The German electronics and engineering giant Siemens, embroiled for the past two years in a massive international bribery scandal, has reached settlements with U.S. and German prosecutors. The company will pay $450 million to the U.S. Justice Department to resolve criminal charges under the Foreign Corrupt Practices Act (FCPA) and another $350 million to the Securities and Exchange Commission to settle related accounting violations. The total payments of $800 million are by far the most any company has paid in an FCPA case. Siemens also made a deal with German prosecutors involving a payment of about $540 million.
Siemens’ s total payout of $1.3 billion is huge in relation to the usual puny penalties imposed on even the most egregious corporate malefactors, but it is actually a bargain for the company. With annual revenues of more than $100 billion and profits of more than $5 billion, it can absorb the penalties without much difficulty.
Most significant is the fact that, by making deals with the prosecutors, Siemens avoided a guilty plea or verdict that would have disqualified it from continuing to do business with lucrative customers such as the United States government. According to the FedSpending website, Siemens has been awarded between $250 million and $350 million in federal contracts annually during the past few years, much of it from the Department of Homeland Security. According to its most recent 20-F filing with the SEC, Siemens derives about one-fifth of its total revenues from government and civilian customers in the United States.
While it is good for prosecutors to get companies to disgorge larger amounts of their ill-gotten gains, there is little evidence that monetary fines that are still in the realm of the affordable for large corporations can serve as an effective deterrent against future wrongdoing. Until the penalties threaten the continued existence of the company, they can be seen as nothing more than a cost of doing business aggressively.
In the case of Siemens, that wrongdoing was said to include the payment of more than $1 billion in bribes, taken from slush funds and sometimes transported in suitcases, to government officials in countries ranging from Argentina and Venezuela to Russia, China and Vietnam. It was also said to have paid kickbacks to the former government of Saddam Hussein in Iraq to secure business under the United Nations Oil for Food program.
How thoughtful it was for prosecutors to make sure a company such as this can continue to do work funded by taxpayer dollars. Whatever the feds take in penalties will soon be earned back in contracts. In a country where street criminals still face harsh sentences, large corporations continue to be treated with kid gloves.