In Greece, the Banking Chief Draws Scrutiny

Georgios A. Provopoulos, the governor of the Bank of Greece, has played a crucial role in keeping Greece in the euro zone.

Πηγή: New York Times
By LANDON THOMAS Jr.
Oct 16 2013

ATHENS — In an era when central bankers like Ben S. Bernanke dominate the global economic stage, few hold as much power within their own country as Georgios A. Provopoulos, the governor of the Bank of Greece, who has played a crucial role in keeping Greece out of bankruptcy and in the euro zone.

But now Mr. Provopoulos faces one of the bigger challenges of his tumultuous reign: an investigation into whether he abused his position by clearing a banking deal involving his former employer and a business magnate who was subsequently charged with embezzlement and fraud.

In a confidential report issued last May, a senior Greek prosecutor said that Mr. Provopoulos approved the 71 million euro ($96 million) deal despite warnings from his staff regarding the buyer’s finances. The report, parts of which were reviewed by The New York Times, hints at the scope of the investigation, about which little has been previously disclosed.

There is no evidence that Mr. Provopoulos profited personally from the transaction, which was ultimately approved. But his role — and the chance, however remote, that he might face criminal charges — could have ramifications beyond Greece. Other countries in the euro zone have invested more than 40 billion euros to shore up the Greek banking system. In the process, they have pressed Athens to clean up the corruption and crony capitalism that have been at the root of the country’s problems.

According to the report, Mr. Provopoulos allowed the businessman, Lavrentis Lavrentiadis, to enter into a deal with Mr. Provopoulos’s former employer, Piraeus Bank, at a vastly inflated price. The transaction enabled Mr. Lavrentiadis to gain control of another bank, Proton, and, in the process, benefited Piraeus, which was struggling.

The dossier cites a number of red flags that banking supervisors raised about Mr. Lavrentiadis, including excessive debt and suspicions of money laundering. Last December, he was charged with embezzling from Proton to prop up his other interests. He is being held in prison pending trial and has denied the charges.

Proton Bank had to be bailed out by the Greek government, at a cost of 1.3 billion euros.

The deputy prosecutor at the time, George Kaloudis, argued in his report that there were enough questions concerning the transaction to warrant further investigation of the central bank’s handling of the affair. Mr. Kaloudis, who is no longer in his position, declined to comment.

Mr. Provopoulos, in an interview, said all of his actions were taken to prevent the Greek financial system from imploding and that the central bank’s board unanimously approved the Proton deal. He added that Mr. Lavrentiadis had a 20-year record as a successful entrepreneur and had promised to make the bank a more conservative institution.

“He was ready to inject additional capital in the bank, and he satisfied all formal and legal requirements,” Mr. Provopoulos said. He pointed out that Mr. Lavrentiadis was ultimately arrested and charged based on evidence provided by the central bank.

The controversy over Mr. Provopoulos and the Greek bank bailouts echoes the public discontent over the taxpayer-financed rescues of large American banks during the financial crisis that began in 2008. Five years ago, Henry M. Paulson Jr., the former Goldman Sachs chief who was then Treasury secretary, and others with ties to Wall Street orchestrated those bailouts, prompting a public outcry.

In Greece, Mr. Provopoulos fast-tracked a slate of deals that transformed Piraeus Bank, where he had been a vice chairman before joining the central bank, into the nation’s most powerful bank. The legal saga is also a visible sign of a behind-the-scenes power struggle between Mr. Provopoulos and the government of Prime Minister Antonis Samaras over control of the country’s banks, which for decades have been a source of patronage and influence in Greece.

Whether prosecutors will formally charge Mr. Provopoulos is unclear. Mr. Lavrentiadis’s lawyers have argued that their client’s case and that of Mr. Provopoulos must be investigated together, as Mr. Kaloudis suggested in his report.

