The biggest bribery affair in business history broke in the summer of 2008. German giant Siemens admitted to operating a bribery network that ensured it would win large projects around the world.
Reinhard Siekaczek, who oversaw the bribery payments, said during the legal proceedings against Siemens: “The normal method was to hire an external consultant who would ‘help’ in securing the contract. Siemens paid him, and he transferred the money to its final destination. Siemens had a bout 2,700 consultancy agreements around the world. These consultants were at the heart of the bribery method.”
The admission cost the firm dearly. Besides the embarrassment and the damage to its image, Siemens also paid a fine of $1.6 billion in Germany and another $1b. in the United States.
There was, of course, an Israeli angle, too, though it mostly remained a mystery. Siemens admitted, in that same legal proceeding, that it had paid bribes to the tune of $20 million in Israel.
According to the indictment filed in Israel, about 1 million euros out of that sum went to former District Court judge Dan Cohen. At the beginning of the millennium, Cohen was a director at Israel Electric Corporation. According to the indictment, he had received the bribe to encourage him to influence a decision to buy turbines from Siemens.
The indictment was never tested in court because Cohen fled to Peru, and the request to extradite him was refused by Peru’s president. Who received the rest of the bribery money that Siemens distributed in Israel? That is by no means clear.
THE GLOBAL bribery affair broke inconveniently for Siemens, at the height of an Israel Airports Authority (IAA) tender in which it was participating. The tender was for setting up an automatic baggage-inspection system at Ben-Gurion Airport’s Terminal 3, the main international passenger terminal. The system was to include imaging and identification of explosives, a security concern of primary importance.
Elements of what happened in connection with that tender invite questions and need clarifying. The main issue, though certainly not the only one, is the role of an external consultant named Klaus Schildge, of Germany.
During the period when the tender was being prepared, and close to that time, it turns out that there were business ties between Siemens and Schildge to do with other projects of the firm. The IAA claims that it became aware of this only after Siemens was awarded the NIS 150m. project.
The IAA says Schildge also worked for the other bidder in the tender (the IAA’s full response follows at the end of the article). This claim is only partially true. Schildge apparently did work for the other company, but that was several years before and via a company at which he was employed, not directly. Schildge refused to respond to the report.NIS 150 million project
In recent months, underneath the departures hall at Ben-Gurion Airport’s Terminal 3, Siemens has been trying out the automatic Hold Baggage Screening system (HBS). The project is supposed to streamline the inspection process and to replace some of the stages familiar to every air traveler today. The new system will scan all baggage on its way to the aircraft, looking for explosives.
Earlier this month, Israel’s Supreme Court required that inspections should be carried out in a more egalitarian fashion, saying that the humiliation of Arab citizens, who undergo very close inspection, should stop. The new system will make that possible.
Siemens is responsible for the entire project, although the machines for detecting explosives, costing $6m. at the initial stage, are supplied separately by another company.
A few weeks ago, there were reports of criticism arising from professional testing of the system. They related to the large number of false alarms that the system generated, which necessitates much more manual inspection and means an output rate that fails to keep up with the expected amount of baggage.
The IAA says such criticism is typical of any engineering project, especially at the early stages, and that this is the nature of a pilot designed to identify malfunctions.
“At the end of the pilot, there will be an orderly process of summarizing the results and lessons learned,” the IAA said.
The work currently being carried out is the last stage of a project that began in 2001, while Terminal 3 was under construction. By interesting coincidence, former judge Dan Cohen served at the time as external legal counsel to the IAA.
Around that time, the IAA worked with US planning company BNP Associates, considered the world’s biggest firm in automated baggage-handling system design. The firm provided the design for the old Terminal 1 and was also hired to design the system for the new Terminal 3.
While the baggage-handling system was being installed, the IAA took the unusual step of releasing BNP from the project. Instead, a German firm, Logplan, was introduced. The actual installation of the conveyor belts was undertaken by a Danish firm (see below). The question of automatic HBS was not dealt with completely at the time, and since its opening in 2004, Terminal 3 has operated with temporary solutions, despite the constant fear of security breaches.
A key person in the affair is the aforementioned Klaus Schildge.
