Police, prosecutors and 270 tax inspectors raided Siemens headquarters in Munich last week looking for evidence into fraud.

Siemens CEO Klaus Klienfeld

The office of Siemens CEO Klaus Kleinfeld (pictured) was one of those searched.

The company's fixed-line networks business is suspected of having run secret slush funds to bribe partners to award design wins and project contacts to Siemens. One contract under review was for security systems at the 2004 Olympic Games in Athens.

Christian Schmidt-Sommerfeld, a senior prosecutor in Munich, said: "Whether and to which degree these funds were used for paying bribes must still to be investigated. Three of the suspects have already made comprehensive statements."

Andreas Schwab, a Siemens spokesperson, admitted that staff had behaved illegally: "Certain Siemens employees have engaged in fraud." Four employees and a former Siemens board member have been arrested for embezzlement and possible bribery.

A spokesperson for the Swiss federal prosecutor said: "Based on our investigation so far, we have reason to suspect that Siemens ran 'black accounts' that allowed it to open new markets through secret payments to potential and existing business partners."

More than 30 Siemens offices in Munich and Ehrlangen, also some in Switzerland, were involved in the raids, and some private homes were also investigated. A dozen Siemens employees are now being investigated into channeling the cash through Swiss bank accounts, from where it was transferred offshore to dummy companies.

Spiegel Online reports that Michael Kutschenreuter and Andy Mattes, both board-level executives in the fixed-line part of Siemens, are two of those being investigated.

The total amount of money involved, according to Siemens, is involved is the low double-digit million euro range. The German weekly Focus magazine, claiming a prosecution source, believes however, it could be more than 100 million euros. The Munich prosecutor has not confirmed this.

In a statement, Siemens has pointed out that staff are contractually obliged to obey the law and that there are company-wide principles for conducting business that are mandatory for all employees. The company is fully supporting the police and prosecutors in their efforts.

Siemens has apparently been aware of the scandal for over a year and has appointed a law firm to act as an ombudsman to whom employees could report potential irregularities. The company is also strengthening its internal auditing routines.

Siemens and Nokia are in the process of merging their telecommunications infrastructure units. It is not known if this merger will be affected by the scandal.