Germany's Schreiber Affair
The Scandal that Helped Merkel Become Chancellor
Angela Merkel should be grateful to Karlheinz Schreiber. After 10 years, Canadian officials this week extradited the former arms lobbyist and he will soon face charges of tax evasion, fraud and bribery in Germany. Without him, she would not be where she is now: the Chancellor of Germany and, according to Forbes magazine, the most powerful woman in the world.
As the former general secretary of the Christian Democratic Union (CDU) she was one of the people at the head of an organization that had to recreate itself after the scandal over Schreiber's illicit donations broke, a party that also had to do away with the murky accounting systems that had flourished during former Chancellor Helmut Kohl's time. After the donations scandal, Merkel became an instrument of change for the CDU and for German politics in general, a woman on a white charger.
In earlier decades, German political parties had a fairly lax attitude toward donations. And it wasn't just the CDU that was relaxed about well known gray areas in laws regarding campaign finance. Fake payments for fictional reports that were never delivered and invoices for over-priced advertisements in party publications were standard practice for hiding cash from anonymous donors. In fact, until changes in legislation came about in 1993, it was still possible for parties to accept anonymous donations. And if they didn't declare where donations came from, that was not subject to any particularly harsh legal sanctions either.
One legendary figure is Alfred Nau, the former treasurer of the Social Democrats (SPD), who took most of his accounting secrets to the grave in 1983. For almost 30 years he was the "party cashier" of the SPD's national executive, after that he was head of the Friedrich Ebert Foundation, an SPD-connected think tank for the promotion of the tenets of social democracy, especially among young people.
Partisan organizations like the Friedrich Ebert Foundation were well known for their role in what was known as "indirect" or "roundabout" financing, wrote Heinrich August Winkler and Alexander Sager, the authors of "Germany: The Long Road West," and for the ways in which they were able to circumvent the political party laws of 1967.
Donations To Politicians, Tax Exemptions In Return
As far back as 1985, SPIEGEL reported on the "silent business practices" that went hand in hand with the way in which the Friedrich Ebert Foundation received money. The foundation was forced to defend itself against suggestions that the Israel-based Fritz Naphtali Foundation was basically an offshore, money laundering front for the SPD. And after a court ruling in 2001, the Axel Springer publishing house was able to reveal that until 1989 the SPD actually had "shadow accounts" in a bank in a neighboring country -- and by this, they meant Switzerland, with its banking secrecy laws. They were also able to reveal that the Social Democrats had not declared donations to the value of 7.5 million deutsche marks in their 1980/81 accounts.
One of the biggest scandals in German political party financing involved recently deceased German industrialist, Friedrich Karl Flick, one of the world's richest men -- and came to be known as the Flick Affair. After selling his interests in auto manufacturer Daimler-Benz to Deutsche Bank, Flick donated money to Kohl's CDU as a form of tax dodge. Ostensibly the money was for a worthy task: the "cultivation of the political landscape" conducive to business interests. That was permmissible under a law that allowed tax exemptions on investments considered of public, economic benefit. Later on, in 1981, tax inspectors discovered that Flick had actually been secretly donating millions more to all leading German political parties and, in some cases, had received tax exemptions in return. Three men were eventually brought to trial -- Flick's business manager, Eberhard von Brauchitsch, former economics minister Hans Friedrichs and then-Economics Minister Otto Graf Lambsdorff (both from the Free Democratic Party, or FDP) -- and were convicted of tax evasion or assisting tax evasion.
A Master At Financial Games
Under Helmut Kohl, the CDU became masters of this financial game. It was never suggested that Kohl benefited personally from political donations -- but he did lead the party financial system outside of the legal boundaries, doing such things as opening secret bank accounts and establishing civic associations that could act as middle men, or procurement agencies, for campaign donations. There were many of these, they came with such fanciful names as the Collective for the Development of Underdeveloped Markets. Or the Organization for the Promotion of Private Development Assistance. The advantage of these associations was that anyone who donated to them was not legally obliged to declare their identity. They could just hand over the money.
At the start of the affair involving Karlheinz Schreiber, nobody had any idea that it would blow up to become a grand scandal on the scale of the Flick Affair. It all started in early November, 1999, with the issue of an arrest warrant for Walther Leisler Kiep by the district court in Augsburg, Bavaria. From 1971 to 1992, Kiep was the CDU's treasurer. The court suspected him of tax evasion in relation to a one million deutschmark donation by Schreiber, a well known arms lobbyist and businessman, who had recently been arrested after he fled to Canada.
German Chancellor Admits Donations 'Mistake'
As more details came to light over the weeks that followed, it became clear that the CDU had accepted illegal donations throughout the 1990s and had developed a money laundering system to deal with them. By December, honorary chairman of the CDU and former Chancellor Helmut Kohl had partially admitted to the secret financing, speaking about "confidential, special gratuities for party members and party associations" that made "separate account management" seem reasonable. "I wanted to serve my party," Kohl said.
On December 16th, Kohl admitted in a television interview that, during his many years dealing with donations he may have made a "mistake." But, he said, the donations had gone to the party. Kohl estimated that the donations were worth somewhere between 1.5 million and 2 million deutsche marks. But he refused to reveal any donors' identities, saying that they were "German citizens" who had trusted him with the money on the condition that they remained anonymous.
And with this, Kohl made it seem as though there were many donors -- although it has never been ruled out that it could have just been one single donor.
Unexpected Questions In Parliament Led To Lies
Meanwhile Kohl's likely successor in the CDU, Wolfgang Schäuble, was becoming ever more enmeshed in the Schreiber scandal. At the time, Schäuble was one of the most popular politicians in the country and in 1997 Kohl had handpicked Schäuble to succeed him at the head of the CDU -- but because the CDU lost the election in 1998, Schäuble became the party's chairman.
When questioned in parliament in 1999 about whether he had accepted a donation during a meeting with Schreiber, Schäuble disputed the question. But in a radio interview in January, he admitted he had met Schreiber at least once more. That created suspicion that a second donation had been made. Whatever the case, indignation within the ranks of the CDU and its Bavarian sister party, the Christian Social Union (CSU) toward Schäuble grew so much that he was forced to resign.
So how exactly did Merkel profit from the Schreiber incident? The former party secretary became aware that, in the face of an unexpected question in parliament, Schäuble had lied about taking cash from Schreiber. Merkel realized at the time that this secret would eventually come out and would inevitably lead to Schäuble's downfall. She also knew that, if she wasn't careful, she could go down with him. After all, it was only logical that the general secretary of a party would have the confidence of the head of that party.