BAWAG affair

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The loss-making deals of the Austrian Bank for Labor and Economy AG (BAWAG), which became known in March 2006, are referred to as the BAWAG affair .

The BAWAG affair led to the resignation of ÖGB President Fritz Verzetnitsch and BAWAG Supervisory Board Chairman Günter Weninger . The new union leadership around Rudolf Hundstorfer decided to sell BAWAG. The total sale of the union bank was initially controversial within the ÖGB. However, since the BAWAG scandal caused the Austrian Federation of Trade Unions (ÖGB) to owe more than 2 billion euros, BAWAG had to be sold in full to the US fund Cerberus Capital Management in order to avoid bankruptcy of the ÖGB.

Refco credits and Refco participation

In October 2005, BAWAG Phillip Bennett granted, then chief of the derivative broker Refco , a loan of 350 million euros, just days before Bennett because of accounting fraud was arrested and Refco bankruptcy protection filed for. As security, BAWAG accepted about 34% shares in Refco from Bennett. The capital loaned to Refco amounts to 10% of BAWAG's capital.

After the loan became known and the Refco bankruptcy, criticism of the award process was loud. The financial market supervisory authority then announced a special audit lasting several weeks. In November 2005, CEO Johann Zwettler resigned despite a contract that ran until 2007 in order to bring calm to the bank. His successor was Ewald Nowotny , who among other things was Vice President of the European Investment Bank for four years .

On April 24, 2006 it became known that BAWAG was facing a lawsuit worth billions from the creditors of the collapsed US broker Refco. They accused the bank of supporting Refco's balance sheet manipulation. In a first lawsuit, they accused the bank of helping to fraud, demanded $ 1.3 billion and petitioned to freeze the bank's US assets. BAWAG saw itself as a victim of large-scale fraud and rejected all allegations. Nevertheless, she offered the Refco creditors an out-of-court settlement and justified this with the high costs of a lengthy legal dispute in the USA and the negative consequences of a continued negative media presence.

On June 5, 2006, after weeks of negotiations, the settlement between BAWAG and the Refco victims was officially confirmed. The bank had to pay $ 683 million to the creditors and shareholders of the insolvent US financial house Refco. According to the Wall Street Journal, 75% of it went to the creditors. The rest went to shareholders, US authorities and a victim fund. In addition, BAWAG waived all claims from the $ 454 million loan granted just before Refco's bankruptcy. It was also agreed to pay 30% of the BAWAG sales proceeds in excess of 1.8 billion euros to the Refco victims. According to the contract, this variable portion was limited to $ 200 million. Then there were the fees of the US attorneys. Overall, the BAWAG-Refco comparison cost 1.334 billion US dollars, which is a little more than one billion euros at the exchange rate valid at the time of the comparison. The bank has thus bought itself free from the threatened billions lawsuit. The balance sheet as of December 31, 2005 could finally be drawn up and the intended sale of the bank became possible. On June 30, 2006, the responsible bankruptcy judge in New York approved the negotiated settlement with Refco's creditors and investors, which became legally valid.

"Caribbean Shops"

In March 2006, the Austrian Financial Market Authority announced that BAWAG's high-risk “Caribbean deals”, which became known in the course of the investigation into the Refco credit debacle, would also be subject to an audit.

The so-called “Caribbean deals” involved risky investments, especially in the form of interest rate and currency swaps of considerable amounts. The key figure in this was Wolfgang Flöttl , a son of the former BAWAG General Director Walter Flöttl, who worked as an investment banker in the USA . These deals were primarily handled through Wolfgang Flöttl. In the course of this business, and especially in the concealment of the huge losses that had occurred, mailbox companies were founded , which are based on, among other things, Caribbean islands known as tax havens , especially in Anguilla .

The Austrian news magazine News published in its edition of June 22nd, 2006 a comprehensive audit report of the bank auditing department of the Austrian National Bank of May 3rd, 2006. It shows the current amount of the total claim against Wolfgang Flöttl, which is presumably related to the loss from the "Caribbean" business is pretty much the same, given at 1.9 billion euros. In the years from 1995 to 2001, this sum was sent to Wolfgang Flöttl in partial amounts for assessment and "gambled away" by him together with the interest and currency speculations. The National Bank auditors note in their report: "In this context, the fundamental question arises as to how likely it is that an experienced portfolio manager like Wolfgang Flöttl will lead to a total loss over the years for every money entrusted to him". So far, despite all the research, the whereabouts of these BAWAG funds has not been clarified and Wolfgang Flöttl's lack of success is suspiciously fateful. It cannot be ruled out that amounts have flowed to third parties.

