The Wall Street Journal-20080123-Siemens Internal Review Hits Hurdles- Costly Yearlong Probe By New York Law Firm Turns Up Little Clarity
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Siemens Internal Review Hits Hurdles; Costly Yearlong Probe By New York Law Firm Turns Up Little Clarity
German engineering giant Siemens AG hired New York law firm Debevoise & Plimpton LLP more than a year ago to get to the bottom of a bribes-for-business scandal to try to blunt possible U.S. sanctions.
But as investors descend on Munich for Siemens's annual shareholder meeting tomorrow, the firm hasn't been able to deliver much clarity. A top Siemens official and others praise the firm's work. Still, Debevoise has been held back by the absence of subpoena powers, wary Siemens employees and its lawyers' own missteps, say people close to the probe.
The exercise is proving a costly one for Siemens. It already has paid 347 million euros ($507 million) in the fiscal year ended Sept. 30 to outside advisers trying to sort out the matter, though neither Siemens nor Debevoise will disclose how much of that the law firm received. Since a police raid of its headquarters in late 2006, Siemens has identified 1.3 billion euros in suspicious transactions. The conglomerate is the target of criminal probes in several countries, including the U.S., and a German court has fined Siemens 201 million euros for bribes paid abroad.
Debevoise's probe also highlights potential weaknesses in the legal outsourcing model pushed by the Department of Justice and the Securities and Exchange Commission. Faced with more cases than staff can handle, the agencies have encouraged companies in recent years to hire outside law firms to conduct in-depth investigations of suspicious activity and then share the information with U.S. prosecutors. In return, cooperative companies hope for more lenient fines and sanctions.
U.S. authorities put the model to work during the recent wave of stock-option backdating probes and want to deploy it as they ratchet up prosecutions of overseas companies for bribery under the Foreign Corrupt Practices Act. A fine could be much bigger than the fine imposed by the German court in October.
Gerhard Cromme, chairman of Siemens's nonexecutive supervisory board that hired the law firm, said in a written statement that Debevoise's investigative work has been "exemplary." The law firm also enjoys a good reputation at the SEC and Justice Department, according to criminal-defense lawyers at other firms.
An SEC spokesman said internal reviews "are not a substitute for SEC investigations" but "can accelerate the pace of investigations and bring faster results for investors." He declined to comment on specifics at Siemens. A Justice Department spokesman declined to comment on the Siemens case, but said the agency remains "vigorous" in enforcing laws.
Debevoise, which declined to be interviewed, signaled last week that it is making progress. In a letter made public by Siemens, Debevoise said it had developed "very substantial leads" since late November regarding the possible involvement of management board members. It cited an amnesty program for employees, introduced by Siemens last fall, as an important trigger.
Debevoise didn't disclose names, though, as it continues its probe. Members of Siemens's supervisory board, which is similar to a U.S. company's board of directors, at a Monday meeting discussed concerns that senior executives were pressuring lower-level managers to stay mum about alleged wrongdoing, said one meeting participant, though the law firm didn't share any hard new findings.
The letter raised questions about veteran executives and prompted Siemens to postpone a shareholder vote, typical in German corporate proceedings, to approve the actions of management board members at tomorrow's meeting. The vote, which pertains to the executives who oversee Siemens's day-to-day operations, is largely symbolic but also indicates an executive's level of support among shareholders.
The lack of clear guidance for shareholders after more than a year of sleuth work is "unsatisfactory," said a member of Siemens's supervisory board.
Debevoise's white-collar crime practice boasts 11 former federal prosecutors, including Mary Jo White, the former U.S. attorney for the Southern District of New York. Bruce Yannett, who heads the dozens of Debevoise lawyers investigating Siemens, is a former assistant U.S. attorney for the District of Columbia. The law firm also hired the accounting firm Deloitte & Touche LLP to help chase the money trail.
International bribery investigations are especially complicated. Evidence is typically scattered across many countries and in-person interviews are often as crucial as centralized data mining. By last summer, Debevoise had identified Siemens activities in 65 countries that required closer looks.
Unlike government prosecutors, Debevoise doesn't have subpoena powers, curbing its ability to gather evidence. When Mr. Yannett sat down with German prosecutors in Munich last winter to get information from them, he was rebuffed. Even Siemens's in-house lawyers questioned whether Debevoise should be in the room, according to a person present at the meeting. Swiss prosecutors also declined the law firm's request for access to investigative files during a meeting last spring, said people familiar with the matter.
Relations between Debevoise and Munich prosecutors have improved after a rough start, with the latter now sharing some information, according to people close to the probe. But such exchanges continue to be curtailed by legal restrictions.
Some people close to the probe say Debevoise contributed to the wariness by being overly aggressive at the outset.
Getting Siemens employees to cooperate also has been a challenge. In one case last year, top Siemens management in India repeatedly refused to sign the paperwork permitting Debevoise to probe country operations. Intervention from headquarters "is desperately required. I am in an unbelievable situation and in bad condition," wrote a compliance officer in Mumbai in a May email to Munich headquarters after failing to get local management to sign the papers for a month. Officials there are now cooperating, according to a statement from Siemens's India office.
Anti-American sentiment has played a role, say people familiar with the matter. At a large meeting in Berlin last summer, Siemens employees questioned why information should be shared with private investigators that will be handed over to U.S. authorities who would then fine the company. Workers were particularly hostile to the notion that the fine could go to the U.S. at a time when that nation is paying for the U.S.-led war in Iraq, which is unpopular in Germany.
Last year, Siemens tried to combat perceptions among employees by circulating a slide-show presentation "Rumors vs. Facts." It said interviews with Debevoise weren't "hostile" and didn't include "physical threats." The law firm also wasn't "stealing trade secrets" or "monitoring employee emails in real time," Siemens told senior managers.
Still, by last summer, supervisory board members were increasingly concerned about the slow pace of the probe as legal bills mounted. Some began questioning whether hiring Debevoise had been the right move, according to a board member.
Such talk has receded in recent months. Siemens is doing more information-gathering on behalf of Debevoise to try to control costs. Employees also are cooperating more with the law firm.
