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Corruption in Germany Inc.

by DoDo Fri May 30th, 2008 at 03:17:41 AM EST

The German corporate world is raked by scandals this week.

As Fran reported in the Salon, Deutsche Telekom got in unkind light for espionage: magazine SPIEGEL made public that the telecommunications giant tracked the calls of journalists, to find the source of leaks in the company.

But meanwhile, another case reached the court stage, which may be more important, because it concerns a more systematic practice: the Siemens corruption scandal. Confessing culprits laid bare how bribes and kickbacks were institutionalised in one industry giant.


First more on the Telekom scandal. It was SPIEGEL who revealed to the public that the company tracked thousands of calls by journalists, setting up a high-tech "early-warning" filtering system for the detectives plugged to the headphones. However, the affair was discovered - and relayed to law enforcement - by the present company leadership last year, the phone tappings went on turing their predecessors' tenure in 2002-2006.

But, subsequent revelations show a more extensive and serious spying activity:

  • In 2000 (the time of an even earlier company leadership), a detective agency of ex-spies was tasked with observing the chief reporter of Financial Times Deutschland, claims the paper itself. That mission reportedly included the use of hidden cameras.
  • In 2005, another detective agency was tasked with sending a mole to work with another business paper, Capital, who was reportedly successful in finding the source of a leak.
  • In the first revealed operation, it wasn't just phone calls they were after. Süddeutsche Zeitung reports that the bank data of journalists and suspected leakers among the union-delegated members of the board were acquired, too.
  • Furthermore, both SZ and SPIEGEL report that the phone trackers didn't just listen in to calls: the location of the cell phones was tracked, so that eventual meetings between journalists and potential leaker top managers be traced.
  • Unions plan to lodge a complaint against persons unknown, suspecting that unionists are among the spied-on.

The present company leadership said that the FTD and Capital cases are new to them.

What I wonder about is why law enforcement didn't inform the public last year. At any rate, after the flood of new revelations in newspapers, they now descended on the Telekom headquarters to look for files.

:: :: :: :: ::

A bit of intermission.

Rhineland Capitalism, former West Germany's consensus-seeking, cooperative variant of capitalism, is often praised in contrast to Anglo-Saxon (financial) capitalism for its approach to labour relations. But, the system was also nicknamed "Germany Inc.", for the less savoury cooperation and personal entanglement between its major companies, as well as between those companies and the state.

:: :: :: :: ::

Now for the Siemens scandal.

This scandal rolls on for one and half years now, peaking last March in the arrest of a board member (I reported). The first discoveries of black accounts and a system of kickbacks in one branch led to a deep review of the entire company, and the uncovering of similar practices across several branches and the era of successive company leaders.

Things started in the communications branch Com, and it's those responsible in Com who are on trial now, and also making headlines in SPIEGEL.

Two of the men on trial, the men tasked with the management of the black accounts, one between 1994-2001 and the other 2001-2004, cooperated fully: they gave complete confessions and even loads of files to investigators. They hope for lenience for being cooperative, and are making the case that they acted with the knowledge of / upon orders from higher-ups.

Com's money-disappearing system was based on the trick of fake consultancy contracts that were set up in conjuction with big projects. Up to 30% of the value of a project contract was turned into bribes and kickbacks. The money was then laundered through foreign channels, in particular Austrian banks.

The two confessing corruption managers claim that Siemens's own anti-corruption unit knew what was going on, but when bringing it up, only suggested that they should make it in less apparent ways. What's more, one of the duo also claimed that state overseers noticed his practices, but did nothing.

Actually, there appears to be a good news in the story: the corruption activities had to be progressively scaled down over time.

The 1994-2001 black account manager said that he was forced to take over a job with a history apparently going back decades. However, with increasing financial oversight, for example stricter control at Austrian banks, payments went back over the nineties from up to 30% to 5-6%. The state overseers were inactive only because in Germany, bribing people abroad wasn't a punishable crime until 1998.

:: :: :: :: ::

Now, is the morale of the story that Siemens is/was one thoroughly corrupt company? I think not. I think Siemens was one thoroughly corrupt company among many that was caught and thoroughly investigated. For the companies, bribes were just another method of competition, and for Germany Inc., just another method of boosting exports. For elites in and outside Germany, the system was one of the many ways to keep riches others worked hard for for themselves.

Maybe I don't go far enough even by accusing Germany Inc.: France and the USA and their major companies have been in this business, too.

Display:
A further corporate scandal is the investigation against former Airbus boss Noël Forgeard, but I leave the coverage of that to someone else.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri May 30th, 2008 at 03:19:07 AM EST
I think I remember insider trading is not all that illegal in Germany. Is it ?