Schildge came to Israel as part of his work for Logplan and got to know various people in the IAA. Later, he was chosen as a consultant instead of Logplan, where he had been employed. The extroverted German, whose good English was heavily accented, rapidly became the boss of the Terminal 3 HBS project. Schildge currently works through a company called CASE Technologies, from modest offices in the German city of Russelsheim. His company is small by the standards of the global firms operating in the field.Head-on clash
In 2005, Schildge started to put together the international tender for the HBS project. In April 2008, the tender was published. Only the two global giants in airport baggage handling submitted bids: Siemens of Germany and FKI Crisplant of Denmark. On the face of it, Crisplant had a certain advantage: it was the company that carried out the installation of the conveyor belts at Terminal 3. According to various market sources, the low number of participants was due to the assumption that one of the giants would win, with Crisplant seen as the likelier to do so.
However, Siemens was not about to give up. Under Klaus Schaefer, vice president for airport sales at Siemens’s Infrastructure Logistics Division, it started to put up a fight. Crisplant responded by sending its global sales manager, Søren Stenz, to do battle. Facing these two heavyweight contenders was none other than Klaus Schildge.
That there were only two bidders made the IAA change the rules of the game. The tender became a closed tender, in which the buyer can negotiate with each of the bidders, both on technical matters and on the financial bid submitted in a separate envelope.
Toward mid-2008, a head-on clash developed between the consultant, Schildge, and Crisplant. Schildge complained about Crisplant’s conduct in the tender and criticized its proposal. For its part, Crisplant complained that the consultant was treating it unfairly by inventing technical flaws in its proposal. The company sharply questioned his professional qualifications, demanded a reexamination of the technical aspects and claimed that he was harassing it with demands for hundreds of unnecessary clarifications and amendments.
Worse than that, Crisplant stated explicitly that it believed Siemens had been marked from the start as the winner of the tender, and it expressed the fear that Schildge was passing information on its bid to Siemens. Crisplant was not prepared for Schildge to receive technical clarifications from it concerning the project.Siemens warns
Crisplant’s complaints came to the knowledge of Siemens top management, and they disturbed Schaefer. This was the period in which the global bribery affair broke, and the world’s press and media gave it broad coverage. In Israel, the press dealt extensively with the turbines bribery affair and the request for Dan Cohen’s extradition.
Schaefer visited Israel twice at this time, and, after turning the matter over, Siemens decided to confront Crisplant’s claims. Globes has obtained a letter from Siemens global management to Crisplant, dated February 6, 2009, that says: “It appears that FKI [FKI Crisplant] is now attempting to intimidate the IAA and to disgrace Siemens, the only other candidate, with the hope of drawing the IAA’s attention away from fundamental flaws which we infer from the correspondence were found in FKI’s proposal.
“Even if FKI’s intimidation attempt is unsuccessful in ultimately wrongfully securing the contract for itself, FKI’s conduct could harm Siemens and create losses for Siemens and any future damage.”
Siemens demanded that Crisplant should withdraw the claims it raised, and said it reserved its rights, implying that it could resort to the courts and claim compensation.IAA pressures Crisplant
The IAA stood behind Schildge and his qualifications, and it rebuked Crisplant for “groundless claims” about the propriety of the tender. Matters did not end there. In a strange move, it presented Crisplant with an ultimatum that, within three days, it had to state in writing that it had no claims whatsoever concerning the conduct of the project at Terminal 3.
The ultimatum apparently partly broke the Danish company. At the end of February 2009, Crisplant announced that it was sending the technical data required for it to continue in the tender, and that it was removing its objection to Schildge dealing with the matter.
Several more weeks went by, and in May 2009, the IAA informed Crisplant that it was excluded from the tender. The grounds given were that Crisplant was late in submitting those technical clarifications. The financial bid envelope was returned to the company sealed. Siemens was left as the sole bidder in the tender.
In July 2009, the IAA decided to contract with Siemens, under an exemption from the tender process, to set up the inspection system within four years, plus another 10 years for the supply of spare parts and technical-support services. The price: NIS 150m.
The tender exemption became necessary, according to the IAA, “after a closed tender process that failed.”
