Recent scandals suggest that Germany is not as squeaky clean as its traditional image, reports DAVID BRIERLEY

Germany is reeling. Deutschland GmbH, famed for the quality of its products rather than the largesse of its bribes, has been rocked by scandal after scandal. Nowhere is this more evident and more surprising than in the case of Siemens, the Bavarian power and communications giant embroiled in the largest bribery case in the history of the Federal Republic.

Siemens is not alone, however. Volkswagen, DaimlerChrysler, Deutsche Bank, Infineon, Deutsche Bahn, GM/Opel, Linde and Ratiopharm have all been the subject of stories about questionable practices that management either knew nothing of or actively participated in.

The homes of hundreds of Ratiopharm workers were raided late last year by magistrates seeking to prove that clinicians and pharmacists had received bribes, not just marketing payments, for preferring Ratiopharm’s generics over those of its competitors.

Electronics group Phillips, car parts supplier Dräxlmaier and furniture giant IKEA are accused of graft to support their normal sales and marketing activities. Linde is being investigated for having paid bribes to Saddam Hussein’s regime.

When chip maker Infineon floated part of its business on Wall Street last August, CEO Ulrich Schumacher appeared in a Formula One car, dressed in racing gear. It seemed to symbolise a high-speed, high-tech business. Unfortunately, the stunt backfired. Race organiser Ralf Schneider was sentenced for embezzling €1.5m from Infineon – money that included cash payments to former board members.

Judging the scale of corruption in any one country is a challenge. White-collar crime is very difficult to detect and prosecute, and any statistics must therefore be suspect. Transparency International produces a highly respected index based on business people’s perceptions of the problem in different countries. According to this index, Germany has a low incidence of corruption, rating among the top 20 countries worldwide for the openness, fairness and honesty of its business dealings. Moreover, it has a hard-hitting legal system.

“We will have to see how the many high-profile cases affect perceptions, but you can’t speak of a systematic increase or decrease in corruption in Germany, looking at the criminal statistics,” says Christian Humborg, chairman of Transparency International in Germany.

The notion of widespread German corruption is certainly being addressed publicly. Bernd Hafenberg, an economist reader of the Frankfurter Allgemeine online, recently commented on the discovery that tens of millions of euros had been paid by contractors to civil servants for work on an autobahn in Eastern Germany. “I consider this to be merely the tip of the iceberg,” he wrote. “Based on 45 years’ work experience, Germany is thoroughly corrupt and whoever talks about this is considered a Judas.”

A reader of FT Deutschland concurred: “Corruption is an everyday affair in Germany. I had a business involved in passive road safety systems that went bust because I did not play the game… Manufacturers and construction companies get together, make bids and destroy the competition.”

Local authorities feature strongly in the graft statistics. City officials in Cologne benefited from the building of a new rubbish incinerator, while bribes were paid to build Munich’s new football stadium.

Between 1,000 and 2,000 corruption cases come to court annually, which some experts suggest might represent one tenth of the “real” figure. But how do they know? Are German local authorities more dirty than their counterparts in France, Italy, Spain, the UK or the US? There is no way to be sure.

Meanwhile, Siemens and Volkswagen are creating extraordinary headlines. Magistrates have identified irregular payments amounting to €400m, the largest German slush fund, in Siemens’ accounts. The company’s communications business, with sales of €13bn, apparently used these funds to grease the wheels in Turkey and Saudi Arabia. Dozens of senior employees in Greece, Switzerland, Liechtenstein and Germany have been interviewed. Former Siemens finance director Heinz-Joachim Neubürger was one of a dozen managers detained by police.

“When I left the CEO position two years ago,” former chief executive Heinrich von Pierer said to shareholders, “I believed I had done everything to prevent the current corruption scandal from happening at Siemens. I deeply regret that this has not happened in a sufficient manner.”

Private shareholders, despite this undercooked apology, gave von Pierer unstinting support. They seemed rather unconcerned. Yet current CEO Klaus Kleinfeld insisted: “For unclean business practices there is no place in our company. Siemens stands for integrity, honest dealing and exemplary behaviour.”

Die Welt commented: “The absolute opposite was for many years the case.”

