Siemens key member of sophisticated cartel, court told

Multinational electrical giant Siemens was a key member of a sophisticated, 16-year international cartel that counted Transpower and Vector among its New Zealand customers, the High Court at Auckland has been told.

Alleging price rigging in the multibillion-dollar global market for gas insulated switches (GIS) – equipment used to control the flow of electricity in substations – the Commerce Commission yesterday painted a picture of a longstanding and highly organised cartel based in Europe with tentacles extending worldwide.

Prices were fixed by a two-tier committee system, the commission's lawyer, Miriam Dean, QC, told the court, and were binding on cartel members. The companies involved, including Siemens, ABB, Schneider Electric and Alstom Holdings, used code names. Operations were so secret only a few top executives in the parent companies were aware of the behaviour.

At one point Siemens provided fellow cartel members with encrypted phones to avoid detection.

"There were monthly meetings to decide who got what," Ms Dean said. "All transactions had to be notified [to the cartel]. There was a huge emphasis on pricing."

A major issue for the court is whether New Zealand was, in fact, a GIS market under the Commerce Act definition. Ms Dean said it was a question of potential transactions as well as actual sales. Markets would always exist "even if there are no sales at a given point in time".

In the period under scrutiny (1998-2002), Schneider made one sale to Vector. Siemens made no sales but had 10 price inquiries. Three, including two inquiries by Transpower, were quoted at $134 million.

Those inquiries were not handled by Siemens' New Zealand subsidiary. The Kiwi subsidiaries of Siemens and Schneider knew nothing of the cartel. The inquiries were instead sent to their European head offices where prices would be set according to a list previously agreed to by the cartel.

As well as price fixing, each cartel member was given a percentage of the GIS market which the group was required to maintain. ABB – the biggest firm involved – got 18.7 per cent. Siemens got 12.2 per cent and Alstom 9.2 per cent. Those quotes applied across the board to tenders, budget inquiries, pre-qualification rounds and future inquiries.

Despite this secrecy, both the European and Japanese arms of the cartel laid out their operations in writing in two comprehensive agreements that were binding on all cartel members, Ms Dean said.

They covered the cartel's two fundamental issues – preserving market share and price-rigging.

Initially the commission brought actions against Siemens, Schneider and Alstom. The charges against Alstom have been discontinued and those against Schneider were settled after it admitted liability.

Siemens has been prosecuted under sections 27 and 30 of the Commerce Act.

Ms Dean said the cartel was uncovered in May 2004 after one member, ABB, turned whistleblower. ABB executives will give evidence against Siemens in return for leniency under the commission's immunity programme for the first cartel member to disclose its activities.

Ms Dean said Siemens accepted it was involved in the cartel but disputed its "scope and ambit". Siemens will tell its side of the story later this week.

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