TIME: Almanac 1993/TIME Almanac 1993.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.