NORWAY - The Norwegian Government Pension Fund - Global pension fund has excluded a Chinese company for selling military trucks to Burma and is monitoring Siemens over concerns of "gross corruption".

Under the ethical guidelines published by the Ministry of Finance in October 2008, the NOK2.275trn (€260bn) government global pension fund cannot invest in companies that sell weapons or other military materials to Burma.

As a result, Kristin Halvorsen confirmed, in the first application of the new exclusion criteria, the government has divested around NOK30m from Dongfeng Motor Group Co. Ltd on the recommendation of the Council on Ethics.

The Council made the recommendation on the basis of criteria applied in the EU and USA's weapons embargo on Burma, which includes military vehicles and spare parts, after the Council found Dongfeng had sold 900 trucks to Burma that were then adapted for military purposes.

The decision to exclude Dongfeng was made by the Ministry on 19 December 2008, with a deadline for divestment of 28 February 2009, as Halvorsen claimed "we cannot finance companies that support the military dictatorship in Burma through the sale of military materials".

The ministry of finance has meanwhile continued to ignore the recommendation of the Council on Ethics - to exclude the German firm Siemens AG over involvement in gross corruption - and instead placed the company "under observation".

In its recommendation from 15 November 2007, the Council on Ethics noted Siemens had been involved in corruption since the early 1990s, and claimed its involvement in Germany's largest corruption investigation to date and "the scale and gravity of the corrupt practices revealed after the company's "turnaround" 15 years ago seem unequalled, at least in a European context".

It concluded: "The Council finds that the measures Siemens is currently intending to implement [announced in 2007] seem insufficient to prevent the risk of gross corruption in the future", and it added "it is thus the Council's opinion that there is an unacceptable risk of the Fund, through its investment in Siemens, contributing to gross corruption".
 
The ministry of finance asked the Council to review its exclusion recommendation in light of further information published in the Siemens annual report last year, but in September 2008 the Council said "the risk of future corruption still seems unacceptably high" and said it maintained its recommendation for exclusion.

However, the ministry noted the matter has "taken a new turn", as Siemens published a settlement with the German and US authorities on 15 December 2008, which will see it pay around NOK 11bn to the two authorities.

In addition, Theodor Waigel, a former German minister of finance, will act as a compliance monitor and will "oversee the company's anticorruption efforts over the next 4 years and check that it is not involved in any more acts of corruption".

As a result of this development, it has confirmed it had "decided to place the German company Siemens AG under observation due to the gross and systematic corruption the group has been involved in over many years".

Halvorsen said: "Siemens are now in the public eye and the company has initiated a range of anticorruption measures. By placing the company under observation we will contribute to keeping up the momentum on the anticorruption efforts".

At the end of 2008 the government pension fund - global owned NOK 6.3bn of Siemens, equivalent to 1.34% of the voting shares, and Halvorsen suggested that by placing Siemens under observation "we, as an investor, can signal that we expect the measures to be implemented as intended".
 
If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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