Corporate Prosecutions

Fifty Shades of Justice

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German courts are increasingly activist, taking aim at the country's white-collar criminals.
  • Why it matters

    Why it matters

    If German courts increase their activism, the country may increase the prosecution of its leading business executives.

  • Facts

    Facts

    • German courts are increasingly taking an aggressive stance against white-collar criminals.
    • A trial involving Deutsche Bank co-CEO and four former top managers will begin in Munich in April.
    • The managers are accused of misleading a court in the bank’s role in the 2002 bankruptcy of Kirch media group.
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    Audio

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He may have been nervous, but Jürgen Fitschen, the co-chief executive of Deutsche Bank, Germany’s largest bank, wasn’t showing it.

A fit, relaxed Mr. Fitschen talked easily about the challenges facing global banking in a public appearance on Thursday at the International Chamber of Commerce in Frankfurt, a short walk from his bank’s twin-tower headquarters.

In remarks and body language, Mr. Fitschen gave no hint of the personal challenges he was facing.

A Munich court three days earlier had announced it would hold a months-long trial this summer of Mr. Fitschen and four of his former colleagues at Deutsche Bank, including former CEOs Josef Ackermann and Rolf Breuer.

The public, judicial grilling will require the bankers to appear in court at least once a week, facing a barrage of cameras and journalists.

Mr. Fitschen and Mr. Ackermann were on the bank’s management board in 2002 under Mr. Breuer when one of Deutsche Bank’s clients, the Munich-based Kirch media group, an owner of television stations and the holder of Bundesliga soccer broadcasting rights, declared bankruptcy. The insolvency came after Mr. Breuer, in a television interview, had implied that the Kirch group was struggling financially.

The Kirch group founder, Leo Kirch, sued, alleging the bank and Mr. Breuer had intentionally brought about the insolvency to profit from the firm’s breakup, a charge the bankers have consistently denied.

Mr. Kirch, a flamboyant entrepreneuer and friend of former Chancellor Helmut Kohl, died in 2011 at 85.

Three years later, in 2014, Deutsche Bank paid his heirs €925 million, or $1.1 billion, to settle the civil case launched by Mr. Kirch.

But the matter didn’t end there for Deutsche Bank.

Munich prosecutors, citing the statements of Mr. Fitschen and Mr. Ackermann in the civil trial, on Monday said they would launch a criminal probe against the two men, Mr. Breuer and two other former board members, Clemens Börsig and Tessen von Heydebreck, for “misleading” testimony surrounding their recollections of the events leading to the Kirch bankruptcy.

The bankers have denied they intentionally aided the company’s collapse. But news of the new investigation couldn’t have come at a worse time for Mr. Fitschen, now the co-chief executive along with Anshu Jain, as the bank weathers a deluge of lawsuits brought by regulators and clients against Deutsche Bank, which has set aside €3 billion to cover potential legal judgements.

When Mr. Fitschen finished his talk to a room full of his peers this week in Frankfurt, the applause he received after his speech was a little louder than it might have been otherwise – as though other senior execs in the room wanted to encourage one of their own.

From the decibel level, it is clear that Mr. Fitschen has the backing of his sector – for now.

But he will have to get used to facing a more critical gaze when he takes the witness stand in the Munich court starting in April.

 

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The court in Munich is no ordinary court; it has taken on some of the biggest names in German business, from Formula One boss Bernie Ecclestone, who paid a $100 million fine to settle a bribery case, to Bayern Munich boss Uli Hoeness, a bratwurst mogul who was sentenced to 3 1/2 years in prison last March after admitting to evading taxes on €28.5 million in income.

Mr. Fitschen won’t be alone next month when the Munich court trial of the country’s business elite opens.

The bankers are charged with making false or inconsistent statements to the civil court to avoid paying damages to Mr. Kirch’s heirs.

The relationship between the bankers and the prosecution is antagonistic.

