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International Bribery Scandal Invades the ECB
Started:November 28th, 2011 (09:30 PM) by Quick Summary Views / Replies:602 / 0
Last Reply:November 28th, 2011 (09:30 PM) Attachments:0

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International Bribery Scandal Invades the ECB

Old November 28th, 2011, 09:30 PM   #1 (permalink)
Quick Summary
International Bribery Scandal Invades the ECB

By Wolf Richter

The bribery scandal came at the worst possible moment for the European Central Bank. Already it’s struggling on a daily basis with the ballooning debt crisis in the Eurozone. And it’s trying to defend its independence against an onslaught of demands to print unlimited amounts of euros and buy the crappy sovereign bonds of the Eurozone's weaker members. But now, Ewald Nowotny, member of its Governing Council, is up to his neck in hot water.

A spokesperson of the state prosecutor in Vienna, Austria, announced on Monday that the criminal investigation of an international bribery scandal that has been simmering for a while has been expanded to over 20 suspects. And it has now entangled six current directors of the Austrian National Bank (OeNB), including its Governor, Ewald Nowotny (Handelsblatt).

The scandal is centered on a division of the OeNB, the Oesterreichische Banknoten- und Sicherheitsdruck GmbH, (OeBS), which is in the lucrative business of printing money, literally. And it has been active in soliciting bank-note business from foreign governments since 2000. On its website, it claims that it “excels at combining innovative security features with modern designs.” Apparently, it also excels at bribery, kickbacks, and money laundering.

According to the prosecution, OeBS paid €17 million in bribes to Syrian officials to obtain orders from the Syrian government (Wiener Zeitung). Payments were routed to offshore outfits, such as the Panamanian mailbox company Venkoy, with representatives in Switzerland. The prosecutor is further investigating €1.7 million in kickbacks that made their way back to Austria (Die Presse). Similar arrangements with Azerbaijan are also being investigated. Two weeks ago, four people—the managing director and the head of marketing of OeBS and two lawyers—were arrested. Bits and pieces of the affair began to see the light of the day last June, when questions were raised by Austrian tax authorities about the deductibility of these payments.

The OeNB confirmed on Monday that a criminal prosecution has been initiated against six of its directors, including its Governor Ewald Nowotny, Vice Governor Wolfgang Duchatczek, and Director Peter Zöllner, who were accused of having known about the bribery of foreign public officials in connection with the acquisition of bank note printing orders. Of course, it defended its directors: the accusations were based on statements by fired employees, it said—implying that it’s nothing but a vendetta. Based on the information the directors had in front of them at the time, they’d assumed that the payments were for actual and legitimate services, and that the acquisition of orders complied with all applicable rules and laws, it said.

But on November 9, the Vienna-based daily paper Kurier created a stir when it said that it had obtained a copy of the minutes of the OeNB Board of Directors meetings. According to these minutes, the directors had known for years that millions of euros in bribes were being paid to acquire bank-note business from foreign governments.

For example, on March 24, 2010, the managing director of OeBS informed the OeNB board about a possible order from Azerbaijan for 150 million bank notes that carried a “commission” of 10%. And how did the board react? “Duchatczek asked the managing director to initiate the acquisition activities so that the years 2011 and 2012 would be at capacity.”

Over the years, the minutes show, Nowotny, Duchatczek, and their colleagues asked questions about various payments but then did nothing. For example, on December 15, 2008, Nowotny asked about the amount of a commission and the recipient in Azerbaijan. The managing director then “informed that there is a representative in Switzerland,” and that the commission would amount to 20% of the order. And that was that.

The OeNB had already tried to stamp out the brushfire and protect its directors by firing the managing director and the director of marketing at the OeBS. Stated reason? An internal audit revealed “unlawful actions and withholding of information from the Supervisory Board.” At the time, the bribery of Syrian officials had already surfaced, along with €600,000 in “unusual expenses.”

Maximum penalty for bribery is ten years in prison, according to the Handelsblatt. But given the impunity with which central bankers act, I doubt that Nowotny or the other central bankers will ever face any serious risk of ending up there. He might not even lose his jobs at the OeNB and at the ECB. And his future, well, given that he is a central banker, looks bright.

Proton Bank in Greece had siphoned off $1 billion in a scheme of fraud, embezzlement, money laundering, and offshore front companies. And got bailed out. But then a bomb exploded.... European Bailout Fund Pays For Greek Money Laundering And Fraud.

Wolf Richter

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