Copyrighted material

Offshore Banks Laundered Funds in European Campaign Finance Scandal

by Lucy Komisar

on money laundering
(AR) NEW YORK -- The campaign finance scandal rocking Germany has all eyes on the Christian Democrats. The Bank of New York-Russian money laundering scandal has fingers pointing to corrupt bank employees and some nefarious "oligarchic" owners of Russian banks. But there is another culprit, a dirty little secret that the world's financial leaders seek to ignore.

The key factor in the movement of illegal campaign donations, proceeds of embezzlement and customs and income tax evasion, profits of the drug trade -- of virtually any big money theft -- is the offshore bank and corporate secrecy system. "Offshore" refers to some 55 jurisdictions, initially in islands near Europe or in the Caribbean, which allow people to open bank accounts or register companies without listing the names of the owners. The purpose is to escape the scrutiny of their home regulators and be assured that investigating law enforcers would be rebuffed. It is the international financial services system for crooks. It should be abolished.

The Swiss, under pressure from international law enforcement, now allow access to bank records connected to certain crimes, and even Liechtenstein will bow under major pressure from other governments, but when accounts are secret, and listed under phony names, investigators need tip-offs to know where to look. The German state intelligence agency Bundesnachrichtendienst (BND), wrote a classified report about money laundering focused on Liechtenstein and caused a furor in that country when it was leaked late last year.

Ask whether the CDU could have hidden at least $21.5 million over decades without the use of secret companies and bank accounts. The Christian Democratic Union (CDU) money laundering went on for three decades, till a disaffected participant turned informer.

A million German marks trade hands at a shopping mall restaurant
The unraveling began when Swiss accountant Giorgio Pelossi had a falling out with his former business partner, German arms dealer Karlheinz Schreiber. Pelossi started talking, and in 1995, prosecutors in Augsburg, Germany, raided Schreiber's house and found in his diaries and records a system of coded Swiss bank accounts. Documents indicated that Shreiber had paid $2 million into a Swiss account for Kohl's deputy defense minister, Ludwig-Holger Pfahls, in exchange for approval of a $234 million sale of 36 Thyssen tanks to Saudi Arabia. An arrest warrant was issued for Pfahls, and he disappeared.

More commissions from another arms company, Messerschmitt Bolkow Blohm, and from Airbus Industrie, brought Schreiber's total to nearly $50 million, all of it laundered through Kensington Group and International Aircraft Leasing, his Liechtenstein shell companies.

Last year, Schreiber, in Canada fighting extradition to Germany for tax evasion, told the press how in August 1991, days before the tank sale, he paid $520,000 to two senior Christian Democrat officials -- treasurer Walther Leisler Kiep and accountant Horst Weyrauch. Where did the exchange occur? At a shopping mall restaurant in the Swiss town of St. Magrethen where Schreiber opened his aluminum case and handed Kiep and Weyrauch an envelope stuffed with a million German marks. Why Switzerland, since none of the parties lived there? More likely for the convenience of shuffling the cash from one secret Swiss account to another where, the recipients admitted, they promptly stashed it.

Germany's campaign finance rules were established as the result of a major campaign cash-for-favors scandal that broke in 1982, the year Kohl became chancellor. Industrialist Friedrich Karl Flick, to get an exemption on capital gains tax on the sale of $960 million in Mercedes shares, made secret donations to all the parties. The payoffs were discovered and tougher campaign finance laws were enacted, effective in 1984. The CDU still had a lot of Flick cash. Quietly, party treasurers shifted $5 million abroad, mainly to secret accounts in Switzerland and Liechtenstein.

In December, after the new scandal broke and the CDU revealed it had the accounts, former Chancellor Helmut Kohl admitted receiving $1 million in cash between 1993-1998 from "donors who wanted to remain anonymous." But auditors looking at federal party books found more than $6.3 million in mysterious contributions from 1989-98.

The other shoe fell in the state of Hesse, where the local CDU organization admitted that it had channeled $6.8 million through secret foreign accounts. Manfred Kanther, Kohl's interior minister from 1993 to 1998, said that when he was the head of the Hesse party, it had moved $4.2 million to secret accounts in Switzerland and Liechtenstein to avoid the new party financing controls. Then auditors reported that funds transferred into the Hesse offshore accounts beginning in 1983 actually reached $12 million.

In best money-laundering fashion, the Hesse CDU set up a secret Liechtenstein shell foundation, called "Zaunkunig" or "Wren," to own the accounts. It was run by Horst Weyrauch.

Massive bribery and kickback scheme
But the operation goes even father back. Weyrauch said that he helped set up secret accounts for the national and Hesse parties in Switzerland and Liechtenstein in 1971, the year he started working for the party and before Kohl became leader. He said he had often traveled to Switzerland and Liechtenstein for the federal and Hesse organizations. CDU spokeswoman Eva Christiansen told German TV that this was nothing new; it had long been known that that Weyrauch made trips to Switzerland and Liechtenstein at the national party's expense.

