Two central bank governors in Europe have gotten into hot water recently: Philipp Hildebrand, as chairman of the Swiss National Bank (SNB); and Ewald Nowotny, as governor of the Austrian National Bank (OeNB) and member of the ECB’s governing council. Hildebrand resigned after he tried to brush off an insider-trading scandal that is still making headlines in Switzerland; Nowotny is clinging to his jobs though he is tangled up in a criminal bribery, kickback, and money-laundering scandal involving Syria and Azerbaijan. But finally a major politician—though possibly the wrong one—called for his resignation.
“He is, in my opinion, ripe to resign,” Heinz-Christian Strache announced at a press conference on January 17 (YouTube). He is the top honcho of the right-wing populist Freedom Party of Austria (FPÖ) that currently has 18.5% of the seats at the National Council. Among his three reasons: Nowotny “failed completely” as top supervisor “in his own house.”
The scandal has been brewing for months. On November 28, the office of the state prosecutor in Vienna announced that the criminal prosecution had been expanded to over 20 suspects, including six current directors of the OeNB, among them Governor Ewald Nowotny, Vice Governor Wolfgang Duchatczek, and Director Peter Zöllner. Four people had already been arrested.
At the center is a subsidiary of the OeNB, the Oesterreichische Banknoten- und Sicherheitsdruck GmbH (OeBS). It prints money, literally. And it has been soliciting bank-note deals from foreign governments since 2000. According to the prosecution, OeBS paid €17 million in bribes to Syrian officials to obtain orders from the Syrian government. Payments were routed to offshore outfits, such as the Panamanian mailbox company Venkoy, whose representatives were in Switzerland. The prosecutor is further investigating €1.7 million in kickbacks that made their way back to Austria. Similar arrangements with Azerbaijan are also being investigated. Bits and pieces of the affair began to see the light of the day last June, when Austrian tax authorities raised questions about the deductibility of these payments.
Nowotny, Duchatczek, and Zöllner were accused of having known about the bribery of foreign public officials in connection with the acquisition of bank-note printing orders. The OeNB, of course, defended its directors: the accusations were based on statements by fired employees—implying that it’s nothing but a vendetta. Based on the information the directors had in front of them at the time, they’d assumed that the payments were for actual and legitimate services, and that the acquisition of orders complied with all applicable rules and laws, the OeNB said.
Alas, on November 9, the Vienna Kurier created a stir when it said that it had obtained a copy of the minutes of the OeNB Board of Directors meetings. And according to these minutes, the directors had known for years that millions of euros in bribes were being paid to acquire bank-note business from foreign governments.
For example, on March 24, 2010, the managing director of OeBS informed the OeNB board about a possible order from Azerbaijan for 150 million bank notes that carried a “commission” of 10%. How did the board react? “Duchatczek asked the managing director to initiate the acquisition activities so that the years 2011 and 2012 would be at capacity.”
The minutes show that over the years, Nowotny, Duchatczek, and their colleagues asked questions about various payments but then did nothing. For example, on December 15, 2008, Nowotny asked about the amount of a commission and the recipient in Azerbaijan. The managing director then “informed that there is a representative in Switzerland,” and that the commission would amount to 20% of the order. And that was that.
After the bribery of Syrian officials had first surfaced, along with €600,000 in “unusual expenses,” the OeNB tried to put out the brushfire and protect its directors by firing the managing director and the director of marketing at the OeBS (both were later arrested). Stated reason? An internal audit revealed “unlawful actions and withholding of information from the Supervisory Board.”
Maximum penalty for bribery in Austria is ten years in prison. But given the impunity with which top central bankers act, Nowotny might not even lose his job. How refreshing that the hullaballoo in Switzerland led to the quick resignation of the chairman of the SNB, though it might have few other consequences. Perhaps it has something to do with ownership. The SNB is a publicly traded corporation; entities like cantons hold 55% of its shares and individuals hold 45%—and they can put the SNB under pressure. Whereas the OeNB is owned entirely by the state.
Meanwhile, the battle over the ECB and the euro continues. “The fact that we profit massively from the euro doesn’t mean we have to accept every political horse-trade to save it,” said the president of Germany’s Association of Exporters—a swipe at Italy’s prime minister who’d demanded that Germans dig deeper into their pockets to bail out other countries. Now the German industrial elite are talking about an exit from the Eurozone. Read.... 'The Old Europe' Is 'Not an Option for Germany'