The prosecutors feel deceived by the Deutsche Bank managers. The bankers have been offended by the prosecutors’ methods, which included raiding the bank’s offices with hundreds of heavily armed police.

The case against the five Deutsche Bank managers is a historic departure. It goes beyond the dispute between Deutsche Bank and Mr. Kirch, and signifies a more aggressive, pro-active judiciary, something normally found more in France than in Germany.

But in the Deutsche Bank case, the German justice system is grabbing for new powers – in the name of the people against the economy.

The central question is: Has the German economy become more criminal in recent years or is the legal system taking a tougher, more rigorous approach in how it deals with top managers?

How important is it to judges and prosecutors to disprove critics who say German courts catch the small fry and let the big fish go free?

Can the judges rule on the evidence, ignoring the media glare and public envy and schadenfreude?

 

Breuer Kirch
The late German media magnate, Leo Kirch, left, and former Deutsche Bank CEO Rolf Breuer, right. Last year, Deutsche Bank paid €925 million to settle a civil suit brought by Mr. Kirch’s heirs that the bank had conspired to bring about the Kirch group’s bankruptcy in 2002, which the bankers have consistently denied. Source: DPA

 

Mr. Fitschen and his former colleagues are not the first high-level executives to get caught in Germany’s new, tougher judicial system.

More and more, top managers are sitting in the dockets of German courts, whether they be Mr. Hoeness, Mr. Ecclestone, Thomas Middelhoff, the former Bertelsmann chief executive sentenced to jail for corruption and tax evasion or Klaus Zumwinkel, the former Deutsche Post chief executive convicted of tax evasion.

In all of these cases and others, the suspicion was unavoidable that the elite were lining their pockets without caring about the rules.

That was the subtext in the case of Mr. Hoeness, the FC Bayern Munich patron who spoke out on TV talk shows against greed, but privately placed hundreds of million of euros in bets on currency and stock movements while forgetting, as he later admitted in court, to pay his taxes.

That was also the question behind the case against Mr. Middelhoff, a big star of Germany’s new economy in the 1990s when he was chief executive at Bertelsmann, and later white knight at struggling department store chain, Karstadt Quelle, which he couldn’t save by changing the firm’s name to Arcandor.

The judges couldn’t get past the fact that Mr. Middelhoff used company money – shareholder’s money – to finance helicopter flights between Karstadt Quelle’s headquarters in Essen and his home 148 kilometers (92 miles) away in Bielefeld. Also troubling was his birthday present to Bertelsmann mentor Mark Wössner of a symposium and a jubilee publication, all paid for by Arcandor.

Mr. Middelhoff, who once famously told an interviewer that while German he was American in spirit, received a three-year jail sentence, reducing him from the upper atmosphere to a jail cell. His lawyers have repeatedly complained about his detention.

Mr. Hoeness got off lightly, and despite his supposed jail sentence is now able to leave prison for days each week. But Mr. Middelhoff felt the full weight of the disapproval from a judicial system that in the past has too often gone soft on well-connected criminals.

Commentators speak of a growing negativity toward celebrities and prominent people.

“You no longer see respect for famous or well-known figures in legal cases,” said Thomas Knierim, a partner at the Knierim & Kollegen law firm.

Michael Kubiciel, director of the Institute for Criminal Law at Cologne University, said: “Corruption and economic criminality have been in public focus for the last 10 years and public prosecutors are taking a tougher stance.”

Eckhart Müller, a defense lawyer in Munich at Prof. Dr. Müller & Partner, a law firm, has defended managers from two state-run banks, WestLB and Bayern LB.

“The power of public prosecutors has increased significantly over the past few years because they have taken on a lot more staff and also gained more knowledge and experience,” Mr. Müller said. “The times that public prosecutors couldn’t read a balance sheet are gone.”

He added: “There isn’t more economic criminality than before, but the proportion that is being investigated is a lot higher.”

Mr. Fitschen, Mr. Hoeness and Mr. Middelhoff are the most high-profile recent targets of Germany’s truth and justice crusade.