In addition to the behavior surrounding the tender described above, Globes
has obtained further information that is revealed here for the first time. Klaus Schildge, the consultant to the project, has a history of work for Siemens, including during the period when he was employed by the IAA on the HBS tender that Siemens won. That bolsters Crisplant’s claim that Schildge was doing Siemens’s bidding.A strange apology
The strangest twist in the HBS tender affair came shortly after Siemens was awarded the project. A private German company called Beumer acquired control of Crisplant. In February 2010, Beumer made an interesting appointment to the post of CEO of Crisplant on its behalf. The new CEO was none other than Klaus Schaefer, the very same Siemens executive who was responsible for that company’s bid in the Terminal 3 tender.
A few weeks after he was appointed, Schaefer sent an amazing letter to the IAA. It was a letter of apology on Crisplant’s behalf, in which, “due to management changes,” Crisplant apologized for the claims raised against Schildge and Siemens.
“We like to point out,” wrote Schaefer, “that Crisplant a/s was wrong in their statements that the tender was issued in favour of other competitors and Crisplant a/s did not have any disadvantage in the tender process. We apologize for any inconvenience caused by Crisplant a/s again.”
Schaefer said in response that “the message was sent to the IAA before his appointment as Crisplant CEO was made.”
Meanwhile, the work under Terminal 3 continues apace. Within a few months, the system will start to operate, and the lines at the entrance for the security check will perhaps shorten a little. It’s a pity, said one source from the sector, that the conduct of the tender could not be screened in a similar machine.‘We didn’t know about Schildge’ The IAA’s response about its relationship with Schildge:
“Klaus Schildge is an internationally renowned expert on passenger baggage handling. In the light of his international expertise and his experience as a consultant on setting up the baggage-handling system at Ben-Gurion Airport, he was chosen as engineering consultant of the HBS project, to liaise between Siemens, which is responsible for the baggage-handling system, and the company responsible for the security aspect.
“CASE, which Schildge owns, was selected to manage the project, which is worth some NIS 300 million. The consultancy fee for the company, which employs additional people besides Herr Schildge, is estimated at NIS 10 million.
“In the course of constructing Terminal 3, the IAA hired a company with knowledge and expertise in baggage handling, Logplan of Germany. As part of the work of the above-mentioned consultancy company, Herr Schildge was employed as a consultant by Logplan. On August 11, 2004, the chief engineer for mechanical systems at the IAA approached then-CEO Gabi Ofir with a request to enter into a contract with Herr Schildge’s company. His request was based on the fact that there is no expert in Israel with professional knowledge of airport baggage-handling systems. CASE was found to be worthy company, with the capability of carrying out the work.”The IAA’s response about Schildge’s work with Siemens and Crisplant’s complaints:
“Schildge reported that he had worked in the past with Siemens, after Siemens won the HBS project. The report was examined by the project manager and legal counsel. As mentioned, the IAA became aware of the service Schildge had provided to Siemens after Siemens was awarded the work. At that time, Schildge was not employed by Siemens. Schildge had also, in the past, provided consultancy services to FKI, the other bidder.
“Crisplant’s complaint was examined by the IAA’s legal counsel, the chief engineer for mechanical systems, and an additional team appointed by the CEO. It was found that Herr Schildge had no conflict of interests and was not among those who made the decision on the winning company.
“Herr Schildge, as an international expert with a high reputation in his field, has worked with some of the world’s leading companies, among them Siemens and Crisplant almost at the same time. In 2005, Herr Schildge worked with Siemens on a project at Sidney Airport, and in January 2008 he was a technical mediator in a dispute between Siemens and its customers at Denver Airport.
“Similarly, Herr Schildge worked with Crisplant in 2005 on a project for
the Swiss postal company. This was part of his work at Logplan. In
October 2007, Crisplant asked Schildge to carry out work for it on
another project, but, because of lack of time, he was unable to do so.
“Herr Schildge did not participate in the discussions in which it was determined that Siemens was the winner of the tender.”Siemens: Baseless allegations Globes
sent a list of questions to Siemens about its ties with Schildge,
Crisplant’s claims and whether it had been involved in the acquisition
of the Danish company.Siemens said in response:
“Siemens unequivocally denies all arguments and allegations made in
connection with the IAA HBS project. The allegations are nothing but a
repetition of allegations that were raised in the past by interested
competitors. These allegations were completely denied by the IAA as
well, as it found them to be groundless. Klaus Schildge was never an
employee of Siemens, and any concerns as to a potential conflict of
interest on his part in connection with Siemens are utterly baseless.
Siemens was elected to provide the HBS to the IAA since its proposal was
found to be the best.”