IN the spring of 2003, auditors for a bank owned by Liechtenstein's royal family spotted an unusual flurry of money transfers involving a small offshore firm called Martha Overseas.
They discovered that Martha Overseas was controlled by Prodromos Mavridis, a top executive in Greece with Siemens, the German engineering giant. Millions of euros were pouring into the account from another offshore firm controlled by a different Siemens executive based at the company's Munich headquarters.
The bank auditors in the tiny Alpine nation, on the lookout for possible terrorist-financing transactions, had instead stumbled upon one of the largest corporate bribery cases in recent history. Today, prosecutors in the US and around the world are pursuing allegations that Siemens bribed customers to win big infrastructure contracts.
Increased post-9/11 scrutiny is making it tougher for companies to camouflage payments through countries such as Switzerland and Liechtenstein, which have rolled back banking-secrecy laws. Authorities in the two nations played a quiet but central role in uncovering wrongdoing at Siemens.
In October, German prosecutors fined Siemens 201 million euros ($334.72 million) after tracing 12 million euros in bribes to Nigeria, Russia and Libya. In November, Siemens said it had identified 1.3 billion euros in suspicious transactions worldwide between 2000 and 2006.
The scandal became public when German police raided Siemens offices in November 2006. But confidential bank and court documents reviewed by The Wall Street Journal and interviews with law-enforcement officials show how the raid followed more than three years of work in untangling Siemens's money transfers.
The timeline, along with earlier evidence, suggests top Siemens executives knew about allegations of wrongdoing at least two years before they acknowledged illicit transactions.
Siemens declined to comment in detail for this article. The company said it is cooperating fully with authorities and is eager to get to the bottom of any wrongdoing.
Mr Mavridis, who was head of Siemens's telecom-equipment sales in Greece, left the company in April 2006. He is being investigated in at least three European countries, including Greece. As the Journal reported in January, a former Siemens executive, Michael Kutschenreuter, has told German prosecutors he heard from the head of Siemens's Greek unit that the company bribed public-sector officials to win a contract for the 2004 Olympics in Athens and paid off political parties ahead of parliamentary elections the same year.
A lawyer for Mr Mavridis said his client did nothing wrong. Mr Mavridis hasn't been charged with any crime. A lawyer for Mr Kutschenreuter declined to comment.
Liechtenstein was one of 15 countries blacklisted in 2000 by the Group of Seven industrialised nations for "non-cooperation" in the prevention of money laundering. LGT Group, which is Liechtenstein's biggest bank and is owned by the principality's ruling family, was raided the same year as part of a criminal probe into cross-border bank transactions. In 2001, after Liechtenstein bolstered its surveillance, the country was removed from the G-7's blacklist.
In the spring of 2003, according to people familiar with the matter, compliance officials at LGT zeroed in on a flurry of transactions between Martha Overseas, a Panama-based company controlled by Mr Mavridis, and Eagle Invest & Finance SA, a company based in the British Virgin Islands and controlled by a Siemens executive in Germany, Reinhard Siekaczek. They noticed that 1 million euros was paid into a Liechtenstein account before being withdrawn the same day and that half a dozen transactions involving 5 million euros ricocheted through related accounts over a three-week period.
Auditors at LGT grew suspicious because the payments were characterised as commissions paid by Siemens to the two executives, according to people familiar with the case. The auditors wondered why Siemens would pay commissions to senior salaried employees and why the funds would be directed through offshore accounts with no ostensible ties to Siemens.
In November 2004, shortly after LGT filed a suspicious-transactions report to local authorities, Liechtenstein blocked 7.6 million euros in funds that appeared to originate with Siemens. The authorities alerted their Swiss and German counterparts, as well as Siemens. The chief compliance officer at Siemens reported the Liechtenstein case to the company's audit committee in January 2005, according to a court document and a Siemens board member. By that point, senior managers already knew of suspected illicit activity, according to testimony from former Siemens officials.
Robert Wallner, a prosecutor in the Liechtenstein capital of Vaduz, said he asked to interview a member of Siemens's management board in late 2004 but was turned down. Siemens also suggested that he drop the investigation because the company wasn't materially injured by the transactions, according to Mr Wallner.
