TIME: Almanac 1990/1990 Time Magazine Compact Almanac, The (1991)(Time).iso/time/031389/03138900.048

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WORLD, Page 32

SCANDALS

The Looting of Greece

For the first time, a fallen tycoon tells how he embezzled

millions

By Robert Ajemian


    Greeks were exhilarated in 1981 when Andreas Papandreou and
his Socialist Party swept to power. Their enthusiasm has long since
turned to bitterness and disbelief as the worst financial and
political scandal in four decades engulfs Greece. The press, the
Bank of Greece, a magistrate and Parliament are delving into
charges of corruption, seeking to uncover how more than $210
million disappeared from the Bank of Crete. Charges of
embezzlement, kickbacks and bribery, of banknotes stuffed into
briefcases, have been leveled against high officials.

    The scandal has scorched the Socialist Party (PASOK), and
public cynicism has increasingly focused on the party's leader,
Papandreou himself. The Prime Minister last September was already
the target of snickering and outrage as he conducted a highly
public extramarital liaison with airline flight steward Dimitra
Liani, 34. As the parliamentary investigations dug through
testimony, the question loomed: Was the Prime Minister aware of the
crime all along?

    Papandreou has not testified before investigators, though he
vehemently denies any involvement in what he calls a "conspiracy
aiming to hurt Greece." But investigators have yet to hear from the
central figure in the case, George Koskotas, 34, a onetime New York
house painter who vaulted to power as the multimillionaire owner
of the Bank of Crete. Now jailed in Massachusetts on a variety of
charges leveled just before he fled Greece last November, Koskotas
is facing extradition to answer accusations of looting his own
bank.

    Amid more than a dozen lawsuits, much has come out about the
vast scandal, but most Greeks believe there is far more to be
revealed -- by one man in particular. Given his central role in the
affair, Koskotas' version of the dirty dealings could prove to be
an imperfect account. Apparently nothing will be resolved until the
public has weighed his tale. "At this point," says a frustrated
former PASOK member, "we are all waiting to hear what Koskotas has
to say."

    A plump man with steady dark eyes and a soft voice, Koskotas
is no common embezzler. In addition to the Bank of Crete, he owned
Grammi, a flourishing publishing empire that operated five
magazines, three newspapers and a radio station. He bankrolled big
hotels. A year ago, he bought Greece's wildly popular soccer team,
Olympiakos. He created one of the world's most advanced printing
plants. And until he fled Greece, Koskotas consorted freely with
the country's ruling Socialist leaders. At 34, George Koskotas, the
Greek wunderkind, had achieved a dazzling reputation in his own
land.

    Now inside a Salem, Mass., prison, Koskotas has finally decided
to talk. His chief motivation, he explains, is a fear that once
extradited to Greece he will disappear behind bars -- or be
murdered and declared a suicide and thus be unable to present his
own version of what happened. He figures his fate in Greece will
be worse if Papandreou remains in power; so his motive for speaking
may also be to wound the government.

    The Koskotas accusations are extraordinary, though difficult
to verify. In six lengthy prison interviews with TIME, the banker
describes a Socialist government riddled by extortion and
criminality. Koskotas charges that millions of dollars missing from
his bank were actually payoffs that went directly to the head of
the government, Andreas Papandreou, and PASOK officials. The Prime
Minister, says the banker, personally authorized the plan to loot
the Bank of Crete. Koskotas describes as well his own illegal
complicity in the huge swindle, one that involves enormous sums
hard to account for adequately.

    The plot was an audacious one. To create the pool of crooked
money, PASOK leaders had for three years ordered state-managed
corporations such as the Post Office, the Organization of Urban
Transportation and the State Pharmaceutical Co. to transfer large
bank deposits -- the country's money, in effect -- out of the big
national banks into the Bank of Crete, then the smallest private
bank in the country. There, Koskotas says, he arranged for the
government deposits to draw an exceptionally low rate of interest,
only 2% or 3%. Bank savings accounts in Greece routinely draw 15%
interest. The excess interest earned on the government deposits was
siphoned off and went straight to the politicians, he says. In
addition, protected and encouraged by Papandreou, Koskotas secretly
plowed Bank of Crete funds into his magazines and newspapers.

