Slush Fund Suits

The supervisory board of the German electronics and engineering group decided on Tuesday, July 29, that claims should be brought against 11 former members of the main executive board who left as the scandal was exposed.

They include two former chief executives, Heinrich von Pierer and Klaus Kleinfeld. The company accuses them of supervisory failings in the period 2003 to 2006.

The company "bases its claims on breaches of their organizational and supervisory duties in view of the accusations of illegal business practices and extensive bribery" that marked operations from 2003 to 2006.

Investigations ongoing

The decision follows a first conviction in the corruption scandal when a court in Munich on Monday, July 28 imposed a 108,000 euro ($170,000) fine and a two-year suspended sentence on Reinhard Siekaczek following an eight-week trial. Prosecutors gave extensive testimony and documentation in the case about a companywide system of slush funds and illicit payments.

German justice officials are also still investigating the company as part of a probe that began in 2006 and has shaken the engineering giant to its core.

The company agreed in October to pay a fine of 201 million euros to put an end to some German legal proceedings. Because the firm's shares are also listed in the United States, it is subject to a potentially damaging -- and expensive -- probe by the US Securities and Exchange Commission.

The supervisory board said it would give the former managers the chance to address the charges before officially taking legal action. The board also said it would cut all ties, including consultant contracts, business cars and office space, to the accused.

The decision to sue is a first in the normally cozy world of big German corporations where past management errors are usually ignored.

An internal inquiry has exposed 1.3 billion euros ($1.57 billion) in payments by Siemens for apparently fictitious services by "consultants." In reality the money was used to buy influence, investigators believe.

Current CEO Peter Loescher was brought in from outside the company a year ago to get to the bottom of the elaborate system of kickbacks and slush funds that appear to have penetrated all levels of operations.

The supervisory board did not specify how much they would demand of the former executives.