In March 2005, Swiss prosecutors opened their own investigation after Germany's Dresdner Bank submitted a money-laundering report highlighting a longer string of suspicious payments that flowed through Switzerland and were tied to Siemens's Mr Mavridis. In August, Switzerland froze about 25.5 million euros that appeared to have been funnelled into Mr Mavridis's accounts from Siemens.
In December 2005, Dresdner told Siemens about dozens of transfers to Mr Mavridis between 2001 and August 2005 totaling 37 million euros. Money flowed into his accounts from banks and small firms in Switzerland, Italy, London, Hong Kong and Dubai, among other places. The money also moved out of the accounts to offshore firms with names like Ursula Marketing and Prince Pacific. Around the same time, German prosecutors, spurred by Switzerland and Liechtenstein, opened their own investigation.
The next month, Albrecht Schäfer, then the chief compliance officer at Siemens, forwarded the Dresdner report to Heinz-Joachim Neubürger, then the company's chief financial officer, according to an internal Siemens document. The company's audit committee was informed of the suspicious transactions a few days later. But it would be many months before the public learned of the suspicions.
Prosecutors in Bern, Switzerland, raided the offices of Intercom Telecommunications Systems, a Swiss subsidiary of Siemens, in March 2006. They uncovered further details of dubious invoices tied to Mr Mavridis, and he was questioned in March and June.
Siemens began liquidating Intercom in late May. That heightened Swiss prosecutors' suspicions. They didn't see an economic reason for closing the company, according to a person familiar with the investigation.
In April 2006, Mr Mavridis left Siemens after the company agreed to pay him 300,000 euros in severance, according to a person familiar with the matter. On November 14, one day before its German offices were raided by police, Siemens filed a civil lawsuit against Mr Mavridis in Greece, claiming ownership of 8 million euros that he held in a personal bank account in Athens. Mr Mavridis handed over 7.8 million euros to the company in January of this year. His lawyer says Mr Mavridis never disputed that the money belonged to Siemens.
Mr Siekaczek, the former Siemens manager in Germany who controlled accounts that had funnelled money to Mr Mavridis, was arrested November 15, 2006. Mr Siekaczek told prosecutors that he knew of bribery schemes earlier this decade in more than a dozen countries stretching from Brazil to Egypt. He said the Greek unit enjoyed wide latitude in nearby countries such as Cyprus, Bulgaria and parts of the former Yugoslavia. Mr Mavridis handled bribe payments in some of those countries, according to Mr Siekaczek.
Mr Siekaczek, a longtime executive in the telecom-equipment unit, was indicted in Germany in September on embezzlement charges. Mr Siekaczek's lawyer declined to discuss specifics of the case but said his client is cooperating with prosecutors.
Mr Kutschenreuter, the former chief financial officer of Siemens's telecom-equipment unit, was also detained in late 2006 but later released. He told German prosecutors that Michael Christoforakos, the head of Siemens's Greek unit, had informed him about the bribes to win an Olympic infrastructure contract and gain favour with Greek political parties. Other Siemens executives also have said they were aware of bribes in Greece earlier this decade, according to transcripts of the executives' interviews with German prosecutors.
Earlier this month, Mr. Christoforakos stepped down as chief executive of Siemens's Greek unit. Before his departure, Siemens declined to make him available for an interview, and he couldn't be reached independently. Mr Christoforakos recently began cooperating with outside investigators hired by Siemens after he balked months earlier, said a Siemens board member.
Liechtenstein prosecutors transferred their money-laundering probe involving Siemens's telecom unit to counterparts in Germany and Switzerland earlier this year, but they continue to chase a money-laundering case involving a Siemens power unit. German prosecutors say they won't pursue further penalties against Siemens over the now-dismantled telecom unit but are continuing investigations of individuals and may look into other business units.
Swiss investigators have frozen about 200 million euros in bank accounts they believe are tied to Siemens. More than half the frozen funds haven't been claimed by anyone, after several named beneficiaries denied ownership. In an internal document earlier this year, Siemens said it was trying to reclaim nearly 36 million euros frozen in Switzerland.
Swiss prosecutors say Siemens will have to wait. Said one Swiss investigator, "We can't allow the money to disappear in another slush fund."
Eds note: To view the diagram of suspicious bank transactions prepared by Dresdner Bank, visit The Wall Street Journal (subscription required).
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