Forgiving Siemens: Unraveling a Tangled Tale of German Corruption in Greece

After almost two years, the traffic lights in the city of Athens are finally being fixed without delay or makeshift solutions. For Greece - a country that appears to be rushing headlong off a financial cliff and bringing down the rest of Europe with it - this small miracle might seem to like an omen that things are changing for the better or at least, the correction of a bureaucratic mistake.

The truth is that this simple act reveals the enormous power that one single company holds over the country of Greece: Siemens from Munich, Germany, a manufacturing behemoth with $96 billion in 2010-2011 sales.

On November 11, 2010, Siemens turned off 35 traffic lights in central Athens in protest against Greek government fines as high as €500 million ($650 million) to settle allegations of bribery to win contracts. In April 2012, the Greek government agreed to settle with Siemens for €270 million to settle the charges. In return the state issued the company a €41 million contract to work on an extension to the Athens metro and fix the city's traffic lights.

It is a stunning turnaround for the company whose name has been tarnished for its role in what many consider the greatest corporate scandal in postwar history of Greece. Millions of Euros have allegedly been paid into secret Swiss bank accounts of high-ranking politicians of the two parties that have run Greece since collapse of the military dictatorship in 1974 - Pasok (the Social Democratic party) and New Democracy on the right. All told the bribery is estimated to have had a cost of €2 billion to the Greek economy, according to a high level parliamentary investigation - and Siemens had a starring role.

"In Greece Siemens has spend the most black money (bribes) than in any other country of the European Union between the late 1990s and 2004," says Tassos Telloglou, author of "The Network: File Siemens."

The tale came to a dramatic head in June 2009 when Michael Christoforakos, the former CEO of Siemens, was arrested in Rosenheim, a southeastern suburb of Munich, after disappearing when Greek judicial authorities began investigating the charges.

Building the First Telephone Exchanges

Siemens has had a long history in Greece dating back to the founding of the German company by Werner von Siemens in 1847 when he pioneered the building of the first international telegraph lines. In the 1920s Ioannis Voulpiotis, a Greek engineer who married the daughter of Werner von Siemens, was appointed head of the Athens office of AEG-Siemens-Telefunken. As a member of the board of directors of Greek Telephone Company Limited (AETE) and Greek Radio Company Limited (AERE), Voulpiotis was uniquely placed to win contracts for the German company.

In 1926 AEG-Siemens-Telefunken installed the first telephone networks in Greece and won the contracts to install new telephone exchanges and new radio facilities. According to the Biographical Encyclopedia of Modern Hellenism 1830-2010, Voulpiotis paid a fee of three to five percent of the contract to Greek politicians and government officials. This money was called the "extra fee" and it was paid into bank accounts in Switzerland, according to the Archives of Greek Bibliography (Metron Publications, 2011, Volume A)

During the Nazi occupation of Greece (1941-1944), Voulpiotis was put in charge of all German business in the country as well as the Greek radio authority. When the Nazis were defeated, Voulpiotis was tried at the Special Court for Nazi Collaborators together with his "colleague", Dr. Nikolaos Christoforakos, father of the future and fugitive CEO of Siemens Greece. The two men were acquitted and moved to Germany.

Voulpiotis returned to Greece in the 1950s to represent Siemens and to bid again telephone and radio contracts as well as for railway tenders. Spyros Markezinis, then minister of economic coordination, allegedly cut a deal with him for contracts to modernize the telephone and radio network installation across the country. On April 3, 1954 Markezinis resigned as a minister when news of the deals became public. Months later the German government forced the Greek government to uphold the contracts or risk losing German aid.

In the following months Voulpiotis accused Konstantinos Karamanlis and Konstantinos Papaconstantinou, the minister and deputy minister of Public Works respectively, of asking for bribes. The two politicians counter-attacked and accused Voulpiotis of demanding $1 million in payments to be technical advisor to OTE (the Greek Teleommunications Authority) for 10 years. The case ended up in the courts and Voulpiotis was sentenced to 18 months for slander.

In 1956, Konstantinos Karamanlis became prime minister, and granted Siemens a no-bid contract to provide the lion's share of supplies of telecommunication equipment of the Greek State.