“In many cases involving business law, it’s not just about truth and justice anymore, but about pure interest,“ said Holger Matt, a defense attorney from Munich. In modern times, he said, prominent figures also have to face the music “for the good of the people.”

The German public follows details of these public showdowns closely.

One iconic image is that of former Deutsche Bank CEO Ackermann, photographed making a victory sign with his fingers after agreeing in 2006 to pay a €3.2 million court fine to settle charges that he had illegally awarded €57 million in payments to former managers of Mannesmann, a German mobile phone company, following the carrier’s sale to Vodafone.

Mr. Ackermann had been Mannesmann’s supervisory board chairman at the time of the sale in 2000.

Now, 15 years later, Mr. Ackermann is back and is unlikely to make a similar public gesture that can be misunderstood. Alongside him is his successor, Mr. Fitschen, the Deutsche Bank co-chief executive. Mr. Fitschen, unlike Mr. Ackermann, had until now remained scandal-free, a banker with a reputation for personal integrity who had managed to avoid legal trouble.

But integrity may not help him in his case. “I have neither lied nor defrauded anyone,” Mr. Fitschen said. Nonetheless, the confrontation in the Munich court starting next month will be a spectacle; the indictment alone is 627 pages long and there are 143 files.

Mr. Fitschen is unlikely to admit to anything; the prosecutors aren’t likely to budge.

A manager can’t expect sympathy; he should be punished. It’s all about the principle.

The reputation of bankers in Germany, a socialist country that’s always had an ambiguous relationship to its capitalists, is tenuous at best. But recent cases of corruption, ineptitude and malfeasance and the need for costly, taxpayer-funded bailouts of public banks such as LBBW, HSH Nordbank and Hypo Real Estate have further battered the profession.

Mr. Fitschen is fighting for his honor, although the mere filing of charges against him equate to an admission of guilt among some in the court of public opinion. The bank assiduously emphasizes the assumption of innocence for him and the other four being charged.

But is it credible? The bank itself is clearly under pressure. It is implementing a change of culture by introducing an ethics guidebook, but little tangible results are visible.

Whether the current batch of Deutsche Bankers are released or sentenced, there will be a public outcry.

“If they are found innocent or if the case is dismissed, that will definitely be the case,” said Mr. Kubiciel, “But even if they’re found guilty, some of the public still won’t be happy because the sentence isn’t long enough.“

Methods used by prosecutors and judges have changed significantly in recent years. Until the 1970s, prosecutors had little to do with senior corporate executives. Even when prosecutors searched corporate board rooms, there was often little to be found.

Then the culture changed, said defense attorney Björn Gercke, of the Gercke Wollschläger law firm. “Now public prosecutors are using all the investigative methods at their disposal to address white collar crime – even observation, phone tapping and undercover agents have become the norm.”

Years ago, that was unthinkable, Mr. Gercke said.

The new methods have been used on Deutsche Bank.

At the end of 2012, 500 heavily armed policemen marched into the bank’s headquarters in Frankfurt, some of them hooded. At the time, the investigation was looking into fraud associated with emissions certificates, tax evasion and money laundering.

In the world of German banking, such a huge raid was unheard of.

Some of the bank’s employees had to spend days in pretrial detention.

Mr. Fitschen complained to the state’s minister president, Volker Bouffier, about what he called the excessive methods in the raid.

This turned out to be a mistake. The banker was accused of trying to pressure the legal system.

Mr. Fitschen had to apologize publicly. The incident strengthened the image of the arrogant financier who thought he could do anything.

The global financial crisis, ongoing tax evasion by bank clients and huge board room bonuses only fed public anger at the banks.

Prosecutors no longer shy from putting high-ranking managers in pretrial detention or freezing their assets.

“The prosecutors build up pressure and that impacts the defendant’s professional and economic well-being,“ Mr. Gercke said. The tough tactics are used even though prosecutors aren’t sure whether the case will even go to court.

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