As if to underline the point, Siemens’ quarterly results were ruined by a record €397m fine from the European Commission for leading a cartel in gas-insulated switchgear for power transmission. Siemens is appealing this decision.

Kleinfeld might now be wielding a new broom to make Siemens a world leader in the battle against corruption, but the perception of Siemens is that of a company that has sometimes paid a crooked dollar. In the 1990s, Siemens electrified the high-speed Seville-Madrid line at a cost of €1bn and, allegedly, €15m in bribes to local officials and politicians, some of whom were jailed. In 1996, the company’s telecommunications wing was banned for five years from doing business in Singapore after a utilities official in the city-state was accused of receiving millions of dollars. And there are other stories, involving countries such as Egypt, Indonesia, Nigeria, Kuwait, Russia and Saudi Arabia.

Ingo Pies, professor at Halle-Wittenberg, says: “If, over many years, considerable sums are being diverted into slush funds, then the problem is systemic, not individual.”

Perhaps this is not surprising. Until 1999, German companies operated in an environment where overseas bribery was legal, where employees received bail and legal money and their pension remained safe. Siemens could just have been part of a wider culture.

Like Siemens, Volkswagen has a representative function in German business, and for years its amicable cooperation with workers’ unions seemed exemplary. Peter Hartz, Volkswagen’s now-disgraced HR director, gave his name to four new labour laws to cut unemployment by increasing flexibility, improving job provision and encouraging self-employment. These reforms played a major role in helping Chancellor Schröder get re-elected. Hartz, who led workplace reforms at Volkswagen, seemed able to do no wrong.

But Hartz was more than a friend to Klaus Volkert, the union representative on the Volkswagen supervisory board.

They partied together. Money, call girls, company jets and journeys were provided to Volkert, who was smitten with a Portuguese dancer, in return for union support.

Hartz himself used a company-sponsored flat close to VW headquarters to entertain hookers. One said: “He was always properly behaved.”

Earlier this year Hartz received an agreed fine and suspended sentence for diverting €2.6m to Volkert, a judicial manoeuvre that created public outrage in Germany.

One question has yet to be answered: whether Ferdinand Piëch, the almost legendary VW boss and patriarch of the Porsche clan, knew the unions were being hoodwinked. The court case, because of Hartz’s admission of guilt, did not explore the issue. Even the former head of the German industry association, Hans-Olaf Henkel, has questioned Piëch’s role.

The films of Rainer Werner Fassbinder portray fascinatingly and ironically the sleaze and corruption of Germany in the 1950s, suggesting that there is an extensive historical context to the present wave of scandals. Chancellor Konrad Adenauer, one of the greats of the republic, knew every trick in the book; he used funds owned by the city of Cologne, where he was mayor, for insider stock market deals, among other abuses.

Adenauer’s great heir, Helmut Kohl, had a word for the magic substance used to oil the political machine. He called it bimbes, a Palatine dialect word for hard cash.

On one level, bimbes or bribery is an off-market trade. One favour rewards another. In human terms, this might sound absolutely fine, but in economic terms, bimbes distorts pricing, undermines competition and calls democracy and the free market into question.

As revealed through the French courts, it seems Helmut Kohl received bimbes from a supportive President François Mitterand via French oil company Elf and a contract for a new oil refinery in eastern Germany. It was this party funding scandal that brought bimbes to national prominence and Helmut Kohl before a parliamentary commission. Yet it did not result in any convictions – another cloudy outcome in the quest to determine the extent of German corruption in business and politics.

Nor do we know whether Siemens is any worse or better than BAE Systems, the UK defence group that allegedly paid bribes in return for Saudi Arabian contracts, or how Kohl compares with Prime Minister Blair or presidents Mitterand and Chirac, who have all been dogged by party funding scandals.

So why is so much happening in Germany now? Why Siemens, Volkswagen, Linde and all the others? “We just don’t know why,” shrugs Christian Humborg, chairman of Transparency International in Germany. “The prosecuting authorities now have better laws and regulations, and there appears to be more public interest.”

Whatever the reason, the fact that even Germany, usually considered to be cleaner than clean, is so beset with scandal suggests that globalisation and its attendant corruption are two of the great challenges of business in the 21st century.