Dizzying Array of Government Contracts

For the next 50 years, Siemens continued to get Greek government contracts with a dizzying variety of ministries and Greek government institutions ranging from the Hellenic Railways Organization (OSE) to the ministry of culture.

For example, in December 1997, OSE and Siemens signed seven contracts totaling 705 million marks ($397 million). (The contracts ended up in court in May 2010 for failing to meet deadlines). Siemens also had a number of major contracts with the ministry of defense such as the €300 million ($390 million) Hermes telecommunications program with the Greek Army signed in 1999.

In February 2007 Siemens won a 14 month contract with the ministry of culture to supply portable information systems for visitors to museums and archaeological sites. In October 2008, Michalis Liapis, then Culture Minister canceled the contract for failure to deliver.

(The role of Liapis became controversial when the media revealed that he had traveled to Germany in the summer of 2005 to attend major football matches at the expense of Michalis Christoforakos, then CEO of Siemens Greece.)

Perhaps the most controversial contract with Siemens was the $325 million joint venture with San Diego-based SAIC in 2002 to set up a security system for the Olympic Games of 2004. The Command, Control, Coordination, Communication, Integration system (referred to by the acronym C4i) never "got off the ground" in the time.

The Scandals Break

In late April 2005, Greek authorities began to investigate the C4i case. At about the same time the U.S. Department of Justice also began to investigate Siemens for bribery, working closely with the Munich public prosecutor's office. The sprawling U.S. investigation that would eventually encompass Siemens activities in Argentina, Bangladesh, Iraq and Venezuela.

A second Siemens contract quickly came under scrutiny from the Greek authorities: the supplies of telecommunications equipment material to the Hellenic Telecommunications Organization (OTE) notably a December 1997 agreement with Siemens to digitize the network for €464.5 million (known as the 8002 agreement).

In April 2006, Prodromos Mavridis, the head of the telecommunications' department of Siemens Greece suddenly left the company after 18 years of work, without any public explanation after receiving a €300,000 payoff from the company. In November of that year, lawyers for Siemens sued Mavridis in Greek courts accusing him of embezzling €8 million.

But it was too late. A year prior, Swiss authorities had opened an investigation into Mavridis for a network of "extensive money laundering." The investigators zeroed in on a company called Martha Overseas Corporation, registered in Panama that was receiving money via Liechtenstein from Eagle Invest & Finance SA, registered in the British Virgin Islands, from Reinhard Siekaczek, a Siemens executive in Germany.

Siekaczek was arrested in November 2006. He told the Munich prosecutors of dozens of bribery schemes around the world and he named Mavridis as the man in charge of handling payments to Cyprus, Bulgaria and parts of the former Yugoslavia.

Siekaczek also told Greek investigators at the Munich public prosecutors office that he was responsible for the payment of €10 million in "black funds" to individuals in the ministry of defense and the Greek army. Among then high level names be mentioned was Akis Tsochatzopoulos, minister of defence in the Pasok government from 1996 - 2001. The payments were also mentioned by Rainer Niedl, a retired anti-corruption officer for Siemens, in a November 2007 apology for his role in the Siemens' bribery scandals.

Some of the payments were subsequently found in the accounts of two of Tsohatzopoulos' associates: Anthony Cantas, deputy general director of the directorate general for infrastructure, and Paul Nicolaides, the vice president of Greek Arms Industry.

On December 17, 2007, Siemens announced that Michalis Christoforakos was no longer with the company.

One year later, the U.S, announced that Siemens was pleading guilty to paying out $1.36 billion on bribes around the world. "Today's filings make clear that for much of its operations across the globe, bribery was nothing less than standard operating procedure for Siemens," said Matthew Friedrich, acting U.S. assistant attorney general. "(We) and our international colleagues will continue our efforts to level the business playing field, making it free from corruption and fair to those who seek to participate in it."

Greek authorities were not part of the settlement.

In May 2009 Christoforakos disappeared from Greece. The following month he was arrested in Germany. He immediately invoked his German citizenship (acquired from the time his father had lived in the country after the Second World War).  His lawyers argued that the allegations were for activities that took place before 2003 so he could not be prosecuted under German law which has a five year statute of limitations. The attorneys also pleaded that Christoforakos be allowed to take refuge in the country.

