Communism's missing millions

15th October 2003, Comments 0 comments

Fourteen years after the Berlin Wall fell, Germany is still chasing vast sums of money that went missing when communism imploded in the east. Simon Burnett follows the money trail to find out how the funds were siphoned off.

Erich Honecker

Rudolfine Steindling is a grim-faced 69-year-old relic of a bygone era when orders were carried out unquestioningly and decisions from above were not challenged. Steindling was a faithful servant of the political party which for 40 years imposed an iron Stalinist rule on East Germany.

But that is not how Steindling, known as "Red Fini", sees it. She maintains she acted not for the East German state but for the Austrian Communist Party.

The dispute is about money, which is one of the major unresolved issues dating from the collapse of communist East Germany. The united Germany lays claim to the assets of the East German state-run economy, which was privatised after 1989.

But East German officials used the chaos of the state's disintegration in 1989 and 1990 as a smokescreen to transfer huge amounts to the safety of banks around the world.

They hived off cash from communist front companies operating in western Europe, using complex methods to blur the money trail. They used bogus trade to boost the value of state-run companies just before German monetary union, when the assets became valued in hard West German deutsche marks instead of East Germany's own almost valueless currency.

Shredding machines destroyed records as the East Germans kept one step ahead of investigators.

A total of EUR 1.5 million of "missing" money has been seized since 1990. About 60 court cases dealing with a total of about EUR 300 million are pending.

In 1990, a man was arrested by Interpol in Oslo when he tried to withdraw DM 70 million (EUR 35 million) from a Norwegian bank. The money was found to have been part of a tranche of DM 107 million transferred out of Germany by the Party of Democratic Socialism (PDS), the so-called reformed communists who succeeded the old East Berlin party.

But that money was just the tip of the iceberg. One agency estimated in 1993 that more than DM 26 billion had "disappeared", although this is widely regarded as a conservative estimate.

In the thick of these machinations was "Red Fini". One of the firms working in the capitalist markets of western Europe was named Novum. When it was set up in 1951 in East Berlin, its job was to obtain western goods. Later, it greased trade between East Germany and Austria. It made lots of money by granting Austrian firms the right to deal with East German firms in return for hefty commission payments.

Steindling has been the company's proprietor since 1973. She claims it had nothing to do with East Germany but was owned by the Austrian Communist Party which, if true, would invalidate any German claims to it.

But Germany insists otherwise. It has been trying to get its hands on EUR 255 million, which is the extent of known Novum funds.

A court in Berlin has now ruled in favour of the German state. It threw out Stendling's Austrian Communist Party claim, saying the evidence did not back it up. The decision, made on appeal, seems to have ended a case which began a decade ago.

The German government wants all the missing cash it can lay its hands on to boost the ailing eastern economy. In the decade after unification, the country pumped more than DM one trillion into the former East Germany, and continues to transfer massive amounts. With Germany in economic recession, the missing communist-era funds would relieve pressure on the treasury.

But how was it that an impoverished East Bloc state had so much money? The answer goes back to the 1960s, when the East Berlin rulers saw their economy was going nowhere. Production at the antiquated state-run factories was miserable. High quality capital goods were needed, but East Germany was not able to make them. Nor could it afford to import them from the west. In addition, many high-tech items were unavailable because they were on NATO's Cocom list of products with possible military applications.

So the regime set up an agency called Kommerzielle Koordination, known for simplicity's sake as KoKo. Its job was to raise hard currencies — US dollars, West German deutsche marks, French francs, pounds sterling - in any way it could, legal or illegal.

KoKo handled the lucrative sale of East German political prisoners to the West. It took over existing communist front firms operating in Western Europe, and set up new ones.

These firms bought, refined and sold oil on the world markets. They dealt in smuggled works of art. KoKo firms smuggled arms to Iran during the Iran-Iraq war. They used forged documents and circuitous route to smuggle sought-after Cocom-list technology into East Germany.

Eventually, the original aim of the exercise was forgotten. East Germany's rusted industrial belt received less and less of the money. Instead, the funds were paying for luxuries for party officials. They were also forming massive reserves so that apparatchiks and members of the Stasi secret police were able enter the capitalist world in 1990 with all the start-up capital they wanted.

How much of Novum's money the German state will get its hands on is uncertain. In 1992 about EUR 100 million was discovered at a Swiss bank. Another EUR 25 million was seized in a raid on Steindling's elegant villa in a suburb of Vienna.

But the whereabouts of the rest of the cash is uncertain and Steindling, in the best tradition of communist-era officials, is remaining tight-lipped.




Subject: Life in Germany

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