Prosecutors in Germany investigate three bankers over financing of brothel

By Tom Sims

COLOGNE, Germany, Aug 26 (Reuters) - Prosecutors in Cologne are investigating three employees of a regional German bank on suspicion of bribery over the lender's financing of one of Europe's largest brothels, a person with direct knowledge of the matter said.     A board member of the bank, Volksbank Koeln Bonn, and two other people at the bank are being investigated, said the person, who spoke on condition of anonymity to describe the non-public investigation.     A lawyer for the board member, who was identified by the person with direct knowledge of the matter, said his client denied any wrongdoing. Reuters was not able to establish the identity of the other two bank employees.

Asked about the launch of an investigation by prosecutors, the bank said it operated on the presumption of innocence for the individuals and that it was not a target itself.     The prosecutors have in recent days begun investigating a pandemic-era loan to finance Cologne's Pascha brothel that has been making headlines in Germany.     It stems from a €5-million ($5.83 million) loan in 2021 for the purchase of the 12-storey property by a Chinese investor after the brothel housed in it went insolvent during the COVID pandemic lockdown, according to corporate filings, property records and people familiar with the matter.

Prostitution is legal in Germany.     The Volksbank said in a statement in July that it had hired an unidentified law firm to conduct an independent investigation into the deal, looking at whether a bank board member "possibly personally benefited" from the transaction. The Volksbank provided no further details about the loan.    The probe launched by the Cologne prosecutors is wider than the bank's own investigation into a sole board member, and includes a broader array of allegations such as bribery, bribes in business dealings and breach of trust, said the person with knowledge of the prosecutors' investigation.

The person said two people outside the bank — an unidentified lawyer and another person — were also targets of the prosecutors' investigation, but declined to provide further details about the allegations.     Reuters could not confirm their identities.   

FINANCIAL REGULATOR'S INVESTIGATION

As reported earlier by Reuters, a second person with direct knowledge of the matter said Germany's top regulator, BaFin, had also questioned the bank over the financing.    Volksbank Koeln Bonn declined to comment on the questioning by BaFin. It said its own investigation operated on the presumption of innocence and that the board member, whom it has not named, would be on leave while the review is conducted.Lawyer Markus Lehmkuehler told Reuters he was acting for the board member, whom he named as Juergen Neutgens. His disclosure came after Reuters tried to reach Neutgens on LinkedIn.    Neutgens is one of three board members at the Volksbank, in place since 2018 with responsibilities that have included corporate clients, private banking and treasury.    Lehmkuehler said his client denied any wrongdoing and declined to comment on any contact with the regulator.

Asked for comment after the news of an investigation by the Cologne prosecutors, Lehmkuehler said he had been in touch with prosecutors but could not comment in full because he had not seen concrete details of the accusations.     The bank's decision to conduct an internal investigation followed German media reports about the loan.     The regulator's focus is on the potential payment of a kickback to the board member, the second person with direct knowledge of the matter said on condition of anonymity. Reuters could not establish who received the alleged kickback, or its reason.    "My client did not receive any payments at any time," Lehmkuehler said in a written response to questions. "He believes that the ongoing investigation will show that the accusations against him are unfounded".    Germany's Volksbanken are member-owned cooperative banks that form a pillar of the financial sector in Europe's largest economy. They rarely lend to foreigners abroad and generally banks steer clear of business that could harm their reputation.    The Chinese investor, named in company filings as Hu Jing, did not respond to text messages about the loan that were sent by Reuters to a phone number in the filings. A lawyer for Hu in Germany said there were "no indications whatsoever that the property’s owner or operator was under investigation".    Pascha manager Andre Wienstroth, who has operated the brothel since its reopening after Hu's purchase, said his company rented the premises and had nothing to do with the loan.    Reuters was unable to independently confirm this.  

($1 = 0.8573 euros)

(Reporting by Tom Sims; additional reporting by Claire Fu in Singapore; Editing by Tommy Reggiori Wilkes, Jon Boyle, Sabine Wollrab and Timothy Heritage)