27 Apr 2009 in Ethics and Compliance Offices, Legal Perspective
A Siemens AG (NYSE:SI) subsidiary's widely reported problems with a whistle blower and federal government contracts should serve as a cautionary tale for all businesses now subject to the FAR/DFAR mandatory disclosure requirements.
As reported this week by several media outlets (See for example: http://www.bizjournals.com/philadelphia/stories/2009/04/20/daily44.html)
the Defense Department Criminal Investigative Service (DCIS) executed a search warrant at the U.S. headquarters of Siemens Medical Solutions in connection with a government contract, only weeks after the firm won a new $267 million medical-imaging contract.
Siemens Medical Solutions USA Inc., whose Malvern, Pa. headquarters were raided by DCIS, an arm of DOD's Office of Inspector General,is a defendant in a whistle-blower lawsuit. The medical equipment unit of the German conglomerate Siemens AG (NYSE:SI) is accused of giving corporate customers of its medical imaging equipment significantly larger discounts than those afforded the federal government, while contractually promising the government that it was getting the best discounts available. The civil action was filed orginally in 2004 under the Federal False Claims Act, which allows individuals to file lawsuits alleging fraud by federal contractors and receive a percentage of any damages recovered.
For Siemens, a major provider of imaging equipment and information technology services for the healthcare industry, the negative publicity about this investigation and lawsuit could not come at a worse time. The giant conglomerate already has invested millions to restore its badly tarnished international reputation after the bribery scandal that toppled much of its former leadership. Now, with the United States facing economic crisis, driven in no small part by skyrocketing health care costs, Siemens stands accused of overcharging the United States government for medical equipment, just as the US Congress takes up consideration of health care reform legislation.
It is no wonder that Siemens didn’t immediately respond to requests for comment on the suit, only issuing a statement from company spokesman Lance Longwell saying that "the company was cooperating with authorities and would continue to do so."
Details of this case remain to emerge but, all companies should take notice that, absent a culture that encourages employees to report such issues internally and an affirmative, preventive internal review of the past three years of government contracts by your business, this kind of ill-timed but avoidable event could be in your future, under the FAR/DFAR mandatory disclosure requirements.
GM
