New York Times
POSTED: 1:32 a.m. HST, Dec 6, 2012
ATHENS, Greece » A dynamic entrepreneur, Lavrentis Lavrentiadis seemed to represent a promising new era for Greece. He dazzled the country's traditionally insular business world by spinning together a multibillion-dollar empire just a few years after inheriting a small family firm at 18. Seeking acceptance in elite circles, he gave lavishly to charities and cultivated ties to the leading political parties.
But as Greece's economy soured in recent years, his fortunes sagged and he began embezzling money from a bank he controlled, prosecutors say. With charges looming, it looked like his rapid rise would be followed by an equally precipitous fall. Thanks to a law passed quietly by the Greek Parliament, however, he avoided prosecution, at least for a time, simply by paying the money back.
Now 40, Lavrentiadis is back in the spotlight as one of the names on the so-called Lagarde list of more than 2,000 Greeks said to have accounts in a Geneva branch of the bank HSBC and who are suspected of tax evasion. Given to Greek officials two years ago by Christine Lagarde, then the French finance minister and now head of the International Monetary Fund, the list was expected to cast a damning light on the shady practices of the rich. Instead, it was swept under the rug, and now two former finance ministers and Greece's top tax officials are under investigation for having failed to act.
Greece's economic troubles are often blamed on a public sector packed full of redundant workers, a lavish pension system and uncompetitive industries hampered by overpaid workers with lifetime employment guarantees. Often overlooked, however, is the role played by a handful of wealthy families, politicians and the news media — often owned by the magnates — that make up the Greek power structure.
In a country crushed by years of austerity and 25 percent unemployment, average Greeks are growing increasingly resentful of an oligarchy that, critics say, presides over an opaque, closed economy that is at the root of many of the country's problems and operates with virtual impunity. Several dozen powerful families control critical sectors, including banking, shipping and construction, and can usually count on the political class to look out for their interests, sometimes by passing legislation tailored to their specific needs.
The result, analysts say, is a lack of competition that undermines the economy by allowing the magnates to run cartels and enrich themselves through crony capitalism. "That makes it rational for them to form a close, incestuous relationship with politicians and the media, which is then highly vulnerable to corruption," said Kevin Featherstone, a professor of European Politics at the London School of Economics.
This week the anticorruption watchdog Transparency International ranked Greece as the most corrupt nation in Europe, behind former Soviet states like Bulgaria, Romania and Slovakia. Under the pressure of the financial crisis, Greece is being pressed by Germany and its international lenders to make fundamental changes to its economic system in exchange for the money it needs to avoid bankruptcy.
But it remains an open question whether Greece's leaders will be able to engineer such a transformation. In the past year, despite numerous promises to increase transparency, the country actually dropped 14 places from the previous corruption survey.
Lavrentiadis is still facing a host of accusations stemming from hundreds of millions of dollars in loans made by his Proton bank to dormant companies — sometimes, investigators say, ordering an employee to withdraw the money in bags of cash. But with Greece scrambling to complete a critical bank recapitalization and restructuring, his case is emblematic of a larger battle between Greece's famously weak institutions and fledgling regulatory structures against these entrenched interests.
Many say that the system has to change in order for Greece to emerge from the crisis. "Keeping the status quo will simply prolong the disaster in Greece," Featherstone said. While the case of Lavrentiadis suggests that the status quo is at least under scrutiny, he added, "It's not under sufficient attack."
In a nearly two-hour interview, Lavrentiadis denied accusations of wrongdoing and said that he held "a few accounts" at HSBC in Geneva that totaled only about $65,000, all of it legitimate, taxed income. He also sidestepped questions about his political ties and declined to comment on any details of the continuing investigation into Proton Bank.
Sitting in the office of his criminal lawyer last month, relaxed, smiling and dressed in a crisp blue suit and red-and-blue tie, Lavrentiadis said he found it puzzling that he had been singled out in reports about the Lagarde list when other powerful figures appeared to evade scrutiny.
"My question is, ‘Why me?"' he said. "I'm the scapegoat for everything."
In the interview, Lavrentiadis depicted himself as an outsider and upstart, an entrepreneur in a small country dominated by old families who frown on newcomers. "I am not from a third-generation aristocratic family," he said repeatedly.
Indeed, by some lights, Lavrentiadis fell in part because he rose too quickly and then failed to secure enough of the right friends to protect him, a perception he did not dispute.