The governor’s supporters say that the inquiry is politically motivated and baseless, an attempt to force out Mr. Provopoulos so that the largely discredited political class can reassert itself. But Mr. Provopoulos’s critics argue that the playbook used in the Proton deal — described as a series of back-room maneuverings that rewardedMichalis G. Sallas, the domineering chairman of Piraeus Bank — was deployed repeatedly, most recently when Piraeus bought the Greek operations of three Cypriot banks last March at a knockdown price of 524 million euros, and a few months later booked a profit of 3.5 billion euros on the transaction.

“The position of the governor has become very strong, and I do not think that he has been subjected to proper scrutiny,” said Pavlos Eleftheriadis, a law professor at Oxford University who has been critical of how special interest groups in Greece have expanded their influence and power in recent years. “There was the spectacular failure of Proton, and there are questions about the Piraeus deal in Cyprus. We need root and branch reform of all our institutions — including the Bank of Greece.”

It is not hard to see why Mr. Provopoulos has become a lightning rod. He has done little to disguise his low regard for the political establishment, openly criticizing its fiscal policies and privately upbraiding both the conservative New Democracy party and the left-leaning Pasok party for not attacking Greece’s economic problems with more force and speed.

“I am not in this job to please politicians,” Mr. Provopoulos, 63, said in an interview here in his capacious office. “I am not just an ordinary citizen. I have much larger responsibilities. My actions will be judged in the future after the dust has settled and people are in a better position to assess the results.”

His senior status within the governing council of the European Central Bank, which, along with the International Monetary Fund and the European Commission, has pursued a brutal austerity regime for Greece, has fed suspicion that he identifies more closely with technocrats in Brussels and Frankfurt than with the beleaguered Greek public.

And he has indirectly challenged the authority of Mr. Samaras, who became prime minister in 2012 and who had expected that the role of banking kingmaker would be reserved for the prime minister, as has been the custom in Greece.

For decades, political influence in this country has been a direct function of a politician’s ability to borrow and spend, with local banks, as the main buyers of Greek government bonds, acting as the primary facilitators. Under an austerity regime, such an approach is no longer possible. And as governments have come and gone — to date, Mr. Provopoulos has survived five prime ministers and seven finance ministers — the power of the Bank of Greece’s governor has only solidified.

Trained as a professor of economics, Mr. Provopoulos is no ivory-tower academic. His style — self-confident, if not a touch combative — conveys the attitude of a top-level bank executive, the role he performed for a decade before taking charge of the Bank of Greece in 2008. As he sees it, his experience as a no-nonsense deal maker has been critical to Greek banks, in preventing them from succumbing to last year’s near-fatal bank run and in their re-emerging now with a fresh charge of capital, courtesy of the European taxpayer.

His response to the bank panic had the feel of a military campaign. Under cover of nightfall, cargo planes from Frankfurt and other European capitals flew in pallets of cash, which were then transferred by boat, truck and train to banks throughout the country. And with one Greek bank after the other facing possible failure, the spate of bank mergers that he orchestrated in such a short period was unprecedented.

“My experience as a commercial banker was very helpful,” he said. “I believe we did a good job — if the banking system had not been protected we probably would have had to exit the euro area.”

During the struggle to salvage the Greek economy, he said, nodding gravely in the direction of his desk, “the center of gravity was right here.”

Mr. Provopoulos’s six-year term concludes next June, and while it is customary for new prime ministers to name their own central bank heads, a growing number of bankers and investors argue that Mr. Provopoulos should be reappointed in light of the country’s fragile financial condition. But the Proton investigation could change that.

To some extent, the Proton transaction gets at the essence of what has made Mr. Provopoulos such a polarizing figure here. Pulled together quickly at the end of 2009 and early 2010, the deal drew upon the central banker’s crisis management skills and showed his willingness to make a chancy bet in the hope that the payoff of a more stable banking system would justify the risks. But it also shines a not-so-flattering light on the murky give-and-take among bankers, business leaders and government officials that has long been par for the course in Greece and that many believe lies at the root of the country’s economic collapse.

At the time, Mr. Lavrentiadis was sitting on over 2 billion euros of debt. Piraeus, under Mr. Sallas, was looking to unload its 31 percent stake in Proton, which it had acquired in 2008.