    In the past year, says Koskotas, some 40 shipments of money,
in blue briefcases stuffed with 5,000-drachma notes, were carted
out of the Bank of Crete and taken first to his own residence.
There the banker handed the money over to a Papandreou confidant,
Georgios Louvaris, who Koskotas says made the deliveries to the
Prime Minister. Pickups occurred weekly and amounted over the year
to more than 3 billion drachmas ($20 million at today's rates). In
addition, Koskotas claims he personally carried a total of half a
billion drachmas ($3.3 million) to the home of a Deputy Prime
Minister, Menios Koutsogiorgas. At the Bank of Crete half a dozen
other PASOK leaders twice a month received briefcases filled with
money totaling 1.5 billion drachmas ($10 million).

    There was little danger of interference. Fifty different
national audits of the Bank of Crete that might have uncovered the
scheme were squelched over the years by PASOK officials, says
Koskotas, twice by direct calls from Papandreou. In the summer of
1988, the government muscled through a special Secrecy Act that had
the effect of guaranteeing its overdrawn banker financial
confidentiality. Koskotas says he was directed to pay an additional
$2 million to then Deputy Prime Minister Koutsogiorgas as a reward
for managing the legislation.

    The dank atmosphere that nurtured this tangle of alleged
corruption began after the Socialists' re-election in 1985.
Papandreou was eager to tighten his grip on the country. He found
a perfect match in the ambitious young publisher and banker
Koskotas, who saw in PASOK a means to build an empire.

    Now, sitting in the library of the Salem prison, Koskotas
recalled the beginnings of a relationship that led to his ruin. He
wore a blue pullover sport shirt and blue jeans, white leather
sneakers on his feet. Koskotas had squeezed his big waist into a
one-armed desk chair.

    In his lap he balanced a pile of tape transcripts and letters
he had carried out of Greece as evidence. From time to time he ran
his finger across the pages of his old appointment book, picking
out entries of meetings with the Prime Minister and other key
government officials.

    He remembers the meetings with Papandreou vividly, five times
alone in the Prime Minister's home at Kastri, once at the home of
a Papandreou intimate, Michalis Ziangas. At the first meeting in
early 1986, Koskotas recalls, the Prime Minister had a proposal:
Koskotas should start a daily newspaper to provide positive
coverage of the Papandreou family. Koskotas later put up the money,
and the first issue of the paper, called 24 Hours, appeared in
February 1988.

    The Prime Minister always seemed to possess inside information.
Papandreou, says the banker, taps the home and business telephones
of such rivals as the head of the political opposition, New
Democracy's Constantine Mitsotakis, and unfriendly publishers. "I
know all their plans," he proudly told Koskotas.

    Papandreou came to assume that Grammi's national magazines and
newspapers really served him. Certain Papandreou favorites were
hired as editors. Says Koskotas: "All our editors were instructed
never to criticize the Prime Minister personally, not even a single
cartoon." Papandreou urged Koskotas to neutralize hostile
newspapers by buying them up gradually. At their second meeting in
early 1987, Papandreou pressed Koskotas to buy Kathimerini, the
country's most respected paper; he did, using Bank of Crete funds.

    Another time Papandreou had an unexpected idea: Koskotas should
purchase the Olympiakos football team. Papandreou, according to
Koskotas, wanted the banker to build up the team, so that just
before the 1989 election the government would agree to build
Olympiakos a new stadium, an announcement certain to be highly
popular. Koskotas laid out 4 billion drachmas for the plan.