"Why me, something that is clean, and why not something that has bigger problems?" he said. Pressed on who might be responsible for his troubles, he smiled enigmatically. "I could tell you thousands of names," he said, "but it's not my style."
Lavrentiadis' mettle was forged early, when he took the reins of his family's chemical supply firm, Neochimiki, in 1990, after the death of his father. Bright and charming, and stricken with rheumatoid arthritis, he quickly enlarged the company and stormed into the Greek business world in 2003, when he listed the company on the Athens Stock Exchange. In 2008, the Carlyle Group, one of Wall Street's largest asset management firms, paid more than $970 million for a stake in Neochimiki.
Over the next four years, Lavrentiadis built an empire that included holdings in pharmaceuticals, banks, a soccer team and works of art. He also took stakes in print and electronic news media outlets, following a pattern in which magnates own virtually every nongovernmental news media outlet in the country. But the veneer began to crack soon after the financial crisis hit. Carlyle lost more than $65 million on Neochimiki and accused Lavrentiadis of overstating its financial health. Cash was bleeding from a range of other business holdings.
In December 2009, four months before Greece sought a foreign bailout, Lavrentiadis bought a controlling stake in Proton Bank, which had expanded rapidly after acquiring a small bank called Omega in 2005. Omega's board members included Lavrentiadis; the father-in-law at the time of Evangelos Venizelos, now the Socialist Party leader; and a brother of George Papandreou, a former prime minister.
Regulators now charge that from the moment Lavrentiadis took over Proton, he began looting it to prop up his failing businesses and those of a network of what appear to be shell companies. In 2010 alone, a total of $925 million — more than 40 percent of Proton's commercial loans — were made with virtually no credit checks to his firms or to shell companies he had sold to associates, according to an audit by Greece's central bank, first reported by Reuters.
His problems burst into the public realm in mid-2011, when Greek financial prosecutors charged him with embezzling the $65 million, following investigations into suspected money laundering.
Several months earlier, however, lawmakers had quietly passed a law that allowed suspected wrongdoers to avoid prosecution if they repaid the money they were accused of stealing in certain crimes. The idea, legislators said, was to speed resolution of cases in Greece's notoriously slow courts. Lavrentiadis quickly paid back the $65 million to Proton and claimed immunity.
Then in March, a financial prosecutor charged him and 26 others with fraud, embezzlement, forming a criminal gang, money laundering and breach of faith stemming from loans believe to have been issued by Proton Bank. The $65 million repaid by Lavrentiadis in a bid to secure immunity is regarded by prosecutors as only a part of the more than $915 million in bad loans that prosecutors say Proton floated to dormant companies.
In the interview, Lavrentiadis confirmed that he had returned the $65 million but declined to say under what circumstances. He dismissed the Bank of Greece report as not "objective," and said prosecutors had not yet called him for questioning or detailed the charges against him personally, beyond those against the 27 as a group. "I trust Greek justice," he said.
Despite the fraud accusations against him, Lavrentiadis was still the beneficiary of questionable government actions. In July 2011, Venizelos, then the finance minister, authorized a $130 million deposit of government money to Proton for a single day, he says to avoid a calamitous collapse. The action was approved by the Greek central bank but was in defiance of a ruling by Greece's General Accounting Office that it was illegal. The $130 million, plus interest, was returned to the government, Venizelos said in written answers to a list of questions.
"It was absolutely necessary to preserve Proton — not Lavrentiadis — in order to save huge amounts of public money," added Venizelos, who resigned as finance minister in March. A month after the $130 million transfer, Venizelos was co-writer of a law that retroactively granted the finance minister full power to bail out banks with public money, regardless of the recommendations of other state institutions.
Venizelos said the law was necessary because "Greece had not had a clear legislative framework that could allow it to handle public deposits in crisis situations." But legal experts said it was part of a broader pattern in Greece where actions by influential figures are later smoothed over with new legislation that eliminates any questions of illegality.
Lavrentiadis declined to comment on his ties with Venizelos, beyond saying, "I never asked a favor."
In October 2011, Proton was nationalized. "I was shocked," Lavrentiadis said, adding that he did not believe the bank's finances merited the move. In March, he challenged the decision in the Supreme Court and is awaiting a ruling.
Asked if the Proton case was evidence of a regulatory system that was working or one that had failed, Lavrentiadis smiled. "It's a regulated market without rules," he said of Greece. "You can interpret it however it's to your benefit."