The deal, as Mr. Provopoulos saw it, would solve two problems: it would give Piraeus a needed infusion of cash and the shaky Proton a new owner who promised to invest in and stabilize the institution.

The Proton deal was announced on Dec. 29, 2009. The next day, Mr. Lavrentiadis wired 71 million euros to Piraeus, according to the prosecutor’s report — even though the sale had not been formally approved by the central bank’s regulatory division.

As weeks passed without a nod from regulators, Mr. Lavrentiadis became worried that he would never gain control of the bank. Mr. Lavrentiadis told prosecutors that he met with Mr. Sallas, the Piraeus chairman, in late March and said that he had decided to pull out of the deal.

“Don’t do that,” Mr. Sallas replied, according to Mr. Lavrentiadis’s account. “Let me call my good friend George Provopoulos, and he will do what is needed to get this deal cleared.”

A few days later, the central bank approved the sale.

Piraeus Bank, in a statement, said: “The allegation that Piraeus Bank or its chairman intervened inappropriately to facilitate the sale of Proton Bank shares to Mr. Lavrentiadis bears absolutely no resemblance to reality and reflects the diversionary defense line recently concocted by Mr. Lavrentiadis, a full 28 months after he was initially charged."

At the root of Mr. Provopoulos’s defense is his view that at the time of the deal, in March 2010, Mr. Lavrentiadis had a strong enough reputation as a businessman to be approved as a new bank owner in Greece. This was not, however, an opinion that was shared by the head of Cyprus’s central bank, who rejected an attempt by Mr. Lavrentiadis to buy a bank in Cyprus during the same period, contending his finances were questionable.

In retrospect, Mr. Provopoulos said, he accepts that Mr. Lavrentiadis was a bad actor. But he rejects the criticism that the Proton sale and Piraeus’s Cypriot deals reveal any favoritism to his former employer or Greek banks in general.

“My first and only priority is to ensure the stability of the financial sector,” Mr. Provopoulos said. Mr. Sallas of Piraeus was prepared to take risks that others were not, he added.

As for Mr. Lavrentiadis, he continues to protest his innocence.

“If I am guilty,” he said recently to government prosecutors, “then so are Mr. Sallas and Mr. Provopoulos.”

Greece Seeks Taxes From Wealthy With Cash Havens in London

Real estate listings in the South Kensington area of London. British finance authorities are poring over a list of about 400 Greek individuals who have bought and sold London properties since 2009.

Πηγή: New York Times
By LANDON THOMAS Jr.
Sept 27 2012

LONDON — The London real estate market was abuzz. A wealthy Greek banker wanted to spend up to £60 million (nearly $100 million) for a home, and was in a hurry to make a deal.

Real estate listings in the South Kensington area of London. British finance authorities are poring over a list of about 400 Greek individuals who have bought and sold London properties since 2009.

Real estate agents recall sifting the listings for some of the most prestigious, and expensive, properties in South Kensington, a favored area for London’s international set.

But the house hunter, Lavrentis Lavrentiadis, never made a purchase in the spring of 2011, agents say. Within months his failing institution, a small lender known as Proton Bank, was seized. The Greek government, suspecting that Mr. Lavrentiadis may have moved money out of the country, is now investigating his activities to determine whether he engaged in fraud and money laundering.

Greece, heavily in debt and desperate to track down money wherever it can, is leaving no stone unturned.

Mr. Lavrentiadis has denied the accusations, and his lawyer did not respond to questions about any interest his client might have had in London properties. But the Greek banker’s rumored flirtation with this city’s prime real estate market, and the frenzy it stirred among sales agents, is telling.

At the request of the Athens government, the British financial authorities recently handed over a detailed list of about 400 Greek individuals who have bought and sold London properties since 2009.

The list, closely guarded, has not been publicly disclosed. But Greek officials are examining it to determine whether the people named — who they say include prominent businessmen, bankers, shipping tycoons and professional athletes — have deceived the tax authorities by understating their wealth.

“These people have money and they are known — but it is not clear yet if they have violated any laws,” said Haris Theoharis, an official in the Greek Finance Ministry. Tax investigators have been examining the list to see whether there is any overlap between those who bought London properties and those already identified as being tax cheats.