    Koskotas' first ambition, he says, was to enlarge the Bank of
Crete. Private banks routinely had to wait at least a year for
authorization to open a single branch. But the Bank of Crete opened
about 50 branches in four years, and licenses were granted for an
additional 20. Sure of his political shield, Koskotas was unafraid
to violate banking laws and withdraw huge sums of cash at will. If
Koskotas worried aloud about audits, Papandreou was always
reassuring. "So long as I am here," Koskotas says Papandreou told
him, "you never have to worry."

    Koskotas said little of his early years, but he was a young
man drawn to risk. Born in 1954 in Greece, he came to America with
his parents in 1970. "George was very ambitious," says his wife
Kathy, whom he married in 1973. "His mind was always working."

    At New York University, that overactive mind seemed to be
hunting for angles. Koskotas ordered a batch of N.Y.U. and Fordham
University stationery from a printer. He said he wanted to send
reprimanding letters to some student friends as a prank. The
university believed he intended to create fake transcripts. He was
arrested, fined $200 and asked to leave school.

    Not satisfied with all his claimed wealth, he continued to
indulge his compulsion for risk taking, and it backfired badly.
Koskotas obtained fake Social Security numbers for several of his
painters who were illegal aliens -- federal prosecutors charge that
he created fictitious names -- and then used them in efforts to
collect unemployment insurance claims and income tax refunds. In
1979, before Koskotas was indicted by the U.S. Attorney, he
returned to Greece with his wife and four children. A year later,
in 1980, the U.S. formally charged him with stealing $40,000. In
the years that followed, Koskotas traveled back and forth numerous
times to America, always unaware he was under indictment, he
claims. Long after, the incident would rise up to haunt him.

    Back in Greece, still only 25, he landed a job as an
administrative officer at the Bank of Crete. Five years later, in
late 1984 when the Bank of Crete came up for purchase at $9
million, Koskotas somehow produced a bankroll big enough to buy it.
He knew exactly where he wanted to go. The Socialists were immersed
in an election and Koskotas was determined to curry favor. Within
a few months he hired as bank general manager a PASOK veteran,
Panayotis Vakalis, whom he knew to be a longtime friend of Andreas
Papandreou's. The connection eventually brought the young banker
and the Prime Minister together. The great swindle was under way.

    For two years, says Koskotas, payoffs went to the party, none
to Papandreou himself. Then a pivotal event occurred. In October
1987, Koskotas traveled to Washington to attend a White House
luncheon at which Vice President George Bush was the host. Secret
Service agents, checking invitations, were surprised to discover
that the guest from Greece was under a six-year-old federal
indictment. They arrested Koskotas at his Washington hotel. The
banker posted bail of $1 million. A few days later, to get home,
Koskotas lied to Greek embassy officials and obtained a travel
document.

    Only three weeks later, Koskotas says, he was summoned by
Papandreou. It was apparent to Koskotas that something was wrong.
Sternly the Prime Minister warned that because of the passport
violation, Koskotas might have to go to jail. Eventually Papandreou
declared Koskotas need not worry. But there were certain
requirements. An election was coming, the Prime Minister stressed,
and PASOK needed 5 billion drachmas ($33 million). Thereupon, says
Koskotas, Papandreou bluntly described a much expanded plan for
kicking back interest payments. Koskotas, he directed, should work
out the details with Deputy Prime Minister Koutsogiorgas. Says
Koskotas, sounding surprisingly disingenuous: "I realized it was
outright blackmail." Until then he had rationalized that the stolen
interest payments to PASOK were simply the political cost of doing
business in Greece.

    Two weeks later, Koskotas says, the first direct request for
money came by telephone from Papandreou. The Prime Minister wanted
200 million drachmas ($1.3 million), purportedly to pay the
expenses for a PASOK youth festival. Georgios Louvaris would drop
by. In the following months, says Koskotas, Papandreou made two
other personal calls for cash, each for 150 million drachmas ($1
million), for what he described as PASOK events. Otherwise the
Prime Minister received a weekly delivery of around 75 million
drachmas.