What did people think Weyrauch was doing on those trips? Why does the accountant for a political party make business trips to Switzerland or Liechtenstein?

Of course, "everyone knew." A banker who worked in Germany told me, "In Germany, banks and large corporations have interlocking relationships and boards. That extends to politics. Kohl rose with the support of the industrialists. Money moved from Switzerland and Liechtenstein to accounts in Frankfurt. Nobody asked questions. How do you think Kohl set up these accounts? With the active help of the banks." In a scandal of the mid-1990's, some top Deutsche Bank and Dresdner Bank officials had to resign when it was discovered they had advised selected individuals and corporations that they could avoid taxes by putting their money in Luxembourg.

The most explosive part of the scandal connects Kohl and French President Mitterrand in a massive bribery and kickback scheme connected to the post-unification privatization of the East German Leuna oil refinery and chain of 670 motorway gas and service stations. It reeks of the crooked privatizations by the Russians. And, as in Russia, the illicit money was funneled offshore.

The deal was that the French state-owned Elf Aquitaine would buy the refinery and gas stations in a $3.2 billion deal. It would kick back $44 million in commissions to Mitterrand and his cronies, out of which Kohl and his crew would get $15.7 million. The cash would go to the Germans via a network of Swiss bank accounts and shell companies in Liechtenstein. It would finance Kohl's 1994 re-election campaign.

Corsican businessman Andre Guelfi admitted he handled the payments to officials who could fix the deal, with his Liechtenstein shell company as a conduit. Philippe Jaffre, the CEO of Elf Aquitaine after its privatization in 1994, told the Washington Post that in 1992, the company had paid nearly $40 million in commissions from the refinery sale to a Liechtenstein shell company, Noblepac, at an account at Handelsfinanz-CCF Bank in Geneva.

Guelfi wired $33.8 million to another Liechtenstein company, Stand-by Establishment, controlled by Dieter Holzer, a German businessman, lobbyist and former intelligence agent and informant for the BND living in Monaco. He also sent $5.2 million to the Geneva bank account controlled by French intelligence agent Pierre Lethier and listed as belonging to Showfast Ltd., a firm registered in London and owned in part by a company registered in Panama, another secrecy jurisdiction. Lethier parceled the money into seven anonymous Swiss accounts.

"This is why the West was so calm about corruption in Russia"
Part of the funds were later moved to secret Liechtenstein foundations. Paul Perraudin, a Geneva prosecutor, told Le Monde that one, Delta International, was believed to be controlled by Holzer, and the other, Foundation Thais, by Lethier. The chairman of the parliament investigation of the scandal, Volker Neumann of the governing Social Democratic party, told German TV that investigators have traced $43 million from Guelfi's company to the two other companies. "Then the tracks are lost," he said. That is generally what happens when money moves offshore. It passes through several secret accounts so that the paper trail is erased.

There are some ironies in this tale. The Kohl government had protested to the European Union Liechtenstein's use of its secret banking system to hide the money of Germans seeking to avoid taxes. But when former French finance minister Dominique Strauss-Kahn proposed to the G-7 last year that offshore centers that fail to properly regulate accounts or cooperate with law enforcement be cut off from financial contact with the world, Strauss-Kahn did not, he told me, get a positive response from his colleagues, including then Treasury Secretary Robert Rubin, now with Citicorp. Regrettably, the force of the French gesture is diminished by the ruling French Socialist Party's own involvement in the Elf Aquitaine scandal.

The final irony comes in a comment by Grigory Yavlinsky, one of the rare Russian political leaders believed to be honest. He told Radio Free Europe/Radio Liberty, "These scandals explain a lot about Russian affairs. They explain why the so-called West reacted so calmly to what our reformers where doing over 1992-99. This is why the West was so calm about corruption in Russia, about Ponzi schemes, about the debt crisis that was looming since 1993. When I told Helmut Kohl about the way our reforms were going, I didn't see any response in his eyes. Now I understand that this stratum of politicians, this liberal-conservative trend represented by Kohl accepted all this - not only for Russia, but also for themselves."

The G-7 must attack the structural foundation of money laundering by abolishing offshore bank and corporate secrecy, beginning with the French proposal, which could be effected by banning wire transfers into from secrecy jurisdictions or banks that deal with them. No one would secrete illicit money in Switzerland or Liechtenstein if he couldn't transfer it to Frankfurt, or to London or New York.

Comments? Send a letter to the editor.

Albion Monitor May 22, 2000 (

All Rights Reserved.

Contact for permission to use in any format.