The Greek government, under pressure from its international lenders to raise 13.5 billion euros ($17.4 billion) through tax increases and spending cuts, is intent on making the well-heeled share the burden. Studies have shown that the country may be forgoing as much as 30 billion euros a year in uncollected taxes, with a significant portion of that amount having been shipped out of the country as the affluent seek shelter from Greece’s financial storm.

This week, the government of Prime Minister Antonis Samaras opened an investigation into the bank accounts of more than 30 Greek politicians to determine whether they should be charged with tax evasion and the illegal accumulation of wealth.

The politicians on the list included the president of the Greek Parliament, Evangelos Meimarakis, creating an embarrassing distraction for Mr. Samaras’s coalition government. Mr. Meimarakis is a former defense minister who has also been implicated in accusations concerning a money-laundering network said to involve two other former ministers.

London, long a magnet for foreign real estate investors, has become a special focus for Greek officials trying to track down money taken from the country.

Bankers say that accounts in Singapore and even in the country of Georgia have become favorite destinations for fleeing funds, more so than the traditional haven of Switzerland, because the looser rules and regulations of those countries about accepting large sums of foreign money. But while Singapore and Switzerland have been reluctant to divulge information about its Greek clientele, the British government has been more cooperative in sharing its real estate records.

There is an air of desperation to this Athens fund-raising drive, which includes leasing out empty Greek islands and even putting up for sale the former residence of the Greek consul general in the tony London neighborhood of Holland Park. But with Greece’s membership in the euro at stake, every conceivable revenue-raising strategy is being pursued, even if it remains unclear how successful it will be.

For the better part of a century, owning a grand London home in Belgravia or Mayfair has been accepted practice for the wealthiest Greeks — shipowners in particular — looking to hedge their bets against their country’s volatile economy. Since 2008, when the country’s problems began to surface, a much broader spectrum of Greek investors has turned to London real estate.

“Greeks are panicking,” said Sandy Triantopoulou-von Croy of EPPC, a real estate firm in London that does a lot of work with Greek clients. “They just do not know what to do with their money.”

Mr. Lavrentiadis was not the only bank chief to dabble in London real estate. Theodoros Pantalakis, a former chief executive of Agricultural Bank of Greece, another ailing lender, caused a stir in Athens this year when it was revealed that in 2011 he transferred 8 million euros abroad with the intent of buying a property in London. Mr. Pantalakis has said that the authorities were informed of the transaction and that the appropriate taxes were paid.

Greek money, along with wealth from China, Russia and various other countries, has kept the high end of London’s property market buoyant despite — or maybe because of — the global financial turmoil. According to research by Savills, a London-based property company, £20 billion of foreign money has been invested in prime residential real estate here since 2006.

The biggest year on record was 2011, when foreigners snapped up £5.2 billion worth of new residences. With economic uncertainty in the euro zone increasing this year, demand for these properties in 2012 shows no sign of letting up, real estate agents say.

Investors from Italy and France have been most prominent in using London properties as a hedge against the euro. But the Greek influx has been especially striking.

Officials in Greece examining these transactions estimate that about 250 Greeks invested more than £100 million in prime London residences in 2009 and 2010, according to records collected with the assistance of the British government. As the crisis grew worse last year and this year, government officials say it is likely that the inflows increased.

Not everyone, of course, was looking for a £60 million manse as Mr. Lavrentiadis was said to have done. Even in London, with its enclaves of billionaire oligarchs and sheiks, such requests do not frequently roll around.

Ms. von Croy says that the average asking price from her Greek clients is about £1.5 million, which is still a significant enough barometer of wealth to attract the attention of the Greek tax authorities.

Experts say it is not only high rollers looking to make a splash. Many of the recent buyers hail from Greece’s professional classes, including lawyers, doctors, accountants and midlevel bankers who are paying £300,000 to £500,000 for modest apartments.

Notably, a recent study conducted by economists at the University of Chicago concluded that it was within this segment of society where most of Greece’s tax collection shortfall occurs.

