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Viewing cable 04FRANKFURT8020, German Real Estate Corruption Scandal Implicates

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Reference ID Created Released Classification Origin
04FRANKFURT8020 2004-09-15 13:07 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Consulate Frankfurt
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS FRANKFURT 008020 
 
SIPDIS 
 
DEPARTMENT FOR EUR/AGS AND EB/OIC 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: KCOR ECON EINV PGOV PINR GM
SUBJECT: German Real Estate Corruption Scandal Implicates 
Major Investment Funds 
 
REF: Frankfurt 2923 
 
Sensitive but unclassified;  not for internet distribution 
 
1. (SBU) SUMMARY:  Frankfurt prosecutors will soon issue 
corruption indictments against fund managers, architects, 
and builders in a series of large real estate deals across 
Germany.  The alleged corruption includes bribes and a 
number of transactions in which participants pocketed bogus 
commissions from fictitious agents.  The manager of 
Germany's largest real estate fund and a prominent banker 
are under arrest and are cooperating with police.  More than 
forty persons are under investigation in a case involving 
more than a dozen real estate projects throughout Germany. 
The scandal could seriously damage the credibility of German 
real estate funds (managing nearly 70 billion euros in 
public investment) and deal another blow to a weak 
construction market.  END SUMMARY. 
 
2. (U) Frankfurt prosecutors are investigating a major 
corruption scandal involving leading real estate fund 
managers.  The investigation began in 2002 with a corruption 
case against a Deutsche Bank real estate manager, who 
disclosed information concerning a major project in 
Frankfurt -- the Investment Banking Center (IBC) -- and 
claimed bribes in a "six-digit range" were paid to secure 
building contracts.  The manager of Deka Bank's real estate 
fund (Germany's largest retail fund in the sector) was fired 
last week for "irregularities" and then began to cooperate 
with Frankfurt prosecutors.  Another fund manager disclosed 
information leading to three other cases.  The weekly 
magazine FOCUS (right-of-center with a circulation of around 
770,000) cites alleged corruption in a dozen other projects 
across Germany. 
 
3. (SBU) Frankfurt chief prosecutor Wolfgang Schaupensteiner 
-- one of Germany's leading crusaders against corruption - 
stated publicly that although he cannot estimate the damage 
to investors and shareholders, the indictments will break 
"new ground" in their scale.  The deals share a similar 
pattern of corruption:  in the final stages of a 
transaction, participants bring in a fictitious real estate 
agent and divide the commission among all parties.  In an 
earlier meeting with consulate representatives (reftel), 
Schaupensteiner expressed concerns about his office's 
limited resources to pursue complicated cases such as this 
one. 
 
4. (U) The indictments may have an impact well beyond the 
tainted firms and individuals.  Bankers and fund managers -- 
already struggling with a depressed building market - worry 
the scandal will damage the credibility of real estate 
funds.  The German Financial Supervisory Authority (BAFIN) 
has launched an investigation into damage to investors. 
Critics are using the scandal to question the viability of 
major construction projects financed by real estate funds, 
including the 450 million euro IBC building constructed for 
(but never occupied by) Deutsche Bank. 
 
5. (SBU) COMMENT:  Although the full scale of corruption is 
unclear, more arrests are certain and the scandal appears to 
rank among the largest in Germany's recent history.  The 
ultimate damage could be greater to the extent that the 
scandal undermines the credibility of popular real estate 
funds.  According to the Bundesbank statistics, real estate 
funds open to the general public have 68.7 billion euros 
under management.  Contacts in the banking community speak 
of a "grenade detonating" under an already weak market for 
new construction.  END COMMENT. 
 
BODDE