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Thursday, December 2, 2021

Deutsche Bahn’s whistleblower claims fraud in Germany’s largest infrastructure project

Two Deutsche Bahn employees claimed that some senior employees of the state-owned railway company misused company funds as part of widespread fraud in one of Europe’s largest infrastructure projects.

During the investigation of these allegations, one of the employees was fired. Fearing retaliation, the second whistleblower suddenly severed contact with the compliance officer.

These allegations and their consequences — a Financial Times investigation found through documents and interviews with people familiar with the case — will exacerbate the controversy against Germany. The most expensive And the controversial infrastructure project, a new underground railway station in Stuttgart.

This complex project-known as Stuttgart 21-was funded by the German government, the European Union, Baden-Württemberg and the city of Stuttgart. Since 2017, it has been supervised by Ronald Pofalla, Angela Merkel’s former chief of staff, who is now an executive of Deutsche Bahn.

Stuttgart 21 is notorious for delays and budget overruns, and ranks alongside Berlin Airport and the Hamburg Elbe Philharmonic on the notorious list.

The initial price of 2.5 billion euros has soared to 8.2 billion euros. 2016, Germany Federal Ministry of Justice, The country’s supreme government audit agency, Warned that the cost could rise to 10 billion euros and accused the Merkel government of “serious flaws” in its supervision.

The Financial Times can now reveal that in 2016, the compliance department of Deutsche Bahn received multiple warnings from within the company, stating that a large part of the cost inflation was caused by obvious mismanagement and suspected corruption.

Construction work for the 21st railway project in Stuttgart, Germany

The construction of the 21 project in Stuttgart has been plagued by delays and budget overruns © Thomas Kienzle/AFP via Getty Images

A whistleblower estimated that the alleged misconduct caused Deutsche Bahn in unnecessary costs of 600 million euros. Both whistleblowers claimed that some senior managers commissioned redundant work and suspected that they might receive a kickback.

“Group audits need to act quickly and decisively! The compliance department needs to assess who gets personal benefits from this behavior,” a whistleblower warned in a report seen in the Financial Times in July 2016.

Deutsche Bahn is a state-owned giant with annual revenue of 40 billion euros and also owns the British bus operator Arriva. This unlisted group has been under fire in Germany for poor service, frequent delays and train cancellations. In 2020, the company reported a net loss of 5.7 billion euros and a net debt of 37 billion euros.

Stuttgart is the capital of Baden-Württemberg and the sixth largest city in Germany. It is also home to automobile manufacturers Daimler and Porsche. Located in a narrow valley, surrounded by mountains, its terminal has become a bottleneck. Once completed in 2025, direct underground access to the station, 28 tunnels and 117 kilometers of new high-speed tracks will cut the travel time between Stuttgart and Ulm in half.

But the project — first proposed in 1994 — met with fierce protests. Locals oppose the partial demolition of listed station buildings, felling of trees in downtown parks, high costs and years of construction work. In 2010, the police used water cannons on protesters, and one of the protesters was partially blind.

The two informants are engineers working on the project. One is an experienced team leader and cost allocation expert. He joined Deutsche Bahn in 1997. The other was fired during the investigation and joined in 2013.

An example of unnecessary work cited in the complaint was a substation that was not part of the original master plan. An engineer awarded a 2.5 million euro construction contract under pressure from a superior, although only 30,000 euros can be used to obtain an alternative solution. According to people familiar with the matter, in this case, the engineer insisted on his position and gave up expensive options.

The whistleblower claims that some senior managers of Deutsche Bahn have ignored their legal obligation to recover the costs that other partners must bear under German law: for example, the cost of relocating an adjacent subway station is usually shared with the local municipality. People suspect that this behavior is to prevent partners from discovering unnecessary expenditures.