By delving through bank records, the economists found that Greek professionals — not the truly wealthy, but the comfortably affluent — skirted as much as 28 billion euros worth of taxes in 2009. That would have been enough to cover a third of the country’s budget deficit that year.

Mr. Theoharis, of the Greek Finance Ministry, said London properties represented but a small portion of the billions Greeks had shipped out of their country since 2009. In 2011, according to government figures, Greeks sent 6 billion euros to foreign bank accounts. The data for 2012 is even more stark: for the first half of the year about 5 billion euros left the country, Mr. Theoharis said.

Much of that outflow came in the panicky months preceding the two rounds of Greek elections in May and June.

More recently, the effort by Mr. Samaras’s government to push through spending cuts and economic overhauls has somewhat calmed fears of an immediate Greek euro exit. In fact there was actually a rare increase, of 2 percent, in Greek bank deposits in July.

The harder trick to turn could be persuading Greek real estate money in London to come back home — especially now, with the tax man closely watching.

SPECIAL REPORT-In Greece, claims a magnate stole from his own bank

Πηγή: Moneycontrol
By Stephen Grey (Reuters)
Jan 12 2012

ATHENS - With the money tight all over Europe, one high-flying Greek businessman allegedly found a novel way of getting easy credit: two years ago he bought a controlling share in a bank, installed his own managers and then loaned himself and his associates nearly 600 million euros.

Greek prosecutors allege Lavrentis Lavrentiadis, 39, turned the country's Proton Bank, which has since been nationalised, into what one Athens newspaper called a "bank of cronies". Lavrentiadis, who vigorously denies the allegations and has accused the authorities of acting illegally, has been called to appear before public prosecutor Ioannis Dragatsis at an Athens court next week. He is formally under investigation over accusations of fraud, embezzlement and corruption, but has not been charged.

An audit by the Bank of Greece, which regulates the industry, found that more than 40 percent of Proton's commercial loans in 2010 were made to companies related to Lavrentiadis. The report says this was part of a "misuse of the basic principles of lending and assurance."

A separate investigation, signed by a senior prosecutor who heads the country's money laundering authority, found that Lavrentiadis - once hailed as the rising star of Greek business and known as a leading patron of the arts - had with others "formed a criminal team" that embezzled up to 51 million euros from the bank. It alleged loans made to dormant companies had been wired from Proton to another bank, the Piraeus Bank, and then withdrawn by an employee in bags of cash.

"In every case the leading figure of the team was Lavrentis Lavrentiadis, president of the board and major shareholder in Proton Bank," says the confidential report by Greece's Financial Intelligence Unit (FIU), seen by Reuters. The bank's management "developed continuous, intense and to a great extent criminal activity which led to the deception of depositors." The bank used "unusually high interest as a bait" to draw savers in, it stated.

The secret report was completed on July 27 last year, but its full findings have not been disclosed until now.

The detailed revelation of alleged mismanagement at Proton Bank comes just as cash-strapped Greek banks are seeking fresh support from the European Central Bank and the Greek central bank to maintain their liquidity.

The allegations against Lavrentiadis would be astonishing in normal times. But Proton's alleged largesse occurred at a time when Greece's financial system was supposed to be under Europe's microscope.

Greek officials believe the bank issued more than 664 million euros of new loans to companies related to Lavrentiadis in 2010. At the time, the country's banks were beginning to grapple with a debt crisis that was to threaten the very existence of the euro zone. Heavily loaded with Greek government bonds and shaken by a deepening recession, they have scrambled for cash, sold subsidiaries or merged in a desperate bid to ride out the tsunami sweeping the Greek economy.

"You can think of this country as a large murky lake," said Tasos Telloglou, a TV presenter and senior journalist for the Greek newspaper Kathimerini. "In there are buried lots of old cars and junk and even some bodies. Now the water is receding, you can see what's been hidden for so long."

Despite its detailed audit, the Bank of Greece and stock market regulators have come under fire from analysts who say the authorities should have acted earlier, taken a closer look at Lavrentiadis's 2009 takeover of Proton and followed the subsequent loan flows more rigorously.

