Sunday, July 1, 2018

" A Princess, a Poisoning and an Oil Fortune The Bizarre Corruption Scandal at Bilfinger"

From Der Spiegel, June 17:

Bilfinger, one of Germany's best-known construction firms, pledged to clean up its global business practices as it pivoted to the oil sector. But when an investigator began digging into one of the company's deals in the Middle East, she suddenly fell ill - and things only got stranger from there.
In January 2017, Marie-Alexandra von Sachsen-Meiningen flew to the Persian Gulf. As "head of investigations" for the industrial construction company Bilfinger SE, she had deep insight into the firm, and was driven by a potentially dangerous curiosity to learn even more. Particularly about the muck left over from dirty deals in all corners of the world. Her job was to clear up cases of suspected corruption, to protect Bilfinger. What she didn't know was that her trip to the Gulf would be her last business trip on behalf of the company. And potentially the last one of her career.

Bilfinger was struggling for survival, and a man named Tom Blades had been charged with leading the company into a more promising future in the oil and natural gas industry. Blades, who was British, had significant experience in the oil industry and, after churning through four CEOs in just two years, including the former governor of the German state of Hesse, Roland Koch, he was considered the company's last hope.

His vision involved transforming Bilfinger from a construction company of 70,000 employees - a company that built the Olympic Stadium in Munich along with myriad bridges, tunnels and dams the world over - into a technical services provider for industry. He envisioned the new Bilfinger as a company focused on keeping factories running, and monitoring and repairing them as needed. One area of operations was the oil fields in the Middle East, a region where bribery is the rule rather than the exception.

Blades badly needed a quick win in the region, and a huge contract was in the offing in Oman.

In January of 2017, Marie-Alix von Meiningen was also headed for Oman. The head of the Bilfinger subsidiary in the country, a man who had landed one large deal after the other in the country, had disappeared without a trace and hadn't been seen for months. His disappearance had raised some uncomfortable questions: Had he been involved in bribery? Had all of Bilfinger's deals in Oman been bought?

But Meiningen never made it to Oman. She landed in Abu Dhabi, the first stop on her itinerary, and met up with a colleague who provided tea for the meeting. A short time later, she began feeling unwell and headed back to her hotel, where she spent the next three days suffering from hallucinations and high fever. She vomited blood, had trouble breathing and fainted repeatedly, as she would later tell friends.

She somehow made it back to Europe but was never able to resume her Oman investigation. On March 9, 2017, she was summarily fired, allegedly because she had hired private investigators in Oman and elsewhere without strictly following company regulations. The company had hired a lawyer specifically to find something, anything, that could be held against her.

Just six days after she was unceremoniously chucked out of the company, Blades finally announced the big deal he had been working on: an agreement with Petroleum Development Oman LLC extending Bilfinger's maintenance deal for an oil field in the country's north by three years. The contract was worth 200 million euros ($230 million). "The order confirms our new strategy: The Middle East is a growth market with potential for us," Blades said in a company press release. He must also have welcomed what the influential German daily Süddeutsche Zeitung wrote: "The contract signifies the dawning of a new era. Many observers had doubted that Blades would be able to change course."

It's difficult to imagine large-scale corruption existing in German companies after the Siemens scandal. In 2006, Siemens' systemic bribery was unveiled, and the Munich-based company almost collapsed as a result. It seemed at the time as though a long-standing battle between Germany's exporting prowess and the U.S.'s global police force had finally produced a winner: the police. Germany delivered its products and services in almost every country on earth, including ones where corruption was rampant. America, meanwhile, was actively tracking down bribery everywhere in the world on deals related to the U.S. - often, the only connection was that the deals had been done in U.S. dollars.

In the U.S. alone, Siemens had to pay a fine of $800 million, and from then on, German executives were on alert. Companies expanded their compliance departments to ensure clean business practices and reduced commissions for their foreign sales personnel. Those commissions had often been used to pay bribes to Saudi sheikhs or Russian apparatchiks in exchange for fat contracts.

Since then, German executives have been fond of saying that things don't work like they used to. But a look inside Bilfinger reveals that things haven't been cleaned up nearly as much as is claimed. The Mannheim court case pitting Bilfinger against fired investigator Marie-Alix von Meiningen involves dozens of investigative reports that a team of DER SPIEGEL reporters was able to evaluate. They document myriad cases of suspected corruption that have never before seen the light of day.
They included the golden deals in Oman, as well as deals struck in India, Vietnam, Thailand, Bangladesh, Abu Dhabi, Russia, Poland, Austria and Brazil, some of them as recently as 2015. The internal investigative reports also shed light on the three-year term of Roland Koch, who led the company from 2011 to 2014. Once the powerful governor of the German state of Hesse and an early, internal party rival to Chancellor Angela Merkel in the Christian Democratic Union (CDU), Koch left politics in 2010.