From 1998 to the summer of 2005, the billions in losses were not reported in BAWAG's annual reports, but rather hidden in letterbox companies and foundations, scattered around the world. The losses were sold as bonds to companies that were founded especially for this in the vicinity of BAWAG and ÖGB. At the same time, the companies received loans from BAWAG in order to be able to buy the bonds. In this way the losses could be disguised as valuable receivables in the balance sheet. In order to disguise the origin of the money flows, foundations were repeatedly used in transfers.

All of BAWAG's internal control bodies were systematically switched off or bypassed by the Executive Board. The OeNB's auditors have minutes of the so-called special board meetings on this subject, in which it is noted several times that the meeting participants were instructed by General Director Helmut Elsner to keep all sides confidential - expressly also towards the supervisory board, the shareholders and thus also the Bayerische Landesbank . The chairman of the supervisory board, Günter Weninger , always fully endorsed this management board resolution.

At the beginning of 2001 some board members expressed their intention not to sign the balance sheet for 2000 under the given circumstances. Weninger, the chairman of the supervisory board, was contacted, who provided unlimited and unlimited guarantees by the ÖGB for the Flöttl / Caribbean obligation . The public trust company KPMG Austria issued an unqualified audit certificate for the 2000 balance sheet and later also for the balance sheet for the following years on the basis of the ÖGB guarantees. The then ÖGB President Fritz Verzetnitsch approved the guarantee without informing the responsible bodies (Supervisory Board of BAWAG or Presidium of the ÖGB), let alone obtaining their consent, and practically used the so-called strike fund of the ÖGB as collateral Union membership contributions.

At a press conference on March 24, 2006, BAWAG Supervisory Board Chairman Günter Weninger confirmed this approach and at the same time announced his resignation from his functions at BAWAG and the ÖGB. On March 27, 2006, the affair led to the resignation of ÖGB President Fritz Verzetnitsch.

The intention was to write off these losses over several years in a way that was gentle on the balance sheet. Among other things, through the good equity of the acquired PSK and the revaluation of the book values ​​of reorganized investment companies (e.g. lottery), the bank was able to slowly reduce the loss positions from the “Caribbean deals”. The message that politicians who were politically close to BAWAG immediately after the losses became known in 2006, “Everything has been made good again”, turned out to be premature. BAWAG was only able to generate sufficient equity capital after the merger with PSK (which was a subsidiary of BAWAG from 2001 to 2005). The decisive factor, however, was that the "old" BAWAG was left behind as an empty shell in the course of the creation of "BAWAG-PSK" (merger of BAWAG with PSK in 2005) and was renamed to BAWAG-PSK AG (AVB). It became a financial holding through which the ÖGB holds its shares in BAWAG. The BAWAG management at the time decided to transfer as much of its own funds as possible from the parent holding company AVB to the operational bank. This is how the ÖGB's debt of 1.531 billion euros to the AVB came about, and only became known to the public in June 2006. ÖGB President Rudolf Hundstorfer , who had approved the merger agreements in September 2005 on behalf of the then ÖGB President, said he had no idea at the time about this transaction, which ultimately has far-reaching consequences for ÖGB.

A report by the news magazine Profil announced at the beginning of July 2006 that both the Austrian Financial Market Authority and the National Bank had already reported in 2001 - with the OeNB audit report of April 27, 2001 - about BAWAG's billion-dollar loans to three Liechtenstein foundations and about business relationships with Wolfgang Flöttl was fully informed. In relation to the media, representatives of the National Bank and the now retired banking supervisor assign responsibility for not responding to the report to the other institution.

Federal liability

On the afternoon of May 1, 2006, the ÖGB issued a written and unlimited guarantee for BAWAG; On the night of May 2, 2006, the government under Federal Chancellor Wolfgang Schüssel decided on a federal guarantee limited to July 1, 2007 in the amount of a maximum of EUR 900 million for BAWAG. The four major Austrian banks ( BA-CA , Erste Bank , Raiffeisen Zentralbank and Österreichische Volksbanken AG ) and insurance companies, including Wiener Städtische and UNIQA , provided 450 million euros as equity capital through a special financing structure.

