ABB, Siemens Probes Show Bribery Hard To Stamp Out
An investigation into suspected bribery by ABB shows the difficulty of eradicating decades-old corruption to win foreign contracts.
Reuters
An investigation into suspected bribery by ABB -- a second case involving a major European engineering firm -- shows the difficulty of eradicating decades-old corruption to win foreign contracts.
In an echo of the low-key beginning a year ago of a scandal at Germany's Siemens that escalated to claim the scalps of its chairman and chief executive, Swiss-based ABB said on Thursday it was probing suspect payments made by some employees abroad.
For many years the practice of bribing foreign officials was not only tolerated but tax-deductible in Europe. Following the lead of the United States, most European countries have enacted laws in the past decade that have made the practice illegal, although few cases have been prosecuted.
ABB said it was investigating several cases of suspect payments in Asia, South America, Europe and in particular Italy. It is unclear how much money may be involved, it said, adding that it had informed U.S. justice authorities.
ABB's statement that it may have violated the U.S. Foreign Corrupt Practices Act bribery law followed on the heels of a statement from German industrial group Siemens that it was extending its own internal corruption investigation.
Siemens said it was now looking at suspect payments in its turbines, power distribution, transport, medical and industrial services divisions as well as the hundreds of millions of euros' worth of payments it was already examining at its telecoms unit.
"The company has identified a significant increase in the total amount of business consultant agreement payments under review," it said in a statement.
Siemens added that it had spent 188 million euros ($260 million) on outside advisers hired in connection with the corruption investigations in the first nine months of its financial year.
Anti-corruption watchdog Transparency International said the cases showed that corrupt practices were often deeply ingrained in company culture and were not simple to weed out.
"It shows that corruption was endemic in the industry in the past, and it shows that these new laws are very difficult to put into effect," Peter von Blomberg, the deputy head of TI Germany, told Reuters.
"At Siemens, measures obviously weren't implemented carefully enough as the division heads didn't take them that seriously. That's the lesson that all companies should learn from the Siemens case," he said.
Investors have been largely indifferent to the corruption affair at Siemens, and ABB shares rose on Thursday, despite the bribery investigation revelation, based on the forecast-beating results the company released at the same time.
"The news on the disclosure of suspect payments ... is worth monitoring, but we do not view it as a major issue at this stage," Credit Suisse analysts said in a note.
Published: July 26, 2007 13:37h
ABB launches probe as results beat forecasts
The ABB engineering group says it may have violated a United States bribery law after discovering suspect payments made by some employees abroad.
The group, which has its headquarters in Zurich, said on Thursday it had launched an inquiry and had notified the US authorities. At the same time, ABB announced first-half figures that clearly surpassed market expectations.
"The news on the disclosure of suspect payments... is worth monitoring, but we do not view it as a major issue at this stage," commented Credit Suisse analyst Julian Mitchell.
ABB said in a note in its results statement the payments may be in violation of the US Foreign Corrupt Practices Act or other applicable laws.
"If ABB is found to have violated any of these laws, the company could be liable for penalties and other costs and the violations could otherwise negatively impact its business," it said.
Several cases?
ABB said it was investigating several cases of suspect payments but it was unclear whether they were linked. It added it had not made any provisions and was not sure how much money could be involved.
The news came after shares in Swiss logistics firm Panalpina of Basel fell by as much as nine per cent on Wednesday after it started an inquiry in response to a US request for documents in a bribery probe.
The US Foreign Corrupt Practices Act includes anti-bribery measures that forbid corrupt payments to influence decisions that could help a company to obtain or retain business.
ABB reported that its first-half net profit had risen to $1.266 billion (SFr1.54 billion) from $571 million in the comparable period last year.
Second-quarter profit almost doubled to $729 million as it sold transformers, switchgear and substations to customers in China and the Middle East.
Strong growth
"Our second quarter was marked by continued strong growth with outstanding operating margins," company CEO Fred Kindle said in a statement.
"As a market and technology leader, ABB continues to benefit from increased global investments in energy efficiency as well as power and industrial infrastructure," he added.
China alone plans to spend about $33 billion this year on extending its electricity grid to help power new plants and reduce outages.
Orders at ABB in the second quarter rose 26 per cent to $8.666 billion as growing demand for power in emerging markets and a drive from customers to update their energy transmission systems bolstered the group.
The ABB statement said the business environment for ABB during the rest of 2007 was expected to remain in line with the positive market situation in 2006 and the first half of this year.
Order growth is seen continuing on a high level but is expected to moderate in the course of 2007, said ABB. The market anticipates the group will raise its medium-term earnings goals in September as business booms.
The group has a target of turnover growth above five per cent and an operating margin above ten per cent for 2005 to 2009.
swissinfo with agencies
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