Siemens 2006 Annual Report Download - page 229

Notes to Consolidated Financial Statements
(in millions of €, except where otherwise stated and per share amounts) 225
On March 30, 2006, the premises of Intercom Telecommunication Systems AG in Switzer-
land (Intercom), a subsidiary of Siemens, were searched by Swiss prosecutors. The Company
subsequently learned that, via Intercom, so-called Business Consultant Agreements were
processed directly or indirectly through intermediary companies. Intercom currently finds
itself in liquidation. It has been established that Intercom made payments to the above men-
tioned bank accounts. Investigations are ongoing to determine the rightful owner of the
accounts in Geneva and Lugano.
The Swiss investigation was preceded by Liechtenstein criminal investigations. The crimi-
nal investigation in Liechtenstein related to money laundering and corruption allegations
against certain former Siemens employees and other persons. In January 2006, Siemens
became aware of a request by Liechtenstein for judicial assistance from Switzerland. Siemens
subsequently determined that the Swiss and Liechtenstein investigations pertain to related
activities.
In Italy, an already pending criminal investigation there focusing on money laundering
and corruption allegations against third parties in respect of activities in the 1990s pertains to
similar activities in the Com Group. Based on a request for judicial assistance from Italy to Ger-
many in 2005 premises and private homes in Munich were searched.
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 un-
covered 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 approxi-
mately 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 leg-
islation 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 over
a period of approximately seven years. Of the total charge, €73 was reflected in the Company’s
fiscal 2006 Consolidated Statements of Income and related to fiscal 2006, 2005 and 2004. The
remaining €95 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 fur-
ther 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 employ-
ees will immediately be suspended.
Notes to Consolidated Financial Statements