But the Bank of Greece denies inaction, saying it "took the appropriate actions to deal with these problems" and the "matter is now under investigation by the Greek judicial authorities."

Panagiotis Nikoloudis, vice prosecutor general of the Greek Supreme Court and chairman of the Finance Intelligence Unit, a watchdog responsible for investigating financial crimes, says the alleged fraud was exposed when he and his team stepped in last July. Nikoloudis would not say what prompted their inquiry. But if his team had not acted, it would have had "consequences beyond my wildest fears," he told Reuters in his first public comment on the case.

Another senior investigator said the scale of the fraud would if proven be the "biggest case in 20 years" in Greece.

Lavrentiadis repaid 51 million euros to Proton last September after his assets in Greece were frozen and a criminal probe launched. He became the first person to invoke a 2011 Greek law that gives immunity from prosecution to suspected criminals who return the proceeds of crime. In a letter to prosecutors he admitted no guilt, saying he paid the money because of a "dire need to protect my business activities abroad, and my moral obligation to disengage my honest and valuable associates from negative consequences" of a legal dispute.

He adamantly denies wrongdoing. "Never did I or my companies move any sums of money whose provenance is either dubitable or not absolutely transparent," he said in statements to prosecutors.

Contacted by Reuters, he said he could not comment in detail but that he totally rejected "all and every one of these false accusations against me. I will take every step possible to defend my reputation and the reputation of those who have worked with me."

A FAR-REACHING EMPIRE

In a meteoric career, Lavrentiadis used family wealth and his own ambition to build one of Greece's fastest-growing business empires. He took over his father's company Neochimiki, a supplier of raw chemicals across southeast Europe, when he was just 18, and expanded the firm aggressively with a spate of acquisitions. In 2003 he floated it on the Athens stock exchange.

Ernst and Young named Lavrentiadis Greek Entrepreneur of the year in 2007. That year he founded a new pharmaceutical company, Alapis SA, which grew so quickly that within months it was one of the 20 biggest on the Athens stock exchange, measured by capitalisation.

Lavrentiadis has invested in Greek media firms and the country's most famous football club, Olympiacos. He also founded a private equity fund, Lamda Partners, based in London and Guernsey, and in 2009 endowed a research chair at the influential Washington think tank the Center for Strategic and International Studies.

The FIU's Nikoloudis described him as man whose reputation was a "paradigm of entrepreneurship ... not just in Greece but internationally."

Lavrentiadis moved into banking in December 2009 when he took a controlling 31 percent share in Proton Bank, enough to become chairman and appoint key executives. In the same month, he also registered a new bank in Liechtenstein, the Lamda Private Bank.

Despite Greece's growing debt crisis, he was bullish in his new venture. He told newspaper Ethnos in April 2010: "It is very important, especially during these difficult times, to have an investment bank in Greece, to be able to deal with the part of problematic businesses and help them stand on their feet again. We have great expertise in this field, because we have effected more than 100 acquisitions and we have excellent relations with international markets."

Asked about the secret of his success, he said: "I never chased after the money, but success itself, because it was a personal bet of mine."

But the Bank of Greece, in an emailed statement to Reuters, said it had "spotted incipient problems in Proton in 2010" and had early that year put the bank under "enhanced supervision", which included on-the-spot inspections, talks with external auditors, a veto of proposed directors, and fines.

The central bank says the "sharp increase of new loans" in June 2010 triggered concern, and it "immediately undertook an on-site inspection". This led to Proton having to find more capital and pay an unspecified fine. The bank was also told that from September 2010 it needed to "reduce its reliance" on cheap liquidity financing that had been provided in response to the crisis by the European Central Bank and national central banks in Greece and Ireland.

"Since early 2010 an increasing part of the bank's funding came from the ECB," said the statement. "According to the framework of the Eurosystem, any eligible counterparty can obtain refinancing through the monetary policy operations of the Eurosystem against adequate eligible collateral."

