Caixin
Jun 30, 2011 12:02 PM

Siemens Bribery Scandal Ends in Death Sentence

As an industry veteran, Shi Wanzhong sat in senior positions of state-owned telecoms companies for years. In May, the Intermediate Court of Hebi City, Henan Province sentenced Shi to death with a two-year reprieve on charges of bribery. The trials were not open to the public because its proceedings "involved state secrets," a source close to the matter told Caixin.

(Shi Wanzhong)

Just a few years ago, Shi was receiving accolades from the Communist Party for his managerial expertise in the tightly-regulated mobile phone sector. In 2002, he was appointed chairman and general manager of China Mobile's branch in Anhui Province. During his term in Anhui, Shi was named National Model Worker in 2006 and Model Worker of Anhui Province in 2007.

In addition to the sentence that Shi received, Tian Qu, who facilitated Shi's graft, was sentenced to a 15-year jail term. The court found that Shi and Tian had accepted a total of US$ 5.1 million in bribes from Siemens.

The Start of the Scandal

Since 2006, the U.S. Securities and Exchange Commission (SEC) has launched several probes into commercial bribes by Siemens worldwide under the Foreign Corrupt Practices Act.

The investigations found that Siemens has been involved in the misappropriation of hundreds of millions of Euros through the set-up of slush funds, which have been used to offer bribes and win contracts in many countries, including China. China-related Siemens cases concentrated on sectors like transportation, telecoms and pharmaceuticals, but the SEC has not disclosed full details on Chinese recipients of bribes.

In late 2008, the SEC and Siemens reached a settlement after Siemens agreed to pay a hefty fine. After the Siemens bribery case was brought to light, information on the involvement of Chinese personnel was sent to the Chinese authorities via diplomatic channels, with Shi's name appearing on relevant documents.

Downfall of a Model Worker

In early 2009, Shi was sent to the national headquarters of China Mobile Group to head the human resources department. Then 49, Shi looked to have a bright future ahead of him. But his activities in Anhui followed him.

According to the court's ruling, Shi received bribes during his time in Anhui while he oversaw the equipment procurement for the provincial branch. Well-versed in the unspoken rules of Chinese business, Siemens set its sights on using a longtime friend of Shi and private company owner named Tian Qu, as a conduit of bribes to Shi. Tian was invited by Siemens to serve as a middleman, or sales agent, brokering equipment sales between Siemens and Shi's Anhui branch of the China Mobile Group.

Through Tian's maneuvering, Siemens secured sales contracts with China Mobile Anhui and transferred a total of US$ 5.1 million in kickbacks into Tian's personal bank account.

The Shell Company Scheme

A former Siemens executive revealed that Siemens employs middlemen in two ways. The first is the sales agent model, where the agent promotes Siemens products in a certain region and receives commissions based on sales volume.

The second method is to promote Siemens products by "signing business consultancy agreements with shell companies," said the executive. "One agreement stands for a sum of kickback and the shell company simply acts as a channel for money laundering." According to the source, Siemens would not sign a sales agent agreement with Tian until Shi had agreed to purchase equipment from Siemens.

In response to Caixin's interview request, Siemens stated that they had "no comment on corruption cases involving officials within China."

According to China's criminal law, companies are "subject to fines for offering bribes in order to secure illegitimate benefits, and responsible company staffers are subject to jail terms of no more than five years." As the case "involves state secrets" it is still unclear whether Siemens will be subject to prosecution by Chinese authorities.

Reporter Cao Haili also contributed to this article

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