On May 8, the National Council unanimously decided that the federal government would assume liability up to an amount of 900 million euros. In return, BAWAG and ÖGB had to cede their 20 percent stake in the Austrian National Bank to the Republic. The SPÖ's initial fears that liability would only become effective after the union went bankrupt was taken into account with the addition of the law, which stipulates that the union must remain liable as long as it can still account for itself.

When preparing the 2005 balance sheet, the payments promised to the Refco creditors and the write-off of the Refco loan granted in October 2005 were taken into account, totaling around 1 billion euros. BAWAG would no longer have been able to demonstrate the solvency required by law without external help .

The default liability of the Republic of Austria for a bank, which shows a parallel to the only liability at the Bodencreditanstalt in 1929, was also examined and approved by the European Commission . The approval was conditional on the bank implementing its restructuring plan and taking compensatory measures.

After the sale of BAWAG to Cerberus Capital Management for the sum of 3.2 billion euros, it was ensured that the federal liability would not be effective.

consequences

BAWAG sale

see BAWAG PSK

Political Impact

The scandal and its expansion lead to discussions about the economic and social competence of the owner ÖGB and the effectiveness of the financial market supervision as the responsible supervisory body. Another consequence are party-political disputes, especially with regard to the National Council election campaign that followed in autumn 2006 , in the course of which, on the one hand, the Social Democratic Party of Austria as the party politically closest to the ÖGB and, on the other hand, the governing parties as the forces responsible for the supervisory authority for the scandal and its own Expansion will be held responsible. Karl-Heinz Grasser , who was in office at the time and who was closely related to the ÖVP , was also accused from various quarters of having known about the situation at BAWAG in 2001, but not having reacted for political reasons. This accusation was neither proven nor refuted and was lost in the general hustle and bustle of the election campaign months.

On April 28, 2006, the Austrian Trade Union Confederation announced that not only BAWAG but also ÖGB had a business connection with Refco through Liechtenstein subsidiaries through an unauthorized solo effort by a few officials. BAWAG had granted loans to Refco through a foundation established by ÖGB-Vermögensverwaltung in Liechtenstein and through a US company, and in return received shares of around 27 percent as security.

This appeared particularly noteworthy because top functionaries of the Social Democratic union faction and the Social Democratic Party often appeared in public as declared opponents of such financial transactions and called companies such as hedge funds , derivatives traders , commodity futures brokers, etc., as locusts . The public was all the more surprised that BAWAG had such intensive business connections with the derivatives trading company Refco.

Legal processing

Investigations

On March 28, 2006, the public prosecutor initiated preliminary inquiries. On October 25, 2006, the public prosecutor brought the BAWAG indictment to court. The public prosecutor's office threw the former BAWAG general directors Helmut Elsner (71) and Johann Zwettler (65), the former BAWAG supervisory board president and ÖGB chief financial officer Günter Weninger (66), the investment banker Wolfgang Flöttl (51) and five other co-defendants in tiered form and partly as contributors to breach of trust, serious fraud and falsification of accounts.

The prosecution puts the total damage at 1.5 billion euros. In the event of a conviction, the penalty is up to ten years in prison. According to the indictment, BAWAG was insolvent at the end of 2000 “if you look at it honestly”. On February 16, 2007, it became known that Helmut Elsner had to undergo an urgently needed heart operation, which delayed the start of the process to July 2007.

Shortly before the start of the trial in mid-July 2007, Public Prosecutor Ronald Schön, who would have been responsible for this process alongside Public Prosecutor Georg Krakow, was dismissed. The reasons given were “too close private and business connections with the defense attorney for the defendant Flöttl”. He is also said to have intervened in a divorce case in favor of this lawyer.

