Ferrostaal feels heat of bribery probe

German group allegedly did 'dirty work' for other firms

German engineering group Ferrostaal is under suspicion of paying bribes to secure contracts, and of organising bribery payments on behalf of other firms for a fee.

The case could have repercussions for the whole of German industry, says one former executive of MAN, Ferrostaal's former parent company.

For many years there have been stories about bribes by Essen-based plant construction group Ferrostaal. In one case, the company allegedly paid 200000 Deutsche marks ( à 102258) to former Indonesian President Bacharuddin Jusuf Habibie. In another, the family of former Nigerian dictator Sani Abacha is said to have received 460-million marks for construction of a metal-processing plant.

Few allegations stood up in court, however, partly because payments occurred during a period when so-called "useful expenditures", or payments made to procure contracts, were not yet illegal in Germany.

But now there are indications that bribes were common at Ferrostaal.

Klaus Lesker, a member of the executive board, was arrested two weeks ago and the Munich public prosecutor's office is also investigating two former board members and other senior executives for "a particularly serious case of bribing foreign officials in connection with international business arrangements", as well as for suspected tax evasion.

The list of suspects numbers about a dozen and investigators have their sights set on five projects, worth a total of almost à1-billion, which the group is believed to have secured through bribery.

The investigators believe the numbers could quickly rise in the coming days. "What we have now is just the beginning," said one official.

Key documents fell into the hands of prosecutors last year during their corruption probe into Ferrostaal's former parent company, engineering group MAN. In July authorities raided Ferrostaal offices in Essen as they suspected bribes had been paid in the sale of eight ocean-going tugs to a Hamburg shipping company.

The investigators can apparently rely on testimony of two witnesses.

The allegations against Ferrostaal are serious: did the company not only pay bribes itself for years, but also do the dirty work on behalf of other companies in return for a fee?

A case in point is that of Giesecke & Devrient, a Munich-based company that specialises in banknote and securities printing. The case concerns the sale of five printing and embossing machines, as well as a system used to destroy banknotes, to the Indonesian state-owned banknote printing company. Ferrostaal is believed to have brokered the deal and paid bribes to local officials.

Giesecke & Devrient, which is also under investigation, said it "has not been aware of any irregularities to date". But company officials said they had been asked to review business relationships with Ferrostaal.

The probe also involves a company in the northern German port city of Bremen, for which Ferrostaal allegedly brokered a à 28-million deal to sell a coast-guard vessel to the Colombian navy.

Ferrostaal is believed to have collected a 5% commission for its services. Subsidiary Ferrostaal de Colombia is believed to have arranged bribes of up to à850000 to "decision-makers in the navy and at the ministry". The parent company presumably collected fees in the high six figures.

Ferrostaal is also believed to have paid bribes for the Bremen company to the Argentine coast guard in 2006, also in return for a contract. An employee of the Argentine defence ministry allegedly received a six-figure sum of euros from the local Ferrostaal office, which he apparently shared with two high-ranking navy officers. Prosecutors believe that board member Lesker was at least partly aware of the payments.

Ferrostaal will not comment on the charges, but tempers ran high at a board meeting last month."The company is on shaky ground," said one auditor.

Insiders suspect that even more cases in which the Essen company did dirty work for other companies could turn up soon.

A current internal corruption scandal at Ferrostaal revolves around delivery of two Type 209 submarines to Portugal. Ferrostaal, which bid against submarine builder HDW and shipbuilder Thyssen Nordseewerke, won the à880-million contract in 2003 - with the help of bribes and a number of phony consulting contracts.

According to the investigators' files, a Portuguese honorary consul approached a Ferrostaal board member in 1999. The man allegedly said he could be helpful in the initiation of the submarine deal. According to the files, the honorary diplomat demonstrated his influence by setting up a direct meeting in the summer of 2002 with then Prime Minister José Manuel Barroso.

The Ferrostaal executives in Essen were apparently so impressed that they signed a consulting agreement with the honorary consul in January 2003, in return for his "constructive assistance". The Portuguese diplomat was to be paid 0.3% of the total contract volume if the deal went through.

The consul ended up collecting roughly à1.6-million, which the investigators see as a clear violation of his duties as a diplomat.

But it appears that Ferrostaal did not rely solely on its adviser's good connections to land the submarine deal. It is believed that a consulting agreement was concluded between Ferrostaal and a partner, on the one hand, and a rear admiral in the Portuguese navy on the other. That deal was worth à1-million.

A Portuguese law firm is also believed to have played a role in ensuring that Ferrostaal won the contract, with bribe money being paid.

Prosecutors have identified more than a dozen suspicious brokerage and consulting agreements related to the submarine deal. Investigation files show that all of these agreements were designed "to obfuscate the money trails", so as to pass on payments "to decision-makers in the Portuguese government, ministries or navy".

It appears that, in the end, Ferrostaal paid so many consulting fees that not much was left of the profits from the submarine deal.