By July 2011, the Bank of Greece said it had determined that companies that had borrowed money and were connected to Lavrentiadis "may have been engaged in questionable transactions which also involved the bank, possibly with the aim of money-laundering."

A report was filed with the FIU on July 6, 2011 whose own conclusions, delivered 21 days later, proved to be a mortal blow to Proton.

Signed by Nikoloudis, the FIU report lays out grounds for ordering the seizure of assets belonging to Lavrentiadis and seven associates, accusing them of appropriating 51 million euros either through fraud or embezzlement. They were, it said, "acting with common intention and taking advantage of their position in Proton Bank" with the aim of committing "more felony offences" against Proton and, essentially, against the rest of the shareholders and depositors.

The report focused on a series of loans, including to companies that were in liquidation and effectively dormant. The money those firms received from Proton Bank was transferred to accounts at another Greek bank, the Piraeus Bank, and then withdrawn in cash by an employee of Lavrentiadis's pharmaceutical firm Alapis, between June and November 2010. The FIU says the employee, Dionysis Bitharis, is not under investigation. Bitharis declined to comment.

"In my expert report I said that this person (Lavrentiadis) has appropriated 51 million euros of bank assets," Nikoloudis said in an interview with Reuters in his office overlooking Athens. "At the bank a specific person named in my report got the money in bags. He was an errand boy."

Nikoloudis believes the loans were made because after becoming Proton chairman, Lavrentiadis put his "own people in the bank and decided what was going on. He made a decision to give loans to companies with no collateral. Sometimes this money went to offshore companies, sometimes to his own interests."

Nikoloudis said that because Lavrentiadis had returned the 51 million euros, further investigations were halted and "there can no longer be a prosecution and, as far as this 50 million is concerned, there is no longer a crime."

"UNUSUAL TRANSACTIONS"

Even if that's true - some prosecutors believe there may still be a case over the 51 million euros - Lavrentiadis faces other problems. Another investigation is now focussing on allegations in the Bank of Greece audit that was completed last August. That report describes much larger sums of money being mishandled. "If this case was closed then he wouldn't be appearing before prosecutors and facing the consequences," said the senior government investigator. "The 51 million euros is just a tiny part of it."

The most serious accusations relate to what central bank auditors describe as a "big number of unusual transactions" of which "no reports about suspicious or unusual dealing was given to bank directors or competent authority."

The report adds: "The frequent transfer of shares of offshore companies or companies with anonymous shares which can lead to inability to locate the true beneficiary is an activity that may denote money laundering."

Among the loans queried in the Bank of Greece report are:

* A 54 million euro loan on September 20, 2010 to a newly founded company, Fineglino Trading Ltd, in order to buy shares in a separate company majority-owned by Lavrentiadis, the proceeds of which were then transferred to his private bank account and on to a private bank in Zurich. This was illegal, say the auditors, because Lavrentiadis was "the main shareholder, both of the bank and of the borrowers being approved." Fineglino could not be reached for comment.

* Multiple loans issued to offshore companies before Proton had determined who they were owned by - in some cases within days of a company's formation - and without any attempt to obtain proof of why the companies needed the money, for example by obtaining receipts or contracts.

But the auditors' biggest concern is over loans issued to the pharma firm Alapis, in which Lavrentiadis in 2010 had a 21 percent stake. The report says Proton not only loaned cash to Alapis directly but also poured more than 500 million euros into a project to create subsidiaries and sell these spin-offs back to Lavrentiadis's friends and associates.

The audit report says those associates, which it describes as a "group of connected clients," were loaned cash by Proton to buy the subsidiaries despite the fact the borrowers offered little by way of collateral. Most of the loans took place over three days in June 2010; many were issued to shell companies that had been set up a few days earlier. Interest on the loans was paid by Alapis or by Lavrentiadis himself, the audit report said, supporting the auditors' conclusion that the companies "are still under the control of Lavrentis Lavrientadis".

In all, after taking over Proton in December 2009, loans to companies that the audit report claims were linked to Lavrentiadis rose by 598 million euros to reach 854 million by March 31, 2011. This represented more than 43 percent of the bank's 1.9 billion euro commercial loan book. Against these loans, just 54 million euros was obtained in collateral. The total provision for bad debt was zero, allege the auditors.

