Siemens 2006 Annual Report Download - page 136

Management’s discussion and analysis
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We are in communication with the U.S. Securities and Exchange Commission and the U.S.
Department of Justice via a U.S. law firm regarding these matters.
Siemens has stated its commitment to have these matters completely cleared up as quickly
as possible and has also started an additional internal investigation. The major issues uncov-
ered to date in connection with Siemens’ internal investigation are presented below:
■Within Com there exist a number of Business Consultant Agreements. We have identified
a multitude of payments made in connection with these contracts over the course of approx-
imately a seven-year period for which we have either not been able to establish a valid busi-
ness purpose or clearly identify the recipient. These payments raise concerns under the
legislation of the U.S., Germany and other countries.
■The payments identified were recorded as deductible business expenses in prior periods
in determining income tax provisions. Our investigation determined that certain of these
payments are nondeductible under German tax regulations, and accordingly, we have
recorded additional income tax charges in our financial statements to reflect the correct tax
treatment of these expenses. The Company has already reported this issue to the German
tax authority.
The Company’s internal investigation into possible violations of law is still ongoing.
The additional deferred and current income tax charges described above totaled €168 mil-
lion over a period of approximately seven years. Of the total charge, €73 million was reflected
in the Company’s fiscal 2006 Consolidated Statements of Income and related to fiscal 2006,
2005 and 2004. The remaining €95 million of additional income tax expense related to years
preceding fiscal 2004 and was reflected as a reduction of Shareholders’ equity as of October 1,
2003. (See Note 2 for further information).
The Managing Board of Siemens does not tolerate any illegal business practices of its
employees worldwide and has therefore initiated the following immediate actions:
■The Managing Board has engaged an external attorney to act as an independent “ombuds-
man” and to provide a protected communication channel for Siemens employees and third
parties.
■In cases where suspicions of illegal behavior have been substantiated, the involved em-
ployees will immediately be suspended.
■The Company’s audit and compliance departments and an internal task force have been
instructed to continue their internal investigation activities and the examination of our
compliance and internal control system for gaps and any possibilities of circumvention.
The Managing Board and the Audit Committee of Siemens will engage an independent
compliance advisor in order to consult the Managing Board and the Audit Committee with
regard to the future structure of the compliance organization, the execution of compliance
reviews, the review of related guidelines and controls including potential improvement meas-
ures, and the respective communication and training. The independent compliance advisor
will also provide periodic status reports to the Audit Committee.
Furthermore, the Audit Committee of Siemens will conduct a companywide investigation
and engage an independent external law firm which will mandate the involvement of a foren-
sic accounting firm.
Siemens currently can not exclude the possibility that criminal or civil sanctions may be
brought against the Company itself or against certain of its employees in connection with
possible violations of law. The Company’s operating activities may also be negatively affected
due to imposed penalties, compensatory damages or due to the exclusion from public procure-
ment contracts. To date, no charges for any such penalties or damages have been accrued as
management does not yet have enough information to reasonably estimate such amounts.
Furthermore, changes affecting the Company’s course of business or its compliance programs
may turn out to be necessary.