    Soon Koskotas found the requests from Papandreou and
Koutsogiorgas bolder -- and more personal. Papandreou wanted to
squelch a critical memoir by his first wife, Christine, a
psychiatrist. Through foreign book agents, Koskotas paid out
$90,000 and tied up world rights to the book. Papandreou raised
another problem. The Prime Minister, then 69, was keeping company
with Dimitra Liani, a buxom airline hostess half his age. The
weekly newspaper Evdomi, Papandreou complained, kept turning up
nude photographs of Dimitra. Within a month Koskotas had bought
Evdomi, and three months later he shut it down. Then there was
Margaret, the second wife Papandreou wanted to divorce. He said
that Margaret, absurdly, wanted a settlement of $100 million.
Koskotas heard himself say he could over a period of time put
together $10 million to $20 million as a start.

    In August 1988 the Prime Minister suddenly flew to London for
triple-bypass heart surgery. The day before Papandreou left,
Koskotas says, Louvaris came to pick up the customary cash, a
suitcase of 90 million drachmas ($600,000). After the surgery,
Papandreou for the first time made public what many already knew:
his relationship with Liani. That further undermined his slipping
political standing. Rumors of the Koskotas money connection were
also circulating; now opponents called for a reckoning.

    The governor of the Bank of Greece started to press for a
special audit of the Bank of Crete. Koutsogiorgas told Koskotas
that the investigation could not be stopped. Fearing abandonment,
Koskotas made a last threat. "If I am destroyed," he says he told
Koutsogiorgas, "we'll all be destroyed. You know what they will
find at the bank."

    Soon 40 secret service agents were keeping a discreet
surveillance over Koskotas. He began to think he might be killed.
One day a friend in Greek intelligence told him he would be
arrested by 6:30 that evening; Koskotas fled. He slipped out of his
printing plant unseen, hidden in the back of one of his newspaper
delivery trucks, to start a desperate journey across three
continents. Three weeks later he fetched up in the U.S., where he
was apprehended.

    Locked in the Salem prison and fighting extradition, George
Koskotas started to get advice to keep quiet from old accomplices.
One of them, Yannis Mantzouranis, former secretary to the Greek
Cabinet, sounded especially anxious to learn if the prisoner was
going to talk. Mantzouranis, Koskotas says, was still holding a $2
million payoff to Koutsogiorgas in a Swiss bank account. The
existence of the account would implicate him.

    Hoping to entrap Mantzouranis, Koskotas instructed his wife to
make tape recordings of the phone calls from Athens. The objective
was to goad the unwitting Cabinet secretary into telling more about
PASOK corruption. Mantzouranis warns of the consequences of saying
too much. "I know them better than George," he says of his PASOK
colleagues. "They wouldn't hesitate to do anything."

    Mantzouranis relates how his own life has changed drastically.
"You must understand that I am in danger," he says. "I do not
circulate at night. I no longer live at my house."

    In jail, listening to the cassette, Koskotas heard the fright
in the caller's voice. It was an echo of his own fears.
Mantzouranis had an important message to pass on: Koutsogiorgas
wants to be certain the prisoner knows what he is doing. "Menios
says," the voice from Greece emphasized, "that George should not
betray the only people who can help him now." Koskotas pondered
silently and for a second felt a twinge of his old power. Then he
dismissed the warning. He wanted to talk.

    Throughout last week TIME sought comments and answers from
government officials -- including Prime Minister Papandreou -- on
the accusations in this story. When all refused to be interviewed,
a list of questions was submitted to them. TIME did not disclose
that it had interviewed Koskotas, but made clear that it was
publishing a major story that contained serious and damaging
allegations. Papandreou did address the affair in a Feb. 14
memorandum to investigators. He said he met Koskotas only three
times, at the banker's initiative, between March 4, 1987, and June
30, 1988, during which the two discussed only Koskotas' business
and, later, the accusations against him.