UNCLAS SECTION 01 OF 02 FRANKFURT 002923

SIPDIS

DEPARTMENT FOR EUR/AGS AND EB/OIC

SENSITIVE

E.O. 12958: N/A
TAGS: ECON EINV PGOV PINR GM
SUBJECT: Leading Frankfurt Prosecutor says Germany has a
Long Way to Go in Anti-Corruption efforts


1. (SBU) SUMMARY: Frankfurt prosecutor Wolfgang
Schaupensteiner -- Germany's leading expert on corruption --
says Germany needs stricter anti-corruption laws and a
public awareness campaign to help overcome complacency.
Authorities in Germany have fewer and less effective tools
to fight corruption (particularly corporate misconduct) than
their counterparts in the U.S.; Germany needs U.S.-style
measures to deal with corporate crimes coupled with enhanced
internal controls within large companies. A handful of
German states maintain procurement blacklists of corrupt
private companies; Schaupensteiner stressed the need for an
EU-wide blacklist of companies convicted of bribery in any
jurisdiction. The city of Frankfurt was the first to
establish an anti-corruption task force. On two of
Germany's largest international bribery cases -- involving
Frankfurt Airport Authority (Fraport) participation in the
Tashkent and Manila airport projects -- he said that
prosecutors face uphill battles in collecting evidence
abroad and in forcing full disclosure by Fraport. END
SUMMARY.


2. (U) Corruption is more widespread in Germany than most
Germans believe, according to Wolfgang Schaupensteiner, the
head of the Anti-Corruption Department at the Frankfurt
prosecutor's office. Schaupensteiner, whom media deem
Germany's leading expert on corruption, told consulate
representatives that prosecutors are hampered by scarce
resources and weak enforcement tools. Thirty-five of the
hundred prosecutors in Frankfurt handle commercial crimes,
but only four of those focus on corruption. The office has
no internet connection and as of December 2003, had a
backlog of 574 cases. This huge load of pending cases means
the statute of limitations (typically five years /
extendable to ten years) may expire in some cases.
Schaupensteiner noted that Frankfurt prosecutors must divide
their time between complex commercial bribery cases and
local corruption cases. Frankfurt -- although no more
corrupt than other cities in Germany -- has a higher profile

on the issue as the first German city to institute an anti-
corruption unit in 1989 (it currently has three full-time
staff dealing with corruption).


3. (U) Schaupensteiner praised U.S. law on corporate crimes
and characterized the German legal framework as inadequate
to prosecute corporate crimes. Unlike in the U.S., German
prosecutors cannot indict companies (only individuals). In
contrast to the U.S. Securities and Exchange Commission
(SEC), German stock market authorities have no mechanism to
punish criminal misconduct by companies listed on German
exchanges. Schaupensteiner said the German government and
the EU should create blacklists (Korruptionskataster) of
companies involved in corruption at any level. Six German
states (including Hesse) have such blacklists, but a
government bill which passed the Bundestag in 2002 failed in
the conservative-dominated Bundesrat.


4. (SBU) On high-profile international bribery cases,
Schaupensteiner said that evidence points to Fraport
misconduct in connection with airport construction projects
in Tashkent and Manila, but that prosecutors face enormous
procedural hurdles. Unlike in the U.S., Schaupensteiner
cannot force Fraport to disclose all of its files on the
deals (it can only search for such files and ask specific
questions). He noted that in similar U.S. cases (Enron /
Arthur Andersen), the failure to disclose records is itself
a criminal offense. Since Germany and the Philippines have
no bilateral legal assistance treaty, German prosecutors
face an additional hurdle in collecting evidence from the
Philippine side. Until Germany adopts legal reforms,
prosecutors will face an uphill battle in such cases.
Meanwhile, Schaupensteiner hopes political pressure will
force large companies to improve internal controls. For
instance, Deutsche Bahn instituted an anti-corruption
ombudsman in 2000 (after a corruption scandal in eastern
Germany) which has investigated dozens of allegations,
saving the company an estimated ten million euros to date.
Companies themselves stand to benefit from avoiding
misconduct and litigation: Fraport, for instance, lost 350
million euros on the abandoned Manila Airport project (not
including legal costs).


5. (U) COMMENT: In media appearances, Schaupensteiner points
out that Germans condemn corruption in public life but
assume incorrectly that their country is relatively free of
the phenomenon. Many Germans also accept "insider
influence" as a normal part of doing business. From a
prosecutor's viewpoint, he believes simply outlawing
corruption is not enough: without effective legal
procedures and sanctions against corporate misconduct, the
state is more likely to spend its resources going after
small fry and punish "petty" corruption while allowing the
big fish -- in corporate and international commercial
bribery cases -- to get away. Germans appear to have little
sense of urgency on the issue: with a lack of legislative
initiative for effective sanctions at the federal and state
level -- and unwillingness to publicize an embarrassing
phenomenon -- fighting corruption remains an idea whose time
has not quite arrived. END COMMENT.

BODDE