First BAWAG trial

On Monday, July 16, 2007 at 9:15 am, the eagerly awaited BAWAG trial began in the Vienna Regional Court with great media interest. Nine people were accused of harming the former trade union bank BAWAG through breach of trust in a graduated form and falsification of accounts amounting to up to 1.44 billion euros. The total loss, including the cost of the Refco bankruptcy that forced the Austrian Federation of Trade Unions to sell the bank, was more than double. A culpable or criminal behavior of the accused is presumed by the court only up to a maximum of 1.44 billion euros. Nine people, including seven former BAWAG top managers, were in the dock. The most prominent of these was the former BAWAG General Director Helmut Elsner.

On Friday, July 4th, 2008, all nine defendants were found guilty and sentenced to partially unconditional prison terms:

  • Helmut Elsner , General Director: 9.5 years imprisonment, 6 million euros in damages
  • Wolfgang Flöttl , investment banker: 2.5 years imprisonment (including 20 months conditional)
  • Johann Zwettler, General Director: 5 years imprisonment
  • Peter Nakowitz, General Secretary: 4 years imprisonment
  • Christian Büttner, 1.5 years imprisonment (conditional)
  • Günter Weninger , Chairman of the Supervisory Board: 2.5 years imprisonment (including 2 years conditional)
  • Hubert Kreuch, Member of the Management Board: 3.5 years
  • Robert Reiter, auditor : 3 years (of which 2 years conditional)
  • Josef Schwarzecker, member of the executive board: 3.5 years

All nine defendants were found guilty of embezzlement or aiding and abetting, all of the accused except Flöttl also of falsifying accounts . Elsner has also been convicted of serious fraud in connection with his pension settlement of EUR 6.8 million, which he has to repay to BAWAG. According to the ruling, it caused BAWAG damage of 1.72 billion euros.

The defendants, with the exception of Büttner, were also sentenced in unison to reparation for damages amounting to around EUR 67.6 million. Helmut Elsner, Johann Zwettler, Wolfgang Flöttl and Peter Nakowitz were sentenced to pay an additional EUR 8.6 million.

All of the convicts appealed against the judgments that were not yet final.

Second instance

After the General Procuratorate found serious deficiencies in the first instance judgments against ex-BAWAG boss Elsner and other ex-BAWAG managers on October 19, 2010, the Supreme Court announced on December 23, 2010 that it had dismissed the former Bawag General Director's appeal for annulment Helmut Elsner partially upheld his first-instance conviction. Nevertheless, Elsner was sentenced to a total of ten years' imprisonment, which corresponds to the maximum sentence provided by law. The imprisonment imposed by the first court on Elsner's successor Johann Zwettler was confirmed by the highest court. The judgments against Wolfgang Flöttl , the former Bawag board members Christian Büttner, Josef Schwarzecker and Hubert Kreuch as well as against the auditors Robert Reiter and Peter Nakowitz were completely overturned by the Supreme Court. The cases were referred back to the first court and must be renegotiated. The judgment against ex-Bawag supervisory board chairman Günter Weninger was largely overturned.

As a result, the then judge Claudia Bandion-Ortner , who at the time of the judgment by the Supreme Court held the office of Justice Minister, came under criticism mainly from the opposition, but also from the co-governing SPÖ. She drafted the judgment at a time when she was already designated for the new office by the ÖVP .

Second BAWAG trial

The second BAWAG trial at the Vienna Regional Court began on April 25, 2012 before a Schoffensenate under the direction of Judge Christian Böhm.

Peter Nakowitz was acquitted of the charge of infidelity shortly after the start of the trial, but found guilty on 2 other charges and sentenced to 3 years in prison, including 2 years conditional. The sentence was later converted into 3 years unconditional imprisonment by the Vienna Higher Regional Court for general preventive reasons .

The trial finally ended on December 18, 2012 with 5 acquittals for Wolfgang Flöttl, Hubert Kreuch, Josef Schwarzecker, Christian Büttner and Robert Reiter. Günter Weninger was sentenced to a conditional prison sentence of one month for accounting offenses at the ÖGB. On May 15, 2013, it was finally announced that the public prosecutor's office waived any further legal remedies, whereby the acquittals became final. Elsner's and Zwettler's question of guilt, and thus their conviction, had already been confirmed by the Supreme Court after the first trial and thus became final.

