German bank board member to leave despite clean brothel loan probe

By Tom Sims

FRANKFURT, Oct 6 (Reuters) - A board member of Germany's Volksbank Koeln Bonn will leave the lender despite a law firm commissioned by the bank finding no wrongdoing in connection with financing for one of Europe's largest brothels, the bank said on Tuesday.

The co-operative bank placed board member Juergen Neutgens on leave over the summer and hired the law firm to review a pandemic-era loan used to finance Cologne's Pascha brothel.

The bank said on Tuesday the investigation had found "no evidence of financial irregularities or misconduct in the lending transactions and business relationships" examined.

"However ... the necessary basis for a relationship of trust and impartial cooperation can no longer be maintained going forward," it added.

Neutgens has previously denied wrongdoing through his lawyer, who confirmed to Reuters on Tuesday the mutual agreement to part ways despite the report clearing Neutgens of any wrongdoing.

The case centres on a €5 million ($5.6 million) loan granted in 2021 to fund the purchase of a 12-storey property by a Chinese investor after the brothel within it went insolvent during COVID lockdowns, according to corporate filings, property records and people familiar with the matter.

Prostitution is legal in Germany, but the law firm's investigation examined whether Neutgens had "possibly personally benefited" from the transaction, Volksbank has previously said.

As Reuters reported in August, Cologne prosecutors opened a separate investigation into Neutgens and two other bank employees on suspicion of bribery, according to a person with direct knowledge of the matter.

Prosecutors said on Tuesday their investigation was ongoing and that they had requested a copy of the bank's independent investigation to examine for themselves. Neutgens' lawyer said he expected prosecutors to eventually exonerate his client.

Germany's financial regulator BaFin has also questioned the bank over the brothel financing, Reuters has reported.

Germany's Volksbanken are member-owned cooperative banks that form a key pillar of the country's banking sector. They rarely lend to foreign borrowers abroad and generally avoid business that could damage their reputation.

($1 = €0.8879)

(Reporting by Tom Sims. Editing by Friederike Heine, Mark Potter and Susan Fenton)