MUNICH, Germany (Reuters) - Compliance officers at German engineering giant Siemens (SIEGn.DE) and auditors at KPMG turned a blind eye to a system of slush funds used to pay bribes to win orders, a court witness said on Wednesday.
Heinz Keil von Jagemann, a former Siemens manager who admits carrying large sums in cash out of the country, said compliance officers had approached those responsible for the slush fund system after Austrian banks became suspicious.
Many of the suspect transfers made on Siemens’s behalf out of Germany traveled through neighboring Austria first.
Jagemann, called as a witness on the second day of what promises to be a mammoth trial in Munich, said the two compliance officers, who still work at Siemens, had told the perpetrators: “Think of another way.”
The scandal involving at least 1.3 billion euros ($2 billion) in suspect payments, according to Siemens’s own estimate, has also sparked investigations by the U.S. Department of Justice and the Securities and Exchange Commission.
Such probes could lead to Siemens being banned from bidding for certain contracts in the United States and elsewhere.
Jagemann, a former Siemens manager who is one of about 300 suspects under investigation by Munich prosecutors, said he personally had carried large amounts of cash and money-transfer documents to Austria in heavy pilot’s cases.
“Once, I nearly did my back an injury,” he told the Munich Higher Regional Court.
Jagemann said the bribes to foreign officials — which were legal in Germany until 1998 — had amounted to up to 30 percent of the contract value.
By around 2001, the compliance department considered payments of 5 to 6 percent of the contract value to be “morally justified,” he said.
Jagemann said that KPMG had also known of the dubious payments, but had taken no action. “Obviously, that made us feel more secure,” he said.
KPMG, whose contract was recently renewed by Siemens, on Wednesday denied having acted improperly. “KPMG always performed all its duties fully in connection with the audit of the annual report,” a KPMG spokesman told Reuters.
Siemens’s house lawyers also did nothing to stop the corrupt practices, Jagemann said. “If the legal department had put on the brakes at that time, we wouldn’t be sitting here today.”
Both Jagemann and former sales manager Reinhard Siekaczek, the only defendant in the trial so far, said Lothar Pauly — a former head of Siemens’s telecoms businesses and later a senior manager at Deutsche Telekom (DTEGn.DE) — had signed some of the transfer documents.
Pauly’s lawyer, Kurt Kiethe, told Reuters: “It’s not true that Mr Pauly knew about a ‘slush fund system’ at Siemens. Mr Pauly knew nothing about payments of bribes.”
Pauly quit his job at Deutsche Telekom a year ago.
Earlier, a Munich prosecutor called as a witness told the court that Siekaczek had brought prosecutors two suitcases full of documents and composed a “list of those in the know” after his arrest.
“Mr Siekaczek started an avalanche,” said Hildegard Haeumler-Hoesl.
Siemens’s telecoms equipment division, most of which has since been divested, had annual sales of 13 billion euros and 50,000 employees in its heyday.
The bribes it allegedly paid could have helped it to win contracts where it was bidding against rivals such as Cisco Systems Inc (CSCO.O), Nokia Oyj NOK1V.HE and Ericsson (ERICb.ST) in countries including Nigeria, Libya and Russia.
Siekaczek, a 57-year-old former sales manager at Siemens’s telecoms equipment division who is defending himself on 58 charges of breach of trust, says he built the slush-fund network at the request of his superiors. Further charges are expected against others.
Editing by David Holmes, Paul Bolding