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Fri May 30th, 2008 at 03:46:52 AM EST
[ Parent ]
No, that changed too, it is now illegal.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri May 30th, 2008 at 05:58:46 AM EST
[ Parent ]
The German wiki on insider trading lists several laws on the issue; and says that insider trading was made a punishable offence in 1995.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri May 30th, 2008 at 06:02:47 AM EST
[ Parent ]
Also, let's credit the EU with part of this: the main laws mentioned are harmonised with EU regulations issued in this decade.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri May 30th, 2008 at 06:06:21 AM EST
[ Parent ]
He has now been formally charged with insider trading (délit d'initié) concerning his sale of over €4m in EADS stocks at a time when he (surely) knew the A380 programme would suffer delays, though this knowledge was not yet public.

Others are under investigation, including Thomas Enders, who is now CEO of Airbus.

One might hope to see Arnaud Lagardère charged too. But in response to critics he said that if he had to choose between being seen as dishonest or as incompetent (ie not knowing what was going on in the company he held a big pile of equity in), he preferred the latter. So that's all right.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri May 30th, 2008 at 04:17:31 AM EST
[ Parent ]
The state overseers were inactive only because in Germany, bribing people abroad wasn't a punishable crime until 1998.
On top of that it was tax deductible. No, I'm not kidding.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri May 30th, 2008 at 03:25:56 AM EST
There is more in today's SPIEGEL:

Hidden Cameras?: Spying Scandal Widens at Deutsche Telekom - International - SPIEGEL ONLINE - News

Investigators began searching Deutsche Telekom headquarters in Bonn on Thursday, looking for evidence that the firm spied on company managers and journalists. New allegations accuse the company of spying as far back as 2000.

The growing spying scandal swirling around German telecommunications giant Deutsche Telekom may be even bigger than previously thought. Indeed, according to a German financial paper, the company may have placed journalists and managers under surveillance as far back as 2000.

More spying allegations have been levelled against German telecommunications giant Deutsche Telekom on Thursday. A report in the Financial Times Deutschland on Thursday says that Telekom hired the Berlin detective firm Desa to help find out how company information was being leaked to the press. Of particular concern, the paper writes, was a Financial Times Deutschland reporter named Tasso Enzweiler, who at the beginning of the decade often published exclusive reports about Deutsche Telekom. The private detectives, according to the report, even used hidden cameras in an effort to figure out who Enzweiler's source was.

The accusations follow allegations that the company systematically spied on management level employees and journalists from 2005 to 2006. Prosecutors opened an official investigation into Deutsche Telekom earlier this week and, on Thursday, began searching for evidence in the company's headquarters in Bonn.

And thank you for the hat-tip. :-)

by Fran (fran at eurotrib dot com) on Fri May 30th, 2008 at 03:32:59 AM EST
Things are better than at the times of IG Farben, so to speak.
by das monde on Fri May 30th, 2008 at 04:07:41 AM EST
There is more to add to my 3 diaries on the 'scandal that keeps on giving' in Finland.

The secretive group of businessmen who dished out a total of 400,000 € in various amounts to politicians of all parties, are all involved in real estate deals for supermarkets, stores and malls.

One, Kyösti Kakkonen, the CEO of Tokmanni, withdrew his application for consideration as 'vuorineuvos' - at the last minute - thus sparing the blushes of the PM.

But a very interesting fact that emerged yesterday, clears up a suspicion I had. The main Mr Fix-it, who decided who got what in bribes, is the vice-managing director of an expert company in commercial real estate called the Nova Group. It seemed strange that he was only vice-. Now all is revealed. The MD of the company is Arto Merisalo - a convicted tax evader and, apparently, full-time shady dealer, who has been trying to keep out of the limelight. I should have looked him up earlier.

We now know, thanks to one of the two Finnish media empires (hardly any of the media of the other giant have covered this at all because on deep background are 3 ex-patriate Finnish investors who have ties to the real estate group as well as to the non-publishing media giant), that the nefarious Mr Merisalo has met with all the key figures in the scandal in one-to-one sessions - including the PM (Centre Party), Minister for Economic Affairs Mauri Pekkarinen (Centre)  and Centre Party secretary Jarmo Korhonen.

Merisalo claimed in an email to 27 supporting businessmen (rabid mallkeepers all) that he had persuaded the 3 leading politicians not to support a stricter interpretation of zoning laws that might slow down their expansion of paving over Finland.

The 3 politicians claim, of course, that these private discussions are part of normal political discourse. But all 3 were surely aware of the dodgy financial background of Mr Merisalo. Personally, I support the rehabilitation of offenders, in line with the Finnish Prison service (which is doing a pretty good job), but I feel that F2F meetings with the PM is bending over too far forwards to expose the pocket that holds the welcoming wallet. ;-)

There is a call today from the leader of the Christian Dems for the elections to be rerun. They won't be of course - but it keeps the pot boiling nicely and increases the chance that more tasty tidbits will emerge. The point is that the whole bunch of them will think more clearly in future, and that the Finns in general will become more demanding of their leaders. They are not too bad a bunch comparatively, their ordinariness and accessibility is an asset. But the need some short sharp shocks now to keep them on the straight and narrow.

You can't be me, I'm taken

by Sven Triloqvist on Fri May 30th, 2008 at 08:22:32 AM EST
The general view of the younger civil servants, academics and think tank people that I speak to, is that the scandal will make it easier to continue to convince politicians to do the right thing, instead of getting off on ideology.

