The Kohl Case: Oh, What A Tangled Web

The tale of how Germany's CDU nurtured a system of corrupt finance

Just after lunch on Aug. 26, 1991, in the Swiss border town of St. Margrethen, three Germans converged in a shopping center parking lot. One of the men handed over an envelope containing $500,000 in cash. After a brief discussion, they went their separate ways.

Eight years later, the consequences of that meeting are rocking Germany's political Establishment to its core. The three who came together that day were Karlheinz Schreiber, a German-Canadian arms dealer; Walther Leisler Kiep, the longtime treasurer of Helmut Kohl's Christian Democratic Union; and Horst Weyrauch, Kohl's trusted party accountant. The $500,000 passed from Schreiber to Weyrauch--payment, investigators suspect, for the CDU's support of a sale of 36 tanks by Thyssen to Saudi Arabia. But this is not an isolated case of bribery. Prosecutors have established that the money landed back in CDU accounts. And that has led them to probe a broader web of corruption involving CDU finances and secret bank accounts run by former Chancellor Kohl.

The scandal surrounding what Germans are calling Das System Kohl has captured headlines for weeks. It could take months for prosecutors to track down the origins and donors of at least $16 million in CDU funds, and to figure out whether that money was illegally obtained, either as payoffs for services rendered or as illegal campaign contributions. More will emerge when parliamentary hearings on the CDU mess begin in mid-March. But even now, legal experts, businesspeople, and the newly assertive German media are piecing together the tale. Many see the scandal as part of a broader transformation in Germany--the end of the era of consensual politics, where the border between government and business was often blurred.

The disclosures certainly are shaking up the CDU, run for 16 years by the "eternal chancellor," Kohl. The 69-year-old architect of German unification has seen his legacy stained by revelations that he ran a secret slush fund. He has resigned as honorary party chairman. Wolfgang Schauble, Kohl's successor as CDU boss, has also admitted accepting an illicit cash "donation" from Schreiber in 1994 that has since disappeared. Other CDU politicians, past and present, have also been implicated.

ON THE HOOK. While Kohl admits to violating Germany's party financing law by not declaring donations of more than $10,000, only his party can be penalized for the infraction. The CDU faces fines of up to $18 million. Still, Kohl is not off the hook. Prosecutors may charge him with breach of trust for allegedly mismanaging his party's funds, a crime that carries a maximum sentence of 10 years in prison. Other crimes under investigation include money laundering, embezzlement, bribery, and tax evasion.

How did it come to this? The CDU's troubles started in 1995, when prosecutors in Augsburg began investigating arms dealer Schreiber. Investigators stumbled onto the $500,000 payment as part of a probe into commissions Schreiber received for lobbying work he did for Airbus Industrie and Thyssen. It took them four years to amass evidence, but finally they issued a warrant for Schreiber's arrest on tax-evasion charges. Canadian police arrested the 65-year-old Schreiber in Toronto last September. He is now fighting extradition. BUSINESS WEEK could not reach him for comment.

A note in Schreiber's calendar led prosecutors to look into his dealings with CDU treasurer Kiep. A dapper man, now 73, Kiep held the purse strings for his party from 1971 to 1992 and was well-connected with the leading lights of Germany Inc. In early November, prosecutors also issued a warrant for his arrest on tax evasion charges. Kiep turned himself in and was released on $250,000 bail. He denied in court that he had pocketed the $500,000 from Schreiber. Instead, he said, Kohl accountant Weyrauch had deposited it into a CDU account. Weyrauch, who runs a Frankfurt accountancy, had been engaged by Kiep in 1971 to work for the CDU. Kiep declined to comment.

BOMBSHELL. Kiep's November disclosure sent a chill through the CDU ranks. On Nov. 9, Kohl denied knowledge of the Schreiber donation. But the story wouldn't go away. Former associates began whispering to the German press about secret accounts Kohl ran when he was Chancellor--apparently so he could spend party money without leaving tracks. Then came the bombshell: On Nov. 30, Kohl acknowledged that he had indeed operated secret party accounts, thus breaking federal party financing laws.

The pressure for more information kept building. In a TV interview on Dec. 16, Kohl admitted to accepting up to $1 million in secret donations between 1993 and 1998, and said he used the money to finance East German CDU branches. But he refused to reveal where he got the money, saying he had given his word not to do so. Since then, an audit of the CDU's books by Ernst & Young has revealed that CDU accounts hold $6 million in undeclared donations--far more than Kohl admitted.

Many Germans think Kohl is lying about the secret donors. Some believe Kohl and the CDU banked big donations from German companies. Others, including German television station ARD, have ventured that Kohl's old French friend, Francois Mitterand, gave money to him when he faced an uphill battle for reelection in 1994. By this theory, Mitterand may have used state-owned Elf-Aquitaine, which purchased East German oil refinery Leuna in 1992, as a conduit for a $15 million donation. Kohl calls such suggestions "absurd."

Still, the revelations keep coming and they're bringing down prominent CDU politicians. Manfred Kanther, Germany's Interior Minister from 1993 to 1998 and leader of the CDU in the state of Hesse from 1991 to 1998, resigned his parliamentary seat after admitting in a news conference that the Hesse CDU had transferred $4 million to accounts in Switzerland. Kanther, who could not be reached, is under investigation for suspicion of breach of trust.

Investigators are just as puzzled over the origins of the Hesse funds as they are about Kohl's secret accounts. While it's not illegal for a German party to have foreign accounts, it is illegal not to include the assets in annual reports. Prosecutors are hoping that Weyrauch, 67, will unravel the mystery: Weyrauch not only set up Kohl's secret accounts, he also managed both the official and secret accounts of the national and Hesse CDU. Under investigation for suspicion of both fraud and breach of trust, Weyrauch describes .himself as a "cog in a wheel" who acted on orders. Weyrauch did not return phone calls from BUSINESS WEEK. He recently warned a CDU official in a phone conversation that his revelations will "rock the republic."

The CDU scandal could well lead to the prosecution of several leading German political figures before the dust settles. But truth be told, the Old Germany represented by Kohl was already disappearing. Instead of stability, Germans are now more interested in accountability. If Germans weren't ready to sacrifice Kohl and move on, the arrest of an arms dealer in Toronto would not have caused Das System Kohl to fold like a house of cards.