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Siemens says SEC, U.S. Justice Department are probing bribery allegations

FRANKFURT, Germany -- Siemens AG (NYSE: SI) said Thursday it faces a widening investigation into bribery allegations that have spurred both its chief executive and the chairman to say they would step down, and warned that the money in question could be bigger than earlier thought.

The disclosure came as Europe's biggest engineering company by sales said all of its units either met or exceeded their profit targets on the back of stronger sales, particularly for factory and medical equipment. It had previously said its earnings rose 36.5 percent for the second quarter.

"We are firing on all cylinders now -- there is not one single cylinder anymore that is stuttering," said CEO Klaus Kleinfeld, who announced Wednesday that he would not renew his contract expiring Sept. 30 with Siemens.

[CAPTION=Klaus Kleinfeld, chief executive officer of Siemens AG, announced last week that he would not renew his contract expiring Sept. 30 with the German engineering company. Photo: Wolfgang von Brauchitsch/Bloomberg News.] "We significantly strengthened our strongest businesses, better aligned the company to take full advantage of global demographic and urbanization trends and reached or exceeded our margin targets at all groups," he added.

Kleinfeld, who has not been a target of any of the corruption inquiries at the industrial and engineering conglomerate, had pledged to restore the company's reputation.

But after reports that some members of the supervisory board -- which is the equivalent of a U.S. board of directors -- wanted to oust him, he said Wednesday that he would leave after his contract expires. No successor has been named for the 49-year-old, who has been with the company for 20 years and CEO since January 2005.

Former board Chairman Heinrich von Pierer, who also has not been accused of any wrongdoing, stepped down at Wednesday's board meeting.

Siemens -- which makes products ranging from cell-phone network components to trains -- has been rocked by investigations in Germany, Italy and Switzerland over whether money totaling hundreds of millions of dollars was taken from corporate accounts and used to pay bribes to help land telecommunications deals. The scandal has enveloped the company, a pillar of the German corporate world.

Munich-based Siemens said Thursday that the SEC and the Department of Justice are also investigating the allegations of bribery. It said the SEC had upgraded its informal inquiry into possible bribery into a formal investigation. The U.S. Justice Department is already investigating possible criminal violations.

Siemens also said it was widening its internal investigation into suspicious payments made under what are known as business consultants agreements, or BCAs.

"An analysis of BCAs and related payments at the other groups will begin," the company said as it released its complete second-quarter results. "As a result, the company expects a significant increase in total amount of BCA payments under review."

So far, Siemens has identified 420 million euros ($572.9 million) in suspicious payments made at its telecommunications unit in recent years, but warned the amount could grow and, possibly, affect its finances.

The company warned that the investigations could lead to what it called "substantial uncertainties" but added that so far it has not affected its bottom line.

"There is a risk that the company will have to make (such) changes ... including by recording additional tax charges in respect of prior periods," Siemens said. "Such changes, as well as further results from the ongoing investigations, could be material."

Siemens reiterated figures it released earlier this week that it earned 1.26 billion euros ($1.71 billion) in the second quarter compared with 923 million euros in the same period a year earlier. That was better than what analysts had forecast.

Sales rose 10 percent to 20.63 billion euros ($28.16 billion), also beating expectations.

The growth came at all the company's major units, including its industrial automation, medical, power transmission and automotive units.

Kleinfeld also dismissed speculation that Siemens would sell its VDO Automotive auto parts unit.

"Our message is clear. We will continue to pursue an IPO in any case," he said.

Siemens shares rose 1.32 percent to close at 89.53 euros ($122.13) in Frankfurt. Since Kleinfeld took over as CEO, they have risen by some 40 percent.


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