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Business

Frankfurt Real Estate Scandal Grows

German regulators have expanded their probe into a banking and real estate scandal in Frankfurt. More than 40 bankers, fund managers, architects and contractors are being investigated on suspicion of bribery.

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The dimensions of the Frankfurt scandal have stunned investigators

The probe, which began early this year and picked up steam in June, has been spiralling as more and more senior figures in both the banking, property management and ancillary fields find themselves under investigation by the Frankfurt prosecutor's office. They are suspected of having paid or accepted bribes in connection with building permits and construction contracts, according to prosecutors.

Doris Möller-Scheu, spokesperson for the prosecutor's office, confirmed that investigators believe the bribery amounts run into the millions of euros. Investigators suspect that in many cases, those under investigation lined their pockets through fake invoices drawn up during property and real estate transactions.

Investigators first began looking into irregularities in the Frankfurt real estate market after a manager at Deutsche Bank's subsidiary, DB Real Estate, was convicted on corruption charges in January and sentenced to six months in jail. He was convicted of accepting bribes between 1998 and 2002 in exchange for maintenance and service contracts in a Frankfurt high rise.

Another senior manger Deutsche Bank's real estate division has been in custody since June, facing allegations that he accepted €500,000 ($603,000) in bribes from an architect involved in the construction of Frankfurt's new Investment Banking Center (IBC) skyscraper.

Prosecutors suspect that beyond the IBC building and the Abraham Lincoln Park in Wiesbaden, more than a dozen other real estate project could be tainted by bribery charges.

"The sheer scope of the matter that authorities are uncovering is surprising even experienced investigators," Wolfgang Schaupensteiner, a senior prosecutor, told the news magazine Focus.

Besides the sums of money involved, he said the apparent lack of qualms about the taking or offering of bribes astonished investigators.

"We now have an extensive list of suspects, many of whom don't even know they are under investigation," he said.

Systematic bribery

The probe is looking primarily into the charge that property developers, architects and construction companies regularly used bribes as a tool to persuade fund companies to obtain their buildings. In other cases, buyers and sellers of real estate are thought to have conspired to engage the services of an real estate agent after a sale was completed, then split among themselves the agent's fee, which had been paid for by the bank involved.

BaFin, the country's chief financial watchdog, has began its own investigation to determine whether investors who put money into property funds involved in the scandal had been disadvantaged.

Deka, a public sector investment group and one of Germany's biggest fund managers, has been asked by prosecutors to submit extensive documentation to investigators. The head of property fund unit, Michael Koch, was fired last week due to "indications of irregularities." He is now a central figure in the probe.

Although the commercial property fund market has traditionally been a safe haven for German private investors, it has been hit in recent months as a weak domestic property market has hurt returns. The unfolding scandal risks damaging its reputation further.

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