The legal processing of the BAWAG affair is over after almost 6 years, the judges' rulings are briefly summarized:

  • Helmut Elsner: 10 years imprisonment
  • Johann Zwettler: 5 years imprisonment
  • Peter Nakowitz: 3 years imprisonment
  • Wolfgang Flöttl: acquittal
  • Christian Büttner: acquittal
  • Günter Weninger: 1 month imprisonment (conditional)
  • Hubert Kreuch: acquittal
  • Robert Reiter: acquittal
  • Josef Schwarzecker : acquittal

criticism

The media criticized the fact that no serious attempt was made as part of the BAWAG trials to clarify the whereabouts of the allegedly completely speculated 1.4 billion euros. The daily newspaper Die Presse spoke of a "political silent cartel" in this context.

Proceedings retrial and Paradise Papers

In February 2015, Helmut Elsner and his lawyer Andreas Stranzinger submitted an application for a retrial. Elsner accuses Wolfgang Flöttl of fraud. This should be held accountable and his own judgment for infidelity should be renegotiated. Helmut Elsner accuses Flöttl of stealing at least one billion euros. The application was rejected in December 2016, whereupon Elsner's lawyer filed a complaint with the Higher Regional Court of Vienna, which is now deciding on it. Due to the Paradise Papers , it became public that seven companies were founded on the island of Aruba within a month in 1990 and Flöttl was the director of all of them. He held these companies until 1999 and dissolved them in 2000. According to lawyer Andreas Stranzinger, the companies should have been disclosed during the proceedings. The question arose whether Flöttl still had a fortune to compensate for the losses that were incurred in the business. According to Stranzinger, there is now a new investigation approach by the law enforcement authorities. Christian Pilnacek, the head of the criminal law section in the Ministry of Justice, criticized the Vienna Public Prosecutor's Office in November 2017: "In retrospect, the whole story was wrongly pursued, that's not exactly encouraging." But Flöttl was also "not clumsy."

Trivia

The word penthouse - socialism became the word of the year chosen of 2006.

Individual evidence

  1. ↑ ÖNB test report on the cause of BAWAG ( Memento from July 1, 2006 in the Internet Archive ) (PDF; 755 kB)
  2. ↑ http://www.networld.at/index.html?/articles/0626/12/144653.shtml  ( page no longer available , search in web archives )  Info: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice.@1@ 2Template: Dead Link / www.networld.at  
  3. ↑ http://www.news.at/articles/0613/12/136589/spoe-grasser-soll-2001-bawag-geschaefte-bescheid
  4. ↑ http://www.orf.at/?href=http%3A%2F%2Fwww.orf.at%2Fticker%2F222932.html
  5. ↑ tagesschau.de - Ex-BAWAG bankers embezzled billions of prison sentences in Austria's largest economic process ( Memento from March 14, 2009 in the Internet Archive )
  6. ↑ Bawag: All guilty - 9.5 years imprisonment for Elsner . diepresse.com. July 4, 2008. Retrieved November 25, 2016.
  7. ^ "Repeal of the sentence recommended" in the ORF from October 19, 2010
  8. ^ After the Supreme Court decision: Elsner sentenced to the maximum penalty in the press on December 23, 2010
  9. ^ Minister of Justice under pressure on ORF from December 24, 2010
  10. ↑ Elsner: “Bawag money flowed back to Austria” in the press on April 19, 2012
  11. ↑ Court tightened Nakowitz's sentence on orf.at of April 17, 2013. Retrieved May 15, 2013 .
  12. ^ Acquittal for Flöttl, punishment only for Weninger on orf.at of December 21, 2012. Retrieved on May 15, 2013 .
  13. ↑ BAWAG: All acquittals are legally binding on orf.at from May 15, 2013. Accessed May 15, 2013 .
  14. ^ Bawag and the unbroken silent cartel Die Presse, May 17, 2013. Accessed May 19, 2013 .
  15. ^ A b Michael Nikbakhsh: Helmut Elsner: "They are waiting for my death". In: profile. January 26, 2017. Retrieved November 6, 2017 .
  16. ↑ Elsner: "Flöttl stole at least one billion" , Addendum , November 6, 2017, accessed on November 7, 2017
  17. ↑ So far unknown societies. In: ORF. November 5, 2017. Retrieved November 5, 2017 .
  18. ^ Bawag affair: Ministry of Justice criticizes public prosecutor. In: profile. November 11, 2017. Retrieved November 25, 2017 .

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