Ausgabe 29/2005

Scandal at Volkswagen With Prostitutes and Shady Executives, There's No Love Left in this Bug

By , Padma Rao and

Part 2: NEXT PAGE: Backroom contracts, politics and fun

First there's the criminal case. Schuster, the former Skoda director and colleague of Hartz, allegedly used a network of international front companies in an attempt to land private deals with VW. Klaus Volkert, once Germany's most powerful labor representative, was forced to resign when it emerged that he was involved in at least one of Schuster's front companies.

And then there's the workers' council scandal. On a number of business trips, former personnel manager Klaus-Joachim Gebauer procured prostitutes for labor representatives, billing the charges to VW. As a result, members of the company's works council are now open to charges that they were bribable.

Finally, VW's problems have turned into political issues leading up to Germany's expected parliamentary elections in September. As auditors and executives clean house at VW, it's becoming apparent that for decades influential SPD and IG Metall union officials abused their powers to use the company essentially as a self-service shop. The latest allegations centering on Sigmar Gabriel, a former governor of Lower Saxony and VW supervisory board member. Gabriel is under scrutiny because, after he left office as governor, a company he started secured a lucrative consulting contract with Volkswagen. Problem is, Gabriel was still actively involved in politics.

But the scandals really began with Gebauer and Schuster, both former colleagues of Hartz. According to prosecutors, Gebauer -- the man accused of procuring prostitutes for labor representatives -- managed to spend €780,000 within two years without ever having turned in any receipts. To be reimbursed for these dubious expenses, Gebauer merely had to submit a piece of paper on which he would write something to the effect of: "€6,880 spent, in the interest of the company, for the Group Works Council."

One of these expenditures "in the interest of the company" was for a trip to India, which included both labor representatives and Schuster, then a director of Skoda and in charge of the company's operations in India. One participant in this expedition recalls the intensity with which Gebauer and Schuster encouraged employees to involve themselves with prostitutes. The trip was allegedly charged to the VW Group through Gebauer's now notorious homemade receipts.

The participants often referred to the India trip as their "1001 Nights." But these days, the fairy tale is over.

In this drama, Lower Saxony Governor Christian Wulff seems to be playing the leading tough guy role.

In this drama, Lower Saxony Governor Christian Wulff seems to be playing the leading tough guy role.

In retrospect, some now speculate that VW's high-flying executives didn't put the labor representatives in embarrassing situations to compromise their independence as some suspect. Indeed, doing so would weaken the position of the workers' council, which is responsible for employer-employee relations, against Volkswagen's executive board. Instead, many now believe their purpose may have been entirely different: to cover their own tracks.

At the time, Schuster, with the support of aides, had allegedly already developed his own network of front companies. Both Gebauer and Volkert later became involved in the fronts.

An Indian company, Vahishta Wahan, played a role in Schuster's planned business in the country. While involved in negotiations for the construction of a VW plant in India, Schuster allegedly used VW letterhead to submit a request to Botcha Satyanarayana Rao, the minister of industry of the Indian province of Andhra Pradesh, for €5 million in start-up money. The minister responded to Schuster's request by transferring €2 million to an account held by Vahishta Wahan. Although the company has the same initials as VW, it is not part of the VW Group. Once the money was received in Vahishta Wahan's account, it was promptly transferred to another account -- and has since disappeared.

Through his attorney, Ferdinand Gillmeister, Schuster has declared that the VW Group was fully informed about the Indians' €2 million contribution. VW, says Gillmeister, had insisted that the Indian partners pay the start-up costs for the investment. Because the money from Vahishta Wahan was supposedly intended to cover "initial planning and development costs," Gillmeister claims, it did not constitute a loss for VW. However, the company has since put on ice any decision on whether to move forward with the India factory.

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