The senior government investigator said: "Because he exhausted the ceiling of loans he could get for Alapis, he conceived a plan to get loans for Alapis by circumventing regulations of the Bank of Greece.

"How did he do this? He recruited people to which he transferred activities of Alapis, a large majority of which were not making a profit. He sold these off to people; they bought them with loans from his bank. He circumvented regulations ... by breaking companies into smaller ones. The regulation is there so that one creditor cannot bring down the bank."

Trifonas Kolintzas, who was appointed as chief executive officer of Proton under Lavrentiadis, denied issuing any improper loans. While the Bank of Greece says Proton's credit expansion was "mainly financed" by increased deposits, Kolintzas said it was not.

In a statement to prosecutors, he said: "The most important thing is that the money was not withdrawn from the Bank's reserves, i.e. from individual deposits but on the contrary, almost entirely, it was obtained from the European Central Bank and indeed with the low interest of 1 percent."

After his alleged loans spree, Lavrentiadis apparently began moving his interests abroad. According to the Bank of Greece report, from December 2010 Lavrentiadis "seems to have effected a liquidation and de-investment of the quasi-total of his interior business activities."

In February last year, Lavrentiadis also began selling his shares in Proton, cutting his stake to 15 percent from 31 percent by the end of March, according to public filings. In February, the company announced that the former U.S. ambassador to Greece, Daniel Speckhard, would take over as chairman. Neither Speckhard nor Alapis, whose market capitalisation has tumbled from 4.2 billion euros in 2007 to 1.3 million euros, responded to requests for comment.

STRONG DENIALS

Lavrentiadis and his lawyers have consistently refused to comment in detail on the allegations against him.

But in a response filed with prosecutors and reviewed by Reuters, Lavrentiadis says the FIU's order to freeze his bank accounts was illegal and inaccurate. Of the 51 million euros allegedly embezzled, "only a small part" came from loans from Proton, while the rest came from loans from other banks, he said. It was unclear, he added, how the "alleged embezzled sums" could add up to 51 million euros. Lavrentiadis says the transactions the FIU and the Bank of Greece identified were part of normal business and were all loans that carried an obligation of repayment, so there was no question of money being embezzled or diverted.

He rejects the claims by the Bank of Greece that he was connected to many of the "linked companies" that received loans from Proton and argues that he was not even involved with Proton's detailed decision-making. Although he chaired the bank's board of directors and held 31 percent of shares, his function was as a "non-executive", he wrote. And although he held 21 percent of Alapis in 2010, he said he "was not a controlling shareholder of this company nor did I control nor did I participate in its daily commercial and transactional activities." Of the nearly 700 million euros of new loans issued to companies allegedly connected to him, all of the money went either to re-finance other loans or to pay outstanding costs, he also argues.

All of his dealings mentioned in the FIU audit were "absolutely valid, legal, real and can be proved by contracts and documentation," he said.

ARTHRITIS AND NATIONALISATION

Proton Bank was nationalised last October and renamed the New Proton Bank after some details of the suspect loans emerged in Athens newspapers.

While depositors were protected, investors in the original bank were left with nothing, according to Michael Markoulakos, who represents some of Proton's other former shareholders.

"In one year Lavrentiadis robbed the whole bank because he didn't have cash flow in his own business," Markoulakos said. The New Proton Bank declined to comment on the investigations. Administrators of a separate "bad bank," handling the former bank's bad debts, also did not return messages requesting comment.

Lavrentiadis, who is suing the Bank of Greece for nationalising Proton, has long battled rheumatoid arthritis. The illness has left his hands partially paralysed and Lavrentiadis a believer in faith healing. He has given generously to the Greek Orthodox Church and charitable causes, especially the arts.

"If you ask me, one day I'd like to be able to reduce the time I spend at work and take up creating art," he told Ethnos newspaper. "I believe it is like 'oxygen', particularly to those who are engaged in business."