Siemens: Sun never sets on white-collar crime

Perhaps cynicism was what you felt when you read that Siemens management had uncovered more than $500 million in "suspicious transactions" -- all related to seven years of winning contracts in the wireline world.

You weren't all that surprised, were you? What may have surprised you was how vigorous German authorities were. German police raided 30 offices and residences, and Siemens CEO Klaus Kleinfeld, who many of us know because he ran Siemens in the United States, is being treated as a witness, but not a suspect.

Years ago, you may have noted that the largest American carriers formed many joint ventures around the world. Foolish me, I actually asked why. My friend, super high up, answered, "The Foreign Corrupt Practices Act, dummy!" These ventures allowed a carrier to "win" the contract but not become tainted with "special arrangements" that might wind up in court. The role of the joint venture partner was to provide protective coloration and deniability by its U.S. partner.

Despite claims to the contrary, one carrier-class provider's equipment is essentially the same as another's. So how do they win business? On price? Well, that's one way.

But many see price competition as "so wasteful" -- whatever that means. And the world's telecom ministers have great leeway about which providers they pick and why. When AT&T was unbundled, what was then Western Electric had the opportunity to go after business around the world, but also the disadvantage that other carrier-class equipment providers could begin to go after the then-seven RBOCs.

Fifty years ago, General Electric was convicted of price fixing of electric-generation equipment. The response from GE senior management was that a rogue band of out-of-control executives, acting on their own, had committed this heinous deed. Siemens now is making the same claim -- that the fraud through secret bank accounts was the work of a handful of executives committing individual acts.

What did you expect Siemens to say? More than $500 million is one hell of a lot of money to hide. Were the company's CFOs blind -- or intentionally ignorant? Let me explain how big companies work. Rule No. 1: Make your numbers. Rule No. 2: See Rule No. 1.

Just like the Mafia makes sure there is insulation between the capo and the street members, large corporations build defenses for themselves. Here's an analogy: Did the general managers of Major League Baseball teams have reason to believe their sluggers were ingesting illegal performance-enhancing drugs? Yes, of course. Did they officially want to know? No. Kind of like the military with "Don't ask, don't tell."

But don't think this just happens in telecommunications. The cable-television industry players were masterful in how they did bribery and brilliant in the way they sanitized it.

Let me explain how. When a major city decided to pick a cable company, some of the cable companies would form a separate firm, of which they owned 80% -- and "local" citizens would own the rest. So "Cable SuperSystems of Anytown" would win the franchise, often because the city could cite that part of the winning team was local. Then Cable SuperSystems could buy out that 20% -- at a big, big premium.

Often those "local citizens" included the mayor's brother, cousin. . . . You get the idea. So what is so surprising to me is not what Siemens did, but that they did it so clumsily.

Years ago, I suggested to someone that the cure for violent crime was to teach the violent criminals how to do white-collar crime. It looks like we have to push back the envelope now on how to do white-collar crime a little better.

Have a cynical day. I always do.

Learn more about this topic

Bribery investigation sets back Nokia-Siemens deal

12/15/06

Latest e-mail hoaxes target personal data, pack virus

11/09/06

Book explores human side of white-collar crime

12/14/04

Join the Network World communities on Facebook and LinkedIn to comment on topics that are top of mind.

Copyright © 2007 IDG Communications, Inc.

IT Salary Survey: The results are in