Corruption Scandal: Investigation into Dubious EADS Austria Deal Intensifies
A scandal over dubious transfers of millions of euros is creating turbulence for European defense giant EADS. If suspicions by investigators that the company committed corruption in a deal to sell Eurofighters to Austria are proven, it could mean the end of the sale -- and billions in losses.
Three features at his home in the posh Hamburg neighborhood of Rothenbaum confirm that businessman Frank Walter P. doesn't like to receive spontaneous visitors. First, there's the security camera that hangs at the entrance to his apartment building. Second, there's the fish-eye lens at the door to the building. Third, there's the doormat upstairs in front of his apartment with the inscription "My home is my castle."
Normally that would be enough to keep unwanted visitors at bay. But the visitors who rang the doorbell last Thursday were rather insistent -- and they had brought along a door-opener that's even effective on castle gates: a search warrant.
Frank Walter P., 50, a banker by trade, with addresses in Hamburg, Schleswig-Holstein, Munich and the Austrian state of Tyrol -- and with at least as many companies as residences -- is under investigation on suspicions of distributing money in an alleged multimillion euro corruption scandal.
The scandal has already been shaking Austria for a number of years, right up to the top political echelons. Now, the affair is spreading to Germany. At the center of attention is the European Aeronautics Defense and Space Company's (EADS) German headquarters in Ottobrunn, near Munich.
During the sale of Eurofighter Typhoon jets to Austria, an estimated 113.5 million ($144 million) is believed to have been transferred from EADS to the accounts of dubious companies. One of these accounts reportedly belongs to Frank Walter P.'s Comco International Business Development, located in the tax haven of the Isle of Man.
Were Bribes Paid?
These funds were purportedly intended to kick-start investments in Austria that EADS had agreed to as part of the Eurofighter deal. But public prosecutors in Vienna and Munich suspect that the millions of euros may have been used to bribe Austrian decision-makers -- or as kick-back payments to greedy EADS managers -- or perhaps to establish slush funds within the consortium.
Last Tuesday, 54 officials representing the public prosecutor's office and Munich tax fraud investigators, searched apartments and offices at three different EADS locations in Germany. The alleged offenses listed on the search warrants were as follows: "Collective bribery in coincidence with aggravated breach of trust."
This means that German politics has also been engulfed by the affair. Indeed, EADS is no ordinary company -- and it remains a top priority matter in Berlin. The Chancellery and the Economics Ministry are closely following the events in Munich and Vienna. After all, this concerns a company that has been provided with billions in taxpayers' money since the turn of the millennium. EADS, whose subsidiary Airbus provides over 10,000 well-paid jobs in Hamburg alone, serves as a showcase for German and European high-tech superiority.
A juicy corruption scandal at EADS is the last thing that the government in Berlin could use right now. German Chancellor Angela Merkel's administration has only just recently taken a public beating because Berlin is primarily to blame for the failure of the planned merger of EADS and British defense company BAE Systems. At the same time, the German government intends to use Germany's state-owned development bank (KfW) to purchase enough shares to acquire a 15 percent stake in EADS and enhance its power and influence in the multinational corporation. Negative headlines could spell the end of this politically controversial plan.
The scandal is also jeopardizing the most expensive military investment project in postwar German history. The German military, the Bundeswehr, has already been given the go-ahead to purchase 140 Eurofighter jets for 15 billion. The price of these aircraft is bound to increase if one of the current purchasing countries backs out of the deal.
That is precisely what could now happen. If the suspicions of corruption are confirmed, the Austrians' purchasing contract for 18 Eurofighters at a total price of nearly 2 billion could be terminated -- at least according to Appendix A-8 of the classified agreement. For the Germans, this would be a disaster, not least because it would jeopardize hundreds of well-paid jobs at the EADS defense division in Bavaria.
But it's not all bad news for the government in Berlin. Investigators list over half a dozen former and current executives as suspects, including two former department heads. This would nudge the affair dangerously close to Tom Enders. The current EADS CEO was the head of the Defense and Security Systems division at the time of the deal, making him the direct superior of the department heads who are under investigation.
