GERMANY: Germany ponders extent of corruption as heads roll

German corruption investigators are working overtime. Four big scandals have come to light in as many months at big blue chip companies - Volkswagen, DaimlerChrysler, Infineon and Commerzbank. In each case, allegations of bribe taking, money-laundering and related crimes have led to the resignation of senior executives.

For the business community, the string of scandals has raised questions on whether kickbacks and illicit deals are more widespread than thought.

But for governance experts and anti-corruption activists, they have a silver lining: they have increased pressure on companies not directly affected, and many are being forced to act to prevent corruption in their own affairs.

"Each corruption case that comes to light leads to more companies realising they have to take preventative measures against corruption," says Peter von Blomberg, business expert at Transparency International Germany, the anti-corruption watchdog.

Mr von Blomberg, a former executive with Allianz, the insurance giant, estimates that only 5-10 per cent of corruption is exposed. But public awareness is rising.

Max Worcester, head of Control Risks Deutschland, the corporate investigation agency, believes "there has been a fundamental shift over the past two years, with more scandals coming to the surface".

But none is on the scale of those that have blighted the US in recent years. "One cannot say that individual managers have brought the company to the edge of collapse," says Mr von Blomberg.

A BMW purchasing manager was yesterday detained by prosecutors for allegedly receiving $100,000 (£57,000) in bribes.

At VW, the allegations centre on kickbacks for managers, sham companies, and the misuse of works council funds. At DaimlerChrysler, senior figures in the German sales arm are suspected of being involved in grey market importing as well as building a house in Majorca using company builders.

Despite this, the wave of scandals is reinforcing the view that things have to change. "Ten years ago, managers would have sought to keep things under the covers," says Gabriele Apfelbacher, a partner at law firm Cleary Gottlieb Steen & Hamilton in Frankfurt. "Now the reverse is true at many companies."

VW's speedy reaction has been praised. On Tuesday, Infineon appointed auditors Ernst & Young to examine its "internal information and monitoring system" after an executive resigned over alleged bribery in motor-sport sponsorship deals. Corruption experts said the move appeared to have been prompted by VW's actions.

Part of the change in attitudes has been driven by more intrusive regulation. Since 2002, Germany has had a single financial regulator, BaFin, which has targeted corruption. Over the past two years, it has launched 41 money-laundering investigations and increased its workforce from 1,050 to 1,500.

Corporate governance reforms in Germany and legislation making it obligatory to disclose material information in a timely manner have helped, as have more energetic public prosecutors.

Company preventative measures have included the setting up of systems of ombudsmen, who can receive anonymous tip-offs from whistleblowers.

Maren Möhring of Business Keeper, a Berlin-based consultancy that provides companies with "ombudsman software", says demand has grown over the past 12 months. "It remains the case, however, that whistleblowers in the US are seen as heroes, while here they are tell-tales. That has to change."

Old habits do indeed die hard. At Commerzbank, where five current and former executives are linked to Russian money-laundering, managers did their best to keep the story under wraps.

Last week, the bank claimed Andreas de Maizìere was leaving the board for "personal reasons". This week, after its offices were raided by public prosecutors, it was forced to admit that his departure was triggered by the money-laundering affair and pressure from regulators unhappy about his failure to supervise the bank's activities in Russia.

Many German managers still believe scandals should be kept quiet. But Rainer Buchert, independent ombudsman for Deutsche Bahn, remains optimistic. He is convinced interest in preventing corruption is growing with companies calling him for advice on their anti-corruption plans. And such schemes help where companies feel it most - on their bottom line, he concludes.

Deutsche Bahn, he says, has recovered more than 20m (£14m) in damages from corruption cases in the last five years.

Additional reporting by Richard Milne and Bettina Wassener in Frankfurt.

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