Greece’s biggest bank accused of violating capital controls – Financial Times

Transactions alleged to relate to Libra, a US-based conglomerate with links to US Democrats

Greece’s chief anti-corruption prosecutor has accused Piraeus Bank, the country’s largest lender, of violating capital controls in transactions relating to Libra Group, a US conglomerate that had earlier bailed it out.

The case raises questions about the governance and stability of Greek banks, still struggling to recover from an eight-year crisis that saw national output fall by 25 per cent.

It also shines a light on the close relationship between Piraeus and Libra, whose family owners built a small shipping company with a handful of vessels into an international conglomerate with operations in 35 countries, from shipping and aviation to renewable energy, tourism and financial services.

The prosecutor, Eleni Touloupaki, has been investigating Piraeus, its former chairman Michalis Sallas and a number of transactions relating to Libra, owned by the Logothetis family, who are big backers of Democratic politicians in the US.

The probe was prompted by reports from Greece’s central bank and anti-money laundering agency on transfers in 2016 by Piraeus to offshore companies in Cyprus, whose beneficial owners include Libra’s founder Michael Logothetis and other employees. Copies of the reports have been seen by the Financial Times.

Libra and Mr Sallas deny any wrongdoing. Their lawyers say the prosecutor’s investigation was seriously flawed and they have applied for it to be annulled.

Piraeus declined to comment.

Libra was one of Piraeus’s biggest borrowers and later helped bail out the bank — by buying loans to shrink its strained balance sheet and by buying new equity when other backers could not be found.

The group is now run by George Logothetis, son of founder Michael Logothetis. Raised in London and now based in New York, the junior Logothetis and his family are seen as pillars of the Greek-American business community and the Democratic party fund-raising circuit, where they have backed candidates including Hillary Clinton. Mr Logothetis, a keen philanthropist, also serves on the board of a charity set up by former US president Barack Obama.

Mr Logothetis acquired a reputation as a skilful operator after he sold the company’s ships in 2006 at the height of an international transport boom and re-entered the market in 2009 when ship prices were at historic lows.

During the crisis, he strengthened the group’s links with Greek bankers and political leaders while pursuing investments in renewable energy, sometimes financed by loans from Piraeus.

In October 2017, the Bank of Greece carried out a special audit of Libra’s dealings with Piraeus, which it said revealed “a series of transfers abroad of funds in violation of capital controls”, according to an official report seen by the Financial Times.

It noted that Libra had “a wide-ranging co-operation with the bank and is one of its largest shareholders”.

Greece imposed capital controls in mid-2015 when its banks temporarily lost access to emergency funding from the European Central Bank and the country came close to crashing out of the euro. The controls were not lifted fully until September this year.

A report by Greece’s anti-money laundering agency in November 2017 also raised concerns about certain transfers of money offshore by Piraeus.

A judicial source said the subsequent probe by the prosecutor revealed “sufficient indications” to justify further investigation.

A senior investigative judge, Constantinos Protonotarios, last month took on the case. He will look to question about 40 people — mostly former Piraeus bankers and executives and board members of Libra — and present any findings to a special judicial council that will decide whether to take the case to court, a judicial official said.

Libra said: “No Libra Group or Logothetis owned or controlled entities were involved in capital controls violations”, noting that banks were solely responsible by law for ensuring compliance with regulations and adding that “at the time of the violations Libra had in excess of €100m of capital allowance credits” that would have allowed it to move money out of the country legally.

According to the central bank’s report, lawyers for Mr Sallas, who stood down as non-executive chairman of Piraeus in July 2016 after running the bank for 24 years, told auditors there was “no evidence that he had signed any document, given any instructions or made any communication”, regarding the transfers, citing his non-executive role.

However, the central bank auditors concluded that Mr Sallas still “directed the actions and decisions of senior executives he had personally chosen, thereby exercising de facto executive functions”. Mr Sallas’s lawyers denied there was any evidence that he was directly involved in any of the alleged violations.

The Athens Bar Association has complained about the way Ms Touloupaki carried out her investigation. The prosecutor is a contentious figure, partly because of her role in a separate investigation into alleged bribe-taking by two former prime ministers, the central bank governor and Greece’s outgoing EU commissioner. The accused, who alleged the charges were politically motivated, were later cleared.

Piraeus deepened its relationship with Libra in 2014 when the bank sold a €1.05bn loan package to a vehicle owned by Michael Logothetis, Libra’s founder and father of George Logothetis, the group’s current chairman and chief executive.

It was one of the first big sales of distressed Greek debt, with Piraeus providing a €200m loan to finance the acquisition, according to the central bank auditors. The Logothetis vehicle acquired the loans for €310m, according to the audit, a steep discount to face value but nonetheless a profitable transaction for Piraeus which had acquired them for less in an earlier deal. Libra maintains the price paid was significantly more than €310m.

Piraeus asks for help with its bail-out

A year later, in November 2015, Piraeus sought assistance from Libra when Piraeus was struggling to complete a €2.5bn capital increase agreed with Greece’s bailout creditors.

With hours left before the issue closed, Piraeus faced a shortfall of almost €200m. Libra came up with a last-minute contribution of €110m, according to the central bank audit, of which €70m consisted of cash collateral from a non-performing loan. The junior Mr Logothetis said later the group was “proud” to have helped rescue the bank. Libra disputes the €110m figure cited in the central bank report.

One banker in Athens said there was a reciprocal relationship with Piraeus with the bank acting as a source of financing for years. “No wonder Libra jumped in to save Piraeus,” the banker said.

Last month, Piraeus was fined €5.2m by the ECB for releasing cash collateral from non-performing loans to help investors including Libra buy the shares in the rights issue.

Libra said it “categorically denies there was any favourable treatment by Piraeus Bank”.

In 2017, the Piraeus’s new chief executive launched a sweeping restructuring and Mr Logothetis agreed to accelerate repayment of €900m of debt to the bank.

“Piraeus Bank’s exposure to the Libra Group and associated companies has been reduced by over $600m in the last 18 months,” said Libra. “This represents an unprecedented voluntary pay down of debt. It may even be one of the largest loan reductions in Greek commercial banking history, leaving our debts with the bank at a fraction of what they were.”

Additional reporting by Thanasis Koukakis in Athens and Martin Arnold in Frankfurt