Bribery and corruption

Why did graft become just another line item at a world class company?

“I know what this is about. I was expecting you.”

According to the New York Times, those were the first words that Reinhard Siekaczek uttered when he opened the door of his home to six German police officers and a prosecutor in the precursor to what would become the biggest bribery case the world has ever seen.

Siekaczek was an accountant working for global electronic and electrical engineering giant Siemens AG, which in December 2008 paid $1,6-billion in fines after being found guilt for using bribes to secure business contracts around the world.

From the 1990s through to 2007, Siemens paid off well placed government officials in dozens of countries from Nigeria to Norway in order to get contracts for telecommunications, medical devices, transportation, and other large-scale projects. Bribes became the accepted business norm at Siemens which institutionalised corruption through a secret network of slush funds, shady middlemen and “consultants”. The Munich headquartered company was greasing up the gravy train for the likes of Sadam Hussein and his cohorts, as well as corrupt officials in numerous other countries.

Commenting on the scale of the corruption, Linda Thomsen of the US Securities and Exchange Commission (SEC) said: “Siemens paid a staggering $1,4-billion in bribes to government officials in Asia, Africa, Europe, the Middle East and the Americas. The scope of the bribery scheme is astonishing, and the tone set at the top at Siemens was a corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company.”

Investigations revealed that 4 283 bribes were paid out in return for business to Siemens around the world, including power plants in Israel, mobile telephone networks in Bangladesh, telecommunications projects in Nigeria, medical devices in Vietnam, China, and Russia, and refineries in Mexico.

The question that begs to be asked is how it was possible for such large scale and complex corruption to take place within Siemens for so long without it being exposed? Why did so many people knowingly participate in actions they knew were illegal? Was Siemens filled with evil people knowingly committing crime? What had gone so horribly wrong?

Experts on corruption say that criminal behaviour in business is fraught and complex, but two key elements interplay to result in graft taking place. The first is the psychology of the individuals committing the crime. The second factor is the environment. There is a strong relationship between these two factors with research showing that environmental factors strongly influence whether or not people will commit graft even if they have a propensity to do so. Robust corporate governance and a strong, ethical culture can deter corrupt behaviour.

The Siemens effect was a bit like The Milgram Experiment, in which Yale University professor Stanley Milgram discovered that people will perform acts that betray their personal conscience if they are instructed to do so by an authority figure. Speaking of the experiment in an article, Milgram said: “Ordinary people, simply doing their jobs, and without any particular hostility on their part, can become agents in a terrible destructive process. Moreover, even when the destructive effects of their work become patently clear and they are asked to carry out actions incompatible with fundamental standards of morality, relatively few people have the resources needed to resist authority.”

The reasons why corruption became institutionalised at Siemens are simple in retrospect. In Germany bribery was permissible as a tax deductible expense until 1999, when the country joined an international convention banning foreign bribery. This set the stage for legitimising bribes. When these payouts were outlawed the leadership of Siemens feared financial loss. Partly because they believed they wouldn’t be able to be successful without bribes, and because they were motivated by greed and driven by a dogma of growth at all costs.

The accountants and staff involved in administrating the bribes were told people would lose their jobs if business wasn’t done this way. Siemens created the perfect environment for corruption by enabling opportunity, providing motive and applying social pressure to institutionalise crime.

In the final analysis, like the Milgram Experiment, authority and fear is all that is needed to get good people to commit crime.