. He regularly communicated with Argentine government officials regarding illicit bribe payments and participated in U.S.-based meetings where bribes were negotiated and promised.

• Carlos Sergi –A former board member of Siemens Argentina and a business consultant for Siemens Argentina. His primary role was to serve as a payment intermediary between Siemens and Argentine government officials in connection with the DNI contract.

• Bernd Regendantz –CFO of SBS from February 2002 to 2004. He authorized two bribe payments totaling approximately $10 million on Siemens’ behalf.

According to the SEC’s complaint, approximately $31.3 million of the $100 million in bribes paid were made after March 12, 2001, when Siemens became a U.S. issuer subject to U.S. securities laws. As a result of the bribe payments it made, Siemens received an arbitration award in 2007 against the government of Argentina of more than $217 million plus interest for the DNI contract. In August 2009, after settling bribery charges with the U.S. and Germany, Siemens waived the arbitration award.

The SEC complaint alleges that Bock, Regendantz, Sergi, Sharef, Signer, Steffen, and Truppel each violated Section 30A of the Securities Exchange Act of 1934, and aided and abetted Siemens’ violations of Section 30A.

The complaint also alleges that they violated Exchange Act Section 13(b)(5) and Rule 13b2-1 thereunder by authorizing or directing others to falsify documents in furtherance of the bribery scheme. Regendantz violated Rule 13b2-2 by signing false internal certifications pursuant to the Sarbanes Oxley Act (SOX). They each also aided and abetted Siemens’ violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B) by substantially assisting in the company’s failure to maintain internal controls to detect and prevent bribery of government officials in Argentina, and by substantially assisting in the improper recording of the bribe payments in Siemens’ accounting books and records.

Regendantz settled the SEC charges without admitting or denying the allegations by consenting to the entry of a final judgment that permanently enjoins him from committing future violations. He paid a €30,000 administrative fine ordered by the Munich prosecutor (equivalent to $40,000 in U.S. dollars).

DOJ Case

In a parallel criminal action, the Department of Justice announced charges against former executives and agents of Siemens. They are charged with conspiracy to violate the FCPA and the wire fraud statute, money laundering conspiracy and wire fraud.

According to the indictment, the government of Argentina issued a tender for bids in 1994 to replace an existing system of manually created national identity booklets with state of the art national identity cards (the DNI project).  The value of the DNI project was $1 billion.  In 1998, the Argentine government awarded the DNI project to a special-purpose subsidiary of Siemens AG.

The indictment alleges that during the bidding and implementation phases of the project, the defendants and their co-conspirators caused Siemens to commit to paying nearly $100 million in bribes to sitting officials of the Argentine government, members of the opposition party and candidates for office who were likely to come to power during the performance of the project.

According to the indictment, members of the conspiracy worked to conceal the illicit payments through various means.  For instance, Bock made cash withdrawals from Siemens AG general-purpose accounts in Germany totaling approximately $10 million, transported the cash across the border into Switzerland and deposited the funds into Swiss bank accounts for transfer to officials.  Bock, Truppel, Reichert and other conspirators also allegedly caused Siemens to wire transfer more than $7 million in bribes to a bank account in New York disguised as a foreign exchange hedging contract relating to the DNI project.  Over the duration of the conspiracy, the conspirators allegedly relied on at least 17 off-shore shell companies associated with Sergi, Czysch and other intermediaries to disguise and launder the funds, often documenting the payments through fake consulting contracts.

In May 1999, according to the indictment, the Argentine government suspended the DNI project, due in part to instability in the local economy and an impending presidential election.  When a new government took power in Argentina, and in the hopes of getting the DNI project resumed, members of the conspiracy allegedly committed Siemens to paying additional bribes to the incoming officials and to satisfying existing obligations to officials of the outgoing administration, many of whom remained in influential positions within the government.

In related actions, the indictment also alleges that members of the conspiracy continued the bribe scheme, in part to prevent disclosure of the bribery in the arbitration and to ensure Siemens’ ability to secure future government contracts in Argentina and elsewhere in the region.  In four installments between 2002 and 2007, members of the conspiracy allegedly caused Siemens to pay approximately $28 million in further satisfaction of the obligations.  Conspirators continued to conceal these additional payments through various means.  For example, Sharef, Truppel and other members of the conspiracy allegedly caused Siemens to transfer approximately $9.5 million through fictitious transactions involving a Siemens business division that had no role in the DNI project.  They also caused Siemens to pay an additional $8.8 million in 2007 under the legal cover of a separate arbitration initiated in Switzerland by the intermediaries to enforce a sham $27 million contract from 2001 between SBS and Mfast Consulting, a company controlled by their co-conspirator intermediaries, which consolidated existing bribe commitments into one contract.  The conspirators caused Siemens to quietly settle the arbitration, keeping all evidence of corruption out of the proceeding.  The settlement agreement included a provision preventing Sergi, Czysch and another intermediary from testifying in, or providing information to, the Washington arbitration.

Siemens’s corrupt procurement of the DNI project was not exposed during the lifespan of the conspiracy, and, in February 2007, the arbitral tribunal in Washington sided with Siemens AG, awarding the company nearly $220 million on its DNI claims, plus interest.  On Aug. 12, 2009, following Siemens’ corporate resolutions with the U.S. and German authorities – new management of Siemens caused Siemens AG to forego its right to receive the award and, as a result, the company never claimed the award money.

The indictment charges the defendants with conspiracy to violate the anti-bribery, books and records and internal control provisions of the FCPA; conspiracy to commit wire fraud; conspiracy to commit money laundering; and substantive wire fraud.

The charges filed follow the Dec. 15, 2008, guilty pleas by Siemens AG and its subsidiary, Siemens S.A. (Siemens Argentina), to criminal violations of the FCPA.  As part of the plea agreement, Siemens AG and Siemens Argentina agreed to pay fines of $448.5 million and $500,000, respectively.

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