For these decision-influencers, the long-term coalition structure of the Finnish government has been historically keeping the politicians away from their more hare-brained schemes, and limiting them to act more as a Board in a company, a board that usefully deals with the shareholders - the taxpayers. This current scandal of the malls means that the independently-thinking decision-influencers  have repulsed a commercial attack on their long-term research-based plans to remodel Finnish society and make it more robust in the face of all that is happening on the planet.

This suits me, because most of the young decision-influencers I know seem fairly apolitical for professionals. I'd find it hard to guess who they voted for.

You can't be me, I'm taken

by Sven Triloqvist on Fri May 30th, 2008 at 10:11:44 AM EST
[ Parent ]
What, if any, discernible effect did thew scandal have on the polls?

You praise the coalition necessity of Finish politics; but I still ask in partisan fashion: did the SocDems, the Greens and eventual other parties further left capitalise on the scandal by publicly attacking the government and the coalition parties?

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Fri May 30th, 2008 at 01:46:46 PM EST
[ Parent ]
The Green Justice minister handled it very well, calling the parties together to discuss a change in the donations Law, without making any political points from it - as should be the correct protocol. Whether the new Law or its amendment are passed before the next elections is another question. But I think, from the ideas flowing about, that a 3000 € limit to ANY donation from an individual or group is about par.

The Greens, SocDems and others outside the coalition have, until the last couple of days, restricted their comments. Some SocDems also received donations from the same source, so they were quiet, except about the transparency issue. The President also urged complete transparency, though she too has the skeleton of a small dog in her cupboard, although something she did in an earlier campaign was not illegal at the time.

Tarja Filatov, chairwoman of the SocDems group in parliament, today launched a fairly damaging attack on PM Matti Vanhanen.  She smartly waited with her comments until she was expressing the informed public view.  She will have done good for the SocDems by it. Eero Heinäluoma, the SDP party chairman has been a ghost for a few days. He, like the PM, got a 10k € donation from the same source. However his days have been numbered since before the scandal.

Coalition partner, the Swedish Folk Party, (and I'll be meeting quite a few members at my daughter's white hat parade tomorrow) has simply defended the government line rather feebly. But since Swedish speakers own a good portion of old prime real estate in Helsinki, and a fair bit of the old industry, and thus are the contributors that keep the party functioning, the SFP will keep its head down. There is a whole rock waiting to be turned over there to see what's underneath.

You can't be me, I'm taken

by Sven Triloqvist on Fri May 30th, 2008 at 03:16:25 PM EST
[ Parent ]
A bit of intermission.

Rhineland Capitalism, former West Germany's consensus-seeking, cooperative variant of capitalism, is often praised in contrast to Anglo-Saxon (financial) capitalism for its approach to labour relations. But, the system was also nicknamed "Germany Inc.", for the less savoury cooperation and personal entanglement between its major companies, as well as between those companies and the state.

I am SURE there are MANY unsavory elements to Germany, Inc., but I will still argue that even with such problem, industrial capitalism will outperform financial capitalism--ESPECIALLY when the measurement is the quality of the goods produced and the likelihood that those goods will becomes better in the future.  This latter is especially important because energy-efficient, sustainable production is really the only hope this poor planet has.

"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Fri May 30th, 2008 at 09:38:58 AM EST
Both of these cases are being closely followed in Greece:
1. Deutsche Telekom recently bought out a big share of the Greek incumbent OTE and secured its management. OTE is possibly Greece's largest company and managerial rights until now were exercised by the Greek government, which owned ~35% of the company until a while ago. This was met with a furious reaction from unions and the opposition as a sell-out. However it was the Socialists who sold the majority stake of the company to private investors, but the Overton Window has been shifting towards the left lately and, with the opinion polls pressuring them (see the 2007 election results for a comparison), the Socialists are making a rhetorical left turn promising to protect public enterprises of strategic interest.

The Siemens scandal reveals yet again the entrenched nature of corruption in the Greek state and its political life. We now know that Siemens was bribing both Conservative and Socialist parties before the 2004 elections (and as preparations for the Athens Olympics were ongoing). I expect this to hurt the socialists more than the conservatives, but if both party coffers (and not merely cadres) were greased it might mean a new blow to the two-party system.

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Fri May 30th, 2008 at 11:57:31 AM EST
I bet there are a lot of nervous former Siemens customers around the world today :-)... Unfortunately, the Budapest Traffic Company could be among them, too.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri May 30th, 2008 at 01:44:57 PM EST
[ Parent ]
Interesting links, thanks. Communists at 7%, SYRIZA at double of that, nice!

Would these stories be worth of an update diary on your previous on the prospective end of the two-party system?

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Fri May 30th, 2008 at 01:51:39 PM EST
[ Parent ]
Yes, yes... I always mean to but the posts always end up as comments... Possibly this weekend.

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Fri May 30th, 2008 at 03:03:20 PM EST
[ Parent ]


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