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Will Siemens Energy Business Take The Perp Walk?

Source: Diário do Grande ABC | Agência Estado)

In the Siemens scandal — some call it the trensalão — the plot thickens slowly,tip by tip.

The letter that led to the investigation, in Brazil and Germany, into irregularities committed by Siemens in competitive bidding proceedings and the formation of a cartel in the subway and commuter rail system, cites other “illicit practices” not confined to the railway sector.

Irregularities were also pointed out in the energy and medical supply divisions of the German multinational.

According to investigators, the habitual practices described in the document, which was addressed in June 2008 to Siemens world headquarters, includes bid-rigging to influence public auctions and the payment of bribes to Brazilian public officials.

The accusatory letter, which investigators now know originated from a former Siemens executive, was submitted to the corporte ombudsman in Germany and forwarded to Brazilian authorities in June 2008.

Though submitted anonymously, the wealth of detail contained in its five pages sparked an unprecedented investigation. At Siemens, it resulted in the dismissal of top executives in various countries, including Brazil In many of the countries, investigations were also launched by the competent authorities.

In the beginning of his letter, addressed to the Siemens corporate ombudsman at the time, Hans-Otto Jordan, the author states that he will call attention to “certain facts and documents that demonstrate illegal conduct by Siemens, both in the past and currently,” and cites as an example the São Paulo and Brasília subway systems, in which he finds evidence of corruption. The writer goes on to say, “This type of practice is not confined to the Transportation division. These are common practices in the Energy Transmission, Energy Generation, and Medical Systems divisions as well. .

The author of the letter that placed Siemens at the heart of a major worldwide scandal does not supply details about these specific areas or name Brazilian officials. In Brazil, the company has millions of dollars worth of contracts with companies controlled by various government. At the federal level, subsidiaries of Eletrobrás such as Furnas, Chesf and Eletronorte have contracts with Siemens. In São Paulo, the state-owned  Cesp hired Siemens on various occasions.

Corroborating Evidence

Investigators consider the letter convincing because other information contained in the letter have since been verified by six Siemens executives who signed a plea agreement with the federal antitrust authority, CADE, on May 22, 2013.  The federal and state prosecutors are co-signers of the plea agreement.

The beneficiaries of the deal — four Brazilian executives and two high-ranking Germans  — revealed the formation of a cartel in the São Paulo subway and commuter rail system, as the author of the letter had already charged.

“It is impressive to see how, despite all the scandals and consequences to the company as a whole, Siemens Brasil continues to pay bribes to win lucrative contracts,” the whistleblower wrote. “I hope that the information contained herein will help you in your difficult position ombudsman of a company that has not learned the lessons of the past.”

Another cartel. Cade is investigating expedients attributed to Siemens that indicate the company rigged bidding in the energy sector. Installed in 2006 and not yet concluded, an investigation by the Secretaria de Direito Econômico — Secretariat of Economic Law — of CADE points to the formation of a cartel in the sale of transformers for electricity distribution that allegedly led to a loss of least R$ 1.7 billion by cmpanies in the sector between 1998 and 2004. The story was reported by the Folha de S. Paulo in 2007 ($).

In this case, Siemens is the victim of the very same instrument it used to its benefit in the scandal involving the subway and commuter train sector: Another company, ABB, negotiated a plea deal with CADE to avoid paying a substantial fine.

At the time, the president of Empresa de Pesquisa Energética — Energy Research Company (EPE) — Maurício Tolmasquim said that he frequently heard complaints from the electricity sector over equipment prices that were much higher than in the international market, and said he believed in the existence of various cartels in the sector.  “I think this is the tip of the iceberg,” he said at the time.