The scandal has scorched the Socialist Party (PASOK), and public cynicism has increasingly focused on the party's leader, Papandreou himself. The Prime Minister last September was already the target of snickering and outrage as he conducted a highly public extramarital liaison with airline flight steward Dimitra Liani, 34. As the parliamentary investigations dug through testimony, the question loomed: Was the Prime Minister aware of the crime all along?
Papandreou has not testified before investigators, though he vehemently denies any involvement in what he calls a "conspiracy aiming to hurt Greece." But investigators have yet to hear from the central figure in the case, George Koskotas, 34, a onetime New York house painter who vaulted to power as the multimillionaire owner of the Bank of Crete. Now jailed in Massachusetts on a variety of charges leveled just before he fled Greece last November, Koskotas is facing extradition to answer accusations of looting his own bank.
Amid more than a dozen lawsuits, much has come out about the vast scandal, but most Greeks believe there is far more to be revealed -- by one man in particular. Given his central role in the affair, Koskotas' version of the dirty dealings could prove to be an imperfect account. Apparently nothing will be resolved until the public has weighed his tale. "At this point," says a frustrated former PASOK member, "we are all waiting to hear what Koskotas has to say."
A plump man with steady dark eyes and a soft voice, Koskotas is no common embezzler. In addition to the Bank of Crete, he owned Grammi, a flourishing publishing empire that operated five magazines, three newspapers and a radio station. He bankrolled big hotels. A year ago, he bought Greece's wildly popular soccer team, Olympiakos. He created one of the world's most advanced printing plants. And until he fled Greece, Koskotas consorted freely with the country's ruling Socialist leaders. At 34, George Koskotas, the Greek wunderkind, had achieved a dazzling reputation in his own land.
Now inside a Salem, Mass., prison, Koskotas has finally decided to talk. His chief motivation, he explains, is a fear that once extradited to Greece he will disappear behind bars -- or be murdered and declared a suicide and thus be unable to present his own version of what happened. He figures his fate in Greece will be worse if Papandreou remains in power; so his motive for speaking may also be to wound the government.
The Koskotas accusations are extraordinary, though difficult to verify. In six lengthy prison interviews with TIME, the banker describes a Socialist government riddled by extortion and criminality. Koskotas charges that millions of dollars missing from his bank were actually payoffs that went directly to the head of the government, Andreas Papandreou, and PASOK officials. The Prime Minister, says the banker, personally authorized the plan to loot the Bank of Crete. Koskotas describes as well his own illegal complicity in the huge swindle, one that involves enormous sums hard to account for adequately.
The plot was an audacious one. To create the pool of crooked money, PASOK leaders had for three years ordered state-managed corporations such as the Post Office, the Organization of Urban Transportation and the State Pharmaceutical Co. to transfer large bank deposits -- the country's money, in effect -- out of the big national banks into the Bank of Crete, then the / smallest private bank in the country. There, Koskotas says, he arranged for the government deposits to draw an exceptionally low rate of interest, only 2% or 3%. Bank savings accounts in Greece routinely draw 15% interest. The excess interest earned on the government deposits was siphoned off and went straight to the politicians, he says. In addition, protected and encouraged by Papandreou, Koskotas secretly plowed Bank of Crete funds into his magazines and newspapers.
In the past year, says Koskotas, some 40 shipments of money, in blue briefcases stuffed with 5,000-drachma notes, were carted out of the Bank of Crete and taken first to his own residence. There the banker handed the money over to a Papandreou confidant, Georgios Louvaris, who Koskotas says made the deliveries to the Prime Minister. Pickups occurred weekly and amounted over the year to more than 3 billion drachmas ($20 million at today's rates). In addition, Koskotas claims he personally carried a total of half a billion drachmas ($3.3 million) to the home of a Deputy Prime Minister, Menios Koutsogiorgas. At the Bank of Crete half a dozen other PASOK leaders twice a month received briefcases filled with money totaling 1.5 billion drachmas ($10 million).
There was little danger of interference. Fifty different national audits of the Bank of Crete that might have uncovered the scheme were squelched over the years by PASOK officials, says Koskotas, twice by direct calls from Papandreou. In the summer of 1988, the government muscled through a special Secrecy Act that had the effect of guaranteeing its overdrawn banker financial confidentiality. Koskotas says he was directed to pay an additional $2 million to then Deputy Prime Minister Koutsogiorgas as a reward for managing the legislation.
The dank atmosphere that nurtured this tangle of alleged corruption began after the Socialists' re-election in 1985. Papandreou was eager to tighten his grip on the country. He found a perfect match in the ambitious young publisher and banker Koskotas, who saw in PASOK a means to build an empire.
Now, sitting in the library of the Salem prison, Koskotas recalled the beginnings of a relationship that led to his ruin. He wore a blue pullover sport shirt and blue jeans, white leather sneakers on his feet. Koskotas had squeezed his big waist into a one-armed desk chair.
In his lap he balanced a pile of tape transcripts and letters he had carried out of Greece as evidence. From time to time he ran his finger across the * pages of his old appointment book, picking out entries of meetings with the Prime Minister and other key government officials.
He remembers the meetings with Papandreou vividly, five times alone in the Prime Minister's home at Kastri, once at the home of a Papandreou intimate, Michalis Ziangas. At the first meeting in early 1986, Koskotas recalls, the Prime Minister had a proposal: Koskotas should start a daily newspaper to provide positive coverage of the Papandreou family. Koskotas later put up the money, and the first issue of the paper, called 24 Hours, appeared in February 1988.
