German court rules slush funds are criminal

KARLSRUHE, Germany Fri Aug 29, 2008 11:56am BST

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KARLSRUHE, Germany Aug 29 (Reuters) - Germany's highest appeals court ruled on Friday that corporate slush funds used to win contracts are illegal and that staff who use them can be convicted of breach of trust.

The Federal Court of Justice verdict gives prosecutors a powerful tool to pursue corruption cases at companies such as Siemens (SIEGn.DE), which is under investigation for systemetic bribery.

"The verdict makes clear that the very fact of holding slush funds constitutes the crime of breach of trust," said Federal Prosecutor Wilhelm Schmidt, adding that Munich prosecutors investigating Siemens would seize on the ruling.

The case centred on the convictions of two former Siemens executives sentenced last year for using slush funds to win telecommunications contracts from Italy's Enel (ENEI.MI) between 1999 and 2002.

The court ordered new trials for both, ruling that while the main defendant was properly convicted of breach of trust, he should not have been found guilty of bribery.

It noted that bribing foreigners abroad was not illegal until 2002 and that the Enel staff who took the bribes were not state officials in the eyes of the law.

The second manager was convicted of conspiring to bribe. Both got suspended sentences and a fine.

The court struck down a 38 million euro ($56 million) fine against Siemens over the bribes. (Reporting by Hendrik Sackmann; Editing by David Cowell) (michael.shields@thomsonreuters.com, Reuters Messaging: michael.shields.reuters.com@reuters.net; +49 69 7565 1266)) ($1=.6784 Euro)