In August 2010, police clashed with demonstrators protesting the train station plan

In August 2010, police clashed with demonstrators protesting against the train station project © Thomas Niedermueller/Getty Images

Employees first expressed their concerns internally. When senior managers dismissed them despite all the evidence that they considered unnecessary bids and violations of the cost allocation law, they began to suspect that managers might deliberately ignore improper behavior.

Twenty years ago, after a company that was asked for a bribe reported the request to Deutsche Bahn, a fraudulent scheme related to the renovation of the Leipzig station was revealed. A corrupt manager was later sentenced to jail. He was known internally as “Mr. 3%” because he insisted on returning 3% of the invoice.

Deutsche Bahn stated that the internal investigation into the complaint of the Stuttgart whistleblower was initiated in early 2016 and ended more than a year later, and no irregularities were found.

The company said: “All suspected violations are internally investigated by the department and evaluated by the group’s security department, but it has not been proven to be true.” Legal standards”.

The cost allocation experts summarized their concerns in a four-page note dated July 11, 2016-a joint meeting of two whistleblowers and compliance officers in Stuttgart. The memorandum pointed out that “illegal and improper behavior” includes “illegal financing commitments, opaque arrangements”[and]”Organizational chaos” means that the company “is unnecessarily deprived of 600 million euros”.

According to people familiar with the matter, this estimate is the result of detailed calculations made by cost-sharing experts based on the internal master list of all construction projects affecting other public entities and the amount that Deutsche Bahn can legally claim from them, but did not.

The whistleblower’s memo also stated that the whistleblower felt bullied on many occasions and was yelled at by his superiors asking for retrospective approval of the improper decision.

It is not yet clear how extensive the memo will be distributed within Deutsche Bahn. Three people familiar with the matter confirmed its authenticity, and two of them added that the compliance officer had detailed these arguments through their authors.

The company told the Financial Times that it had no such documents, but declined to answer whether it knew the whistleblower’s 600 million euro valuation. The company stated that the author of the note played a “quite passive role” at the July meeting, adding that the person “has not contacted the compliance department before July 2016”.

Others familiar with the case told the Financial Times that since December 2015, both whistleblowers have been in regular contact with the compliance department and arranged two meetings with compliance and internal investigators before July. The joint meeting was not held as planned due to various reasons. Deutsche Bahn told the Financial Times that it found this description of the incident “puzzling” and added that “we reject it immediately.”

A few weeks after the first meeting with Compliance in January 2016, one of the whistleblowers received a series of written warnings that he was suspected of minor misconduct, such as late submission of sick leave slips. In December 2016, the whistleblower was fired.

The employee successfully sued for improper dismissal in 2017. After returning to work a year later, the person was fired again for suspected different misconduct. In the following years of legal disputes, the judge repeatedly ruled that the second dismissal was also illegal. However, a judge in Stuttgart upheld Deutsche Bahn’s request to rescind the contract, arguing that the trust of both parties had been breached.

Deutsche Bahn stated that its actions against the employee had nothing to do with the whistleblower’s complaint, saying that they were referring to employment-related misconduct. The Stuttgart court in July supported this view.

In August of this year, the staff used an excavator at the entrance of the Filder tunnel 21 in Stuttgart

In August of this year, workers used an excavator at the entrance to the Filder tunnel in Stuttgart 21 © Thomas Kienzle/AFP via Getty Images

Deutsche Bahn confirmed that the second whistleblower had severed contact with the compliance department after the July meeting. People familiar with the matter said that the whistleblower feared reprisals and believed that they had no interest in thoroughly investigating these allegations. Deutsche Bahn declined to comment on the reason for the whistleblower’s change of heart, but pointed out that the person was still an employee.

The company told the Financial Times that “it is very important to protect whistleblowers who act in good faith” and added that its compliance management system is “the most advanced, fully effective and meets the highest expectations”.

The documents show that by contrast, both employees suspect that their identities were disclosed to the project’s senior management very early. Deutsche Bahn firmly denies that the whistleblower was exposed internally.

Two whistleblowers whose identities were known to the Financial Times declined to comment.

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