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Corporate scandals plague top German firms

A series of scandals at some of Germany's largest companies has brought embarrassment to a corporate culture proud of its honor system.
/ Source: The Associated Press

In a nation where a handshake can launch a deal and business is considered a noble calling, a series of scandals at some of Germany's largest companies has brought embarrassment to a corporate culture proud of its honor system.

Allegations and admissions of bribery, corruption and misdeeds have surfaced at the highest levels of business this summer at five of Germany's blue-chip companies: BMW, Volkswagen, DaimlerChrysler, Infineon and Commerzbank. Several executives have resigned or been fired, and some face criminal investigations.

The revelations show that even in a nation that prides itself on its economic dedication and know-how, the government and the business community need to fight harder against corruption, said Hans Joerg Elshorst, chairman of Transparency International in Berlin.

"The whole discussion of transparency of business itself, toward shareholders, toward the public and toward regulatory agencies is not too well-developed in Germany," he said.

Germany overall is above board, according to Transparency's annual ranking of corruption. The latest index put Germany as one of the 20 least corrupt countries.

Some of the companies have been upfront, immediately hiring outside consulting firms to investigate the allegations. VW fired two executives over the alleged abuse of expense accounts to favor employee representatives and has filed charges against them. The company said Monday that their alleged behavior was not VW's usual way of doing business.

Others, such as Commerzbank — Germany's fourth biggest bank — tried to keep the allegations quiet.

The German bank's personnel chief, Andreas de Maiziere, resigned in July for what the bank said were personal reasons. Days later, Commerzbank confirmed that de Maiziere and four other current and former employees were being investigated for alleged money-laundering involving assets from the former Soviet Union. De Maiziere was not able to be reached for comment.

"People are paying more attention to these processes that go on in companies," said Maren Moehring of the Potsdam-based group Business Keeper AG, which supplies tools and software for companies to better track complaints about alleged wrongdoing internally.

In previous decades _ in Germany as well as elsewhere in Europe and North America _ companies tried to keep allegations of corruption hidden, she said. Now they're identifying it and moving to stop it before it can cause extreme damage financially and publicly.

"The management now does more to prevent corruption, but some companies are so big and some processes have been going on for so many years it's not that easy to interrupt completely" and quickly, she said Monday. "It's a very long process and it has to reach all employees so everybody knows there is a new culture."

A BMW purchasing manager was arrested last month on charges that he took $100,000 (about 81,000 euro) in bribes from a supplier to ensure that the company's products were given preferential treatment. BMW says the man is no longer with the company and the incident was an isolated one.

At Infineon Technologies AG, Andreas von Zitzewitz, the company's chief operating officer and head of its core memory chip unit, quit last month. Prosecutors have said they are investigating whether Zitzewitz received improper payments from a Swiss firm called BF-Consulting between 2002 and 2004 for a motorsport sponsorship contract. Zitzewitz was not reachable for comment.

DaimlerChrysler, Germany's largest company, is investigating allegations a Mercedes executive used company money to build a house in Majorca. Two other executives were dismissed earlier this year for reported involvement in shady car exports to Eastern Europe and the Middle East.

Ingo Schwender, a Berlin-based lawyer, said that while there has long been corruption, the current problems have received more public attention because they are being aired at the same time Germany debates its economic future amid flagging growth.

Germany's open discussion of the scandals, however, indicates that the nation is more willing to acknowledge business problems and confront them, Schwender said.

German regulatory law already has been modified to help fight corruption.

In 2002, a single financial watchdog was set up to monitor German corporations. Part of BaFin's mission is to ferret out corruption and levy penalties, including bringing court cases and assessing fines. Since 2003, BaFin has completed 41 investigations into money laundering and its staff has increased to 1,500 workers.

Corporate governance reforms have helped by making it mandatory for companies to provide details and information quickly.

More and more companies, such as state rail operator Deutsche Bahn, are also setting up ombudsmen to deal with complaints from whistleblowers about alleged wrongdoing, Moehring said.

Public prosecutors can also launch investigations and file charges in the city or state where a company is based. Wolfsburg-based VW turned to prosecutors there after it learned of the allegations against the two executives. The company has said the overall fallout of the scandal would be in the "single-digit millions."

While Schwender predicted public attention to the scandals will fade, Elshorst urged lawmakers and the public to remain diligent to ferret out more corporate corruption.

"We believe that things are improving in many areas where there is enough pressure from the public and efforts by the government and companies," he said.