MEDICAL INDUSTRY

German media reveals how Chinese bribes for Siemens products flowed

Court records uncovered by a German news investigation reveal dozens of bribery prosecutions against Siemens’ medical device distributors in China.

Court records uncovered by a German news investigation reveal dozens of bribery prosecutions against Siemens’ medical device distributors in China, despite massive fines imposed on the company for previous corrupt practices on five continents.

Bavarian newspaper Süddeutsche Zeitung (SZ) analyzed dozens of bribery and corruption judgements made against the German industrial giant in China over the decade 2004-2014.

In 2008, the company agreed to pay a total $1.6 billion in fines to U.S. and European authorities to settle charges of bribery in several countries, from Bangladesh to Iraq and Russia.

Most of the Chinese cases SZ has now uncovered related to events alleged to have taken place after the 2008 punishment.

Among the cases was one from May 2012, when a Siemens sales representative was convicted of paying $963,000 (six million yuan) in bribes to the director of a hospital in Qinzhou to win a contract worth $5.8 million (36 million yuan).

The rep – identified only as Jin in the report – and hospital administrator Fengkun Chen were found to have set up a fictitious tender for the supply of x-ray imaging machines, court records showed.

Jin, who won the bid through a dealer, stashed packs of 100-yuan bills in five boxes and loaded them into Chen’s car. He was sentenced to three-years probation while Chen was sentenced to 15 years in prison.

Siemens told SZ that it had first learned about the bribe when a Chinese newspaper reported the case in July 2016 and promptly launched an internal probe. According to the article, Siemens’ vice president in China testified at the time that the company forbids its employees to pay kickbacks to clients.

“[Siemens] stresses that there are no signs that the company supported ‘Mr. Jin’s actions’ or provided money for the bribery,” SZ reported. “Nevertheless, one thing is officially certain: the hospital bought Siemens equipment, and the deal took place through bribery.”

Siemens, a Munich-based engineering firm, reportedly has 670 sales representatives in China, a country rated by Transparency International as the world’s 77th most corrupt.

From 2004 to 2014, SZ found Siemens had been named in “dozens” of graft cases before Chinese courts.

Meng-Lin Liu, a compliance manager who was appointed by Siemens in March 2008, told SZ that he quickly began to notice signs of irregular activities in the company’s books.

“There were hundreds of dealers,” Liu said. “Some of them had only made a single deal with Siemens. Behind these companies [most likely] were the wives or relatives of hospital managers.”

He also noted payments transferred through overseas accounts. One of those payments was made by middlemen in 2009 when a North Korean import-export company bought three CT scanners for a local hospital, costing $1.5 million. Siemens said the transaction was regular.

A year later, a Beijing-based distributor won a contract with several branches of the People’s Liberation Army General Hospital, an important client that usually ordered large quantities of scanners from Siemens and other manufacturers.

The Army paid the dealer through an offshore company. When Liu visited the company in Hong Kong, he found nothing more than an office with a mailbox and a few people working for dozens of different firms.

Süddeutsche Zeitung investigations Siemens in China.
Süddeutsche Zeitung’s coverage of the Siemens case. Image: Süddeutsche Zeitung

Liu began raising questions about possible corrupt practices and complained in writing to his superiors to no avail, he said.

In 2011 Siemens didn’t renew Liu’s contract. He became a whistleblower and took his case to German prosecutors, who didn’t find sufficient evidence to take action.

Liu then approached the U.S. Securities and Exchange Commission, which declined to comment for the SZ story, and a New York court, which said Liu’s claim was outside its jurisdiction.

In his complaint, Liu alleged that part of the income was used by the dealers to pay kickbacks to doctors or hospital administrators who make purchasing decisions.

Since then, SZ reported that it had identified 20 cases in which Chinese hospitals bought Siemens medical equipment at inflated prices. The company told SZ that distributors used the high margins to manage business “risks.”

Today, Liu is unemployed and invests in stocks to make ends meet. Still, he believes his whistleblowing was in the people’s interest.

“I wanted to make sure that China’s hospitals do not use over-priced equipment anymore,” Liu said. “At the end of the day it’s about people’s health.”

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