Siemens: deal first, morality later Swisscom accidentally publishes company figures too early

Exactly a trade boycott against Israel by Siemens? According to research by SWR, the group has signed a commitment statement to boycott Israel for a deal worth several hundred million euros with Turkish state railways. According to the broadcaster, internal company documents are occupied.

Specifically, it concerned about ten high-speed trains for the Turkish state railway TCDD. Siemens had already won the tender in 2018 and the order was later expanded. The volume: initially about 341 million euros. As has now become known, a concerned Saudi Arabian investor allegedly demanded that the company sign a boycott of Israel. This is what makes the Siemens business so politically controversial, after all, the company has a very special relationship with Israel through the use of forced laborers during National Socialism.

Circumvention through the Turkish daughter

Legally, however, the business is hardly vulnerable, because, as so often, it depends on the details. Because it was not Siemens’ parent company in Germany that won the order from the Turkish state-owned company, but a consortium formed by Siemens AG and its Turkish subsidiary Siemens AŞ in 2018.

To finance the high-speed trains, the Turkish State Railways took out a loan from the Saudi Islamic Development Bank (IsDB). It required all partners to comply with the boycott rules of the Organization of Islamic Cooperation, the League of Arab States and the African Union when tendering the contract and to prove this with a declaration of commitment. This effectively means that Siemens is not allowed to do business with Israel. Such boycott obligations occur again and again and serve to exert economic pressure on a country.

For Siemens, this condition would actually have been an exclusion criterion. Because according to German law – in particular the Foreign Trade Ordinance, Section 7 – such boycott obligations are prohibited. Violation of this can be punished with a fine of half a million euros. The regulation regulates the implementation of the provisions of the Foreign Trade Act. And a principle in this law is freedom of trade with due observance of democratic rules. Boycott rules are therefore taboo.

That is why Siemens’ lawyers apparently devised a clever construction that allowed the group to fulfill the million-dollar order on the one hand and act in accordance with the law on the other: the whole thing was carried out as a joint project by Siemens’ Turkish subsidiary – Turkish law therefore applied. The subsidiary signed with a power of attorney on behalf of Siemens AG, SWR reports. The group was awarded the contract.

Johannes Wallacher, professor of social sciences and business ethics at the University of Philosophy in Munich, describes the deal as “morally questionable”. Ultimately, it is a “fig leaf solution” for both parties – because the boycott obligation is circumvented with the help of the Turkish subsidiary, this does not apply to Siemens AG.

When asked about the process, according to SWR, the group said only that it adheres to “all national and international compliance standards.” Siemens told ZEIT ONLINE that they “had been operating in Israel for about 60 years as a reliable partner in various business areas and were very deeply rooted there – both in business and in society.” The company also points out on its website that doing business ethically is fundamental to the group.

tightening of the law is required

To business ethicist Thomas Beschorner, however, this is merely lip service. “Siemens talks profusely about corporate social responsibility, which always seems to be subject to the pursuit of profit,” says the professor of business ethics and director of the Institute of Business Ethics at the University of St. Gallen. He argues for corporate criminal law “that really harms the company economically”. Administrative violations in the order of six or seven figures in euros would otherwise only “laugh away tiredly”.

According to business ethicist Wallacher, it is important that all ethical rules are also binding on subsidiaries. He also calls for a “fair debate on how to close such loopholes in the foreign trade law” in general. According to SWR, Volker Beck, a former member of the Green Party and current president of the German-Israeli Association, has even announced that he will file a complaint to have Siemens’ actions reviewed legally. He, too, demands that the foreign trade law be tightened to prevent things like Siemens’s.

However, a tightening is not a guaranteed success. The economist Feodora Teti, deputy head of the ifo Center for Foreign Economic Affairs, points out that this could also harm the German economy. “If such changes are very restrictive and prevent many companies from doing business, it would be a competitive disadvantage; whether you go through with it for ethical reasons is a political decision,” says the foreign trade expert.

In the end, the whole will probably have no legal consequences for Siemens, either criminally or indirectly through a tightening of the law. However, this causes damage to image.

Experiences in scandals

However, the group has a lot of experience surviving a. The best example is the harsh reappraisal of Siemens’ role in National Socialism. As late as 1992, Siemens refused compensation, arguing that the company “did not voluntarily assume forced labor” and “did not unjustly enrich itself” from them. In 2006, one of the largest corruption scandals in German post-war history became known. Over a period of more than a decade, the group had systematically handed out €1.3 billion in bribes to government officials and business partners to win orders. The scandal plunged Siemens into a deep crisis, bosses such as Heinrich von Pierer resigned and the company had to pay hundreds of millions of euros in fines.

Today, however, the company is in a good financial position. Siemens hardly seems to feel anything from the currently weakening economy. In the past financial year, the group booked a record profit of 10.3 billion euros.

This article was first published on Zeit Online. Watson may have changed the headings and subheadings. Here’s the original.