Siemens has big problems with slush and we’re not talking about the kind of slush that results from snow and ice turning mushy as it converts back into water. No we’re talking about the type of slush that results when a company pays cash to a intermediary, who then proceeds to pay that cash to a partner, customer or some other stakeholder of the company in the form of bribes, kickbacks, hush money or a number of other possibilities.

Siemens has been investigating a slush fund scandal within its company that dates back to the mid to late 1990’s and has grown from tens of millions of euros in pay offs to 200 and now 420 million euros.

The company is being investigated in multiple countries throughout Europe and over a half dozen former employees including the chief financial officer of the telecommunications unit, Michael Kutschenreuter, who was working as the head of Siemen’s real-estate division at the time of his arrest in mid-November.

The scandal is based on some simple and unfortunately classic uses of dummy corporations. Siemens paid money allegedly to dummy companies that held the funds in secret Swiss bank accounts and then funneled that money off to pay non-existent consulting contracts with funds going through the Caribbean just for good measure.

Siemens is cooperating with the investigation but the troubles threaten to unravel a deal with Nokia as the potential financial burdens from wrong doing threatened to torpedo the deal.

KPMG, Siemens’ auditor of record, has indicated that they did not notice any of the wrong doing. The tip off came to investigators when a whistleblower contacted the Swiss Money Laundering Authority. This prompted a Swiss, Austrian and German investigation and shortly there after it came to light that Italian were also investigating and thought that the corruption went back to the mid-90’s.

Siemens current CFO, Joe Kaeser, indicated that 420 million euros in illegal payments dating back to 1999 have been identified coupled with an additional 168 million euros in tax charges. This has resulted in a temporary restatement from 3.11 billion down to 3.03 billion euros, but if the recipients of the payments are not identified, then the payments can not be deducted from their tax liability and that liability will increase.

This investigation is not over and its like much more information will come out in the weeks to come.

Additional reading

Technorati tags: Siemens corruption, pay offs at Siemens, dummy consulting contracts, telecom money laundering, Nokia joint venture at risk with corrupt partner, BenQ

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