Impossible to Ignore
While Koch had prodigious experience in the halls of political power, he didn't have much of a track record in business. And the internal company reports make it clear that he didn't just turn the company's balance sheet red with poor business strategy. During his tenure as CEO, it seems that company executives were unconcerned about the stench of corruption, even in cases where it was impossible to ignore.

That stench often spread far beyond the executive floors. The company, after all, has been under direct U.S. oversight ever since it was forced to admit that it had bribed politicians in Nigeria. The U.S. Department of Justice installed a monitor in the company in 2014 and the company is required to report every suspicion of corruption and to investigate itself. Bilfinger must also file reports on the results of that investigation. If the company continues to use such methods, it could face criminal proceedings in the U.S. and be banned from doing business in the country. Given the broader implications of such an outcome, it could spell the end of Bilfinger.
But if it doesn't pay bribes? Might that not also be the end of Bilfinger?

Even today, around two-thirds of the countries on the global map drawn by the corruption experts from Transparency International remain bright red, the color of everyday corruption. On a scale of 0 to 100 points, where 0 corresponds to extreme corruption and 100 indicates complete cleanliness, only five countries in Africa have scores over 50 while the total for Asia and the Pacific is just nine. Even the most important export countries - like China, India, Brazil and Russia - are all below that benchmark. The only way to stay squeaky clean would be to avoid doing business in such countries, particularly for a company like Bilfinger that is already under the microscope.

The labor proceedings in Mannheim clearly highlights the difficult situation in which German industry often finds itself. If companies don't pay bribes, they won't land as many deals. If they do, they expose themselves to enormous risks. If they get caught, that is. The documents seem to indicate that Bilfinger, despite knowing the dangers, continued to take those risks in order to survive. And then panicked when its own chief investigator drilled too deep. The company vehemently denies the allegations.

On Sept. 30, 2014, Mark Livschitz had an important meeting on his schedule. At least it was important to him. It is difficult to say if the man with whom he was scheduled to meet felt the same way.

A lawyer from Zurich, Livschitz speaks five languages and had been working for an international law firm for 10 years. He was the monitor tasked by the U.S. Department of Justice with keeping an eye on Bilfinger in 2014. He had full access to the company, to all of its subsidiaries around the world at any time of his choosing. And in the end, it is up to the monitor to determine whether the company has finally started following the rules or whether it merely sought to pull the veil before the monitor's eyes. And by 2016, Livschitz was not satisfied. He made sure that the monitoring program for Bilfinger was extended by an additional two years. That had never happened to a German company, even though both Siemens and Daimler had hosted monitors from the U.S. prior to Bilfinger.
On that day in late September 2014, Livschitz sat down with Roland Koch, who had just resigned as CEO of Bilfinger following the second warning that the company would fall short of its profit forecasts. Livschitz wanted to know what Koch had done during his tenure as CEO to ensure that Bilfinger's deals were free from corruption. The meeting had been set up well in advance, as had the length of their chat, but suddenly - well before the scheduled end of the face-to-face - Koch said he unfortunately had to go because he had a doctor's appointment.

Joachim Müller, who was Bilfinger's chief financial officer at the time, had even less time. Livschitz arranged an appointment with him three times, and all three times Müller cancelled - each time for a good reason, Müller insists today. The third time, Livschitz was already on the way to the meeting when Müller's secretary called to tell the monitor that her boss wasn't feeling well and "intended" to go home. In his first monitoring report in February 2015, Livschitz wrote: "I refused to agree to a fourth tentative interview appointment because I interpreted

And not just Müller's. Livschitz accused Koch's former executive team of "lip service playing to the gallery" and of "window dressing ... to please the monitor." The company, he wrote, "has a serious problem with its corporate culture apparently tainted by the legacy of former top management who believed themselves to be 'kings in their castles.'"

Koch had been dogged by a reputation for arrogance even before he became governor of Hesse. Once he won election to the state's top political office, that arrogance was joined by callousness, reflected prominently in his brutal - some might say racist - campaign against dual citizenship. He also boldly relied on half-truths in the CDU party-donation scandal that badly tainted the legacy of ex-Chancellor Helmut Kohl and which paved the way for the rise of Chancellor Angela Merkel. The tenacity with which he clung to his office even after falling short of a majority in the 2008 election was likewise telling.

A Risky Strategy
The upshot was that, after 11 years of Machiavellian rule in Hesse, he seemed perfectly prepared to take over a company that wasn't really serious about coming clean. A company that at most tried to act as if transparency was important to it, when in reality, it pursued growth no matter what the cost. Right at the beginning of his tenure, Koch announced his intention to increase revenues within five years from 8 billion to 11 or, even better, 12 billion.

Before he had to rush off to the doctor, Koch told the monitor how things had always been done at Bilfinger. The company would buy up other profitable firms and allow them to continue operating as they always had.

It is hard to imagine a riskier strategy:...
HT Alpha Ideas