Anything that damages Enders would be welcomed by some members of the government in Berlin. The powerful company boss's gruff manner has made him plenty of enemies in the capital -- starting with the chancellor and her aviation coordinator, Peter Hintze. If Enders were toppled, it wouldn't exactly be a crushing blow for Berlin.
The Makings of a Hollywood Thriller
The Austrian affair already has the makings of a Hollywood thriller. One of Europe's flagship companies is now being mentioned in the same breath with arms dealers, an Italian investment swindler with mafia connections and finally a man who ranked among the most flambouyant politicians on the continent: Jörg Haider, the former leader of the right-wing populist Austrian Freedom Party (FPÖ).
This is in fact only one of the many lines of inquiry being pursued by investigators tracking down the enormous sums of money that were apparently siphoned from EADS accounts and channeled into a secret network of shell corporations. If the current suspicions are confirmed, it would be a spectacular criminal conspiracy.
Haider and fellow party member Karl-Heinz Grasser had long opposed the Eurofighter purchase. Grasser, who served as the Austrian finance minister from 2000 to 2007, became a prominent member of the Viennese jet set after he married Fiona Swarovski, heir to the Swarovski crystal manufacturing empire. FPÖ leader Haider even advertised his opposition to the deal in a nationwide billboard campaign.
But then they both suddenly threw their weight behind the deal. This soon gave rise to speculation that right-wing populist Haider's expensive election campaigns could have been bankrolled by German sources. Peter Pilz, a member of the Green Party in Austria's lower house of parliament, the National Council, played a key role in ensuring that an investigative committee reviewed the allegations.
Nevertheless, the committee failed to find the decisive documents necessary to prove a connection between the secret network and EADS. In 2007, the group discontinued its investigation.
Last week's breakthroughs have rekindled the hopes of Pilz and his colleagues. It's very possible that the affair can now still be cleared up. At his office near Vienna's prestigious Burgtheater, Pilz has an aquarium with piranhas -- and a steel cabinet where he keeps his files.
"EADS had a streak of very bad luck here," says the member of parliament. It was pure coincidence that the affair flared up again. In the spring of last year, Italian police arrested fraudulent broker Gianfranco Lande, who scammed investors in a Ponzi scheme. A large proportion of the money allegedly came from the 'Ndrangheta, the Calabrian mafia. Lande apparently feared for his life. "He categorically refused to spill the beans on the mafia," says Pilz.
But the arrested man realized that he had to give the public prosecutor something, so he told investigators that he had created a complex web of companies for a large corporation in Germany, with London-based Vector Aerospace LLP at its center. "Vector Aerospace is a company that was founded in 2005 with the collaboration of the defense division of EADS Deutschland," as it stands in the interview protocol of the Italian public prosecutor from April 6, 2011.
Lande also named individuals at EADS, including the names of two arms dealers, Walter S. and Alfred P. from Vienna, who served as liaisons for Vector Aerospace, as the arrested investment broker claimed.
At first, the Italian public prosecutor didn't know what to do with this information, and it nearly ended up gathering dust in a filing cabinet in Rome. But Pilz found out about it by coincidence, and put the public prosecutor in Rome in contact with his counterpart at the district court in Vienna, Michael Radasztics.
'Reason to Suspect' Bribes
Radasztics began to investigate the allegations. This spring, he made a number of requests for legal assistance, including letters to his colleagues in Munich and Hamburg. A report by the Austrian investigators states that "there is reason to suspect that EADS Deutschland used a network of diverse offshore companies in an attempt to pay bribes to companies or officials."
But all of the companies have one thing in common: They have no staff, only post boxes. According to its annual report, Vector Aerospace allegedly made countertrade agreements with Austrian companies within the framework of the Eurofighter deal. These quid pro quo deals were supposedly covered by the contract between the Austrian Defense Ministry and the defense company, in which EADS promised to order goods from Austrian companies for twice the purchase price of the fighter jets, corresponding to a total of some 4 billion.
- Part 1: Investigation into Dubious EADS Austria Deal Intensifies
- Part 2: A Disaster for EADS
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