"Dozens of senior Greek politicians are hanging on this case," said Stefan Kursawe, a lawyer hired by Christoforakos. "I fear for the life of my client as soon as he sets foot on Greek soil."

It was a shameful moment for the high-flying executive who owned a series of properties on the islands of Antiparos, Paros and Tinos via offshore companies, and once hob nobbed with senior politicians like Konstantinos Mitsotakis, honorary president of New Democracy, and his daughter Dora Bakogiannis, former minister of foreign affairs.

On August 11, 2009, the Munich prosecutor jailed Christoforakos for a year, stating that he had paid money to the treasurers of the major two parties (Pasok and New Democracy) in order to win contracts for Siemens from the two parties. (German authorities set him free two months later after he paid a huge fine. Christoforakos has not appeared in public since)

Paying Off The Political Parties

Tassos Mandelis was a director of OTE from 1985 to 1988, who also served as minister of transport and communications for Pasok from 1997 to 2000. During his tenure in the government, Mandelis advocated abolishing the state company that provided technical solutions to OTE.

To date Mandelis is one of the few politicians who has publicly admitted that he had received money from Siemens. "At the end of October 1998 an employee of Siemens, called me and told me in English: "We want to help you on your election campaign," Mandelis told a parliamentary investigation. "How much are you talking about?" I asked him and he replied: "As much as we usually give out."

Money was then deposited in a Swiss in November 1998 in a Swiss bank under the name "A. Rokos". Greek investigators later found almost 200,000 German marks ($112, 600) in the bank account. A withdrawal of €35,000 had been made in favor of Mandelis' son (identified only by the initial H) for his studies at Columbia university in New York. (The son now works for Siemens in Cyprus while a daughter of Mandelis now works for OTE.)

Mandelis was convicted for failing to declare his assets to the tax authorities. He was fined €7,500 and given a suspended sentence of three years in prison. Media reports suggest that is now working as a consultant in Azerbaijan.

Theodoros Tsoukatos, a close associate of Kostas Simitis, the former Greek prime minister, has also admitted publicly that he received one million German marks in 1998 from Christoforakos, to be used to re-elect Pasok, but he insists that he gave all the money to the party.

Nor were Pasok politicians alone in taking money from Siemens. Giannis Bartholomeos, the former treasurer of New Democracy, was revealed to have received money from Siemens after he was murdered by the husband of his mistress in February 2007.

All is Forgiven?

A 19-person multi-party Greek parliamentary inquiry committee was established on January 28 2010 to investigate the Siemens bribery cases, headed by Sifis Valirakis of Pasok. The committee dug up the names of the brokers and businessmen that were connected to New Democracy as well as links to a number of other scandals that shook Greek political life - such as the €100 million cost of the real estate scandal at the monastery of Vatopaidi in Mount Athos.

But in May 2010, when the financial crisis began, the investigation was jettisoned and a final report was published on January 24, 2011 that called for further investigation.

In early April this year, Siemens signed a reconciliation agreement with the Greek government that was approved by a majority of the Greek parliament. Under the terms of this deal, Siemens is required to pay a sum of €170 million to the government and it also required to invest €100 million in Greece in 2012. Siemens is also obliged to consider investing another €60 million for a factory that employs at least 700 employees.

Why did Siemens agree to pay? And why did the parliament halt its investigation and fail to ask for judicial help? No one knows for sure but evidence points to an audit of the company's finances conducted by KPMG, the global audit firm, on behalf of the U.S. Department of Justice in 2006. The sealed report, which has not been made public, allegedly contains the names of 20 of the leading Greek politicians who have together received more than €100 million in recent years to "promote" the company, according to Greek press reports.

It is surely significant that as soon as the ink was dry on the April agreement that absolved them of past blame, Siemens was given millions in new business for more work on the metro. Under the terms of the new contract, Siemens will be paid to provide signaling and other equipment for a new line to be built from Athens airport to the port of Piraeus. The contract will be financed mostly by European Union subsidies.

All, it seems, is forgiven for Siemens in Greece. But because the new agreement was negotiated in secret, we will have to wait for next parliamentary investigation to find out if there was yet another shady deal cut to get Athens traffic and metro working again.