The Prime Minister always seemed to possess inside information. Papandreou, says the banker, taps the home and business telephones of such rivals as the head of the political opposition, New Democracy's Constantine Mitsotakis, and unfriendly publishers. "I know all their plans," he proudly told Koskotas.
Papandreou came to assume that Grammi's national magazines and newspapers really served him. Certain Papandreou favorites were hired as editors. Says Koskotas: "All our editors were instructed never to criticize the Prime Minister personally, not even a single cartoon." Papandreou urged Koskotas to neutralize hostile newspapers by buying them up gradually. At their second meeting in early 1987, Papandreou pressed Koskotas to buy Kathimerini, the country's most respected paper; he did, using Bank of Crete funds.
Another time Papandreou had an unexpected idea: Koskotas should purchase the Olympiakos football team. Papandreou, according to Koskotas, wanted the banker to build up the team, so that just before the 1989 election the government would agree to build Olympiakos a new stadium, an announcement certain to be highly popular. Koskotas laid out 4 billion drachmas for the plan.
Koskotas' first ambition, he says, was to enlarge the Bank of Crete. Private banks routinely had to wait at least a year for authorization to open a single branch. But the Bank of Crete opened about 50 branches in four years, and licenses were granted for an additional 20. Sure of his political shield, Koskotas was unafraid to violate banking laws and withdraw huge sums of cash at will. If Koskotas worried aloud about audits, Papandreou was always reassuring. "So long as I am here," Koskotas says Papandreou told him, "you never have to worry."
Koskotas said little of his early years, but he was a young man drawn to risk. Born in 1954 in Greece, he came to America with his parents in 1970. "George was very ambitious," says his wife Kathy, whom he married in 1973. "His mind was always working."
At New York University, that overactive mind seemed to be hunting for angles. Koskotas ordered a batch of N.Y.U. and Fordham University stationery from a printer. He said he wanted to send reprimanding letters to some student friends as a prank. The university believed he intended to create fake transcripts. He was arrested, fined $200 and asked to leave school.
Not satisfied with all his claimed wealth, he continued to indulge his compulsion for risk taking, and it backfired badly. Koskotas obtained fake Social Security numbers for several of his painters who were illegal aliens -- federal prosecutors charge that he created fictitious names -- and then used them in efforts to collect unemployment insurance claims and income tax refunds. In 1979, before Koskotas was indicted by the U.S. Attorney, he returned to Greece with his wife and four children. A year later, in 1980, the U.S. formally charged him with stealing $40,000. In the years that followed, Koskotas traveled back and forth numerous times to America, always unaware he was under indictment, he claims. Long after, the incident would rise up to haunt him.
Back in Greece, still only 25, he landed a job as an administrative officer at the Bank of Crete. Five years later, in late 1984 when the Bank of Crete came up for purchase at $9 million, Koskotas somehow produced a bankroll big enough to buy it. He knew exactly where he wanted to go. The Socialists were immersed in an election and Koskotas was determined to curry favor. Within a few months he hired as bank general manager a PASOK veteran, Panayotis Vakalis, whom he knew to be a longtime friend of Andreas Papandreou's. The connection eventually brought the young banker and the Prime Minister together. The great swindle was under way.
For two years, says Koskotas, payoffs went to the party, none to Papandreou himself. Then a pivotal event occurred. In October 1987, Koskotas traveled to Washington to attend a White House luncheon at which Vice President George Bush was the host. Secret Service agents, checking invitations, were surprised to discover that the guest from Greece was under a six-year-old federal indictment. They arrested Koskotas at his Washington hotel. The banker posted bail of $1 million. A few days later, to get home, Koskotas lied to Greek embassy officials and obtained a travel document.
Only three weeks later, Koskotas says, he was summoned by Papandreou. It was apparent to Koskotas that something was wrong. Sternly the Prime Minister warned that because of the passport violation, Koskotas might have to go to jail. Eventually Papandreou declared Koskotas need not worry. But there were certain requirements. An election was coming, the Prime Minister stressed, and PASOK needed 5 billion drachmas ($33 million). Thereupon, says Koskotas, Papandreou bluntly described a much expanded plan for kicking back interest payments. Koskotas, he directed, should work out the details with Deputy Prime Minister Koutsogiorgas. Says Koskotas, sounding surprisingly disingenuous: "I realized it was outright blackmail." Until then he had rationalized that the stolen interest payments to PASOK were simply the political cost of doing business in Greece.
Two weeks later, Koskotas says, the first direct request for money came by telephone from Papandreou. The Prime Minister wanted 200 million drachmas ($1.3 million), purportedly to pay the expenses for a PASOK youth festival. Georgios Louvaris would drop by. In the following months, says Koskotas, Papandreou made two other personal calls for cash, each for 150 million drachmas ($1 million), for what he described as PASOK events. Otherwise the Prime Minister received a weekly delivery of around 75 million drachmas.
Soon Koskotas found the requests from Papandreou and Koutsogiorgas bolder -- and more personal. Papandreou wanted to squelch a critical memoir by his first wife, Christine, a psychiatrist. Through foreign book agents, Koskotas paid out $90,000 and tied up world rights to the book. Papandreou raised another problem. The Prime Minister, then 69, was keeping company with Dimitra Liani, a buxom airline hostess half his age. The weekly newspaper Evdomi, Papandreou complained, kept turning up nude photographs of Dimitra. Within a month Koskotas had bought Evdomi, and three months later he shut it down. Then there was Margaret, the second wife Papandreou wanted to divorce. He said that Margaret, absurdly, wanted a settlement of $100 million. Koskotas heard himself say he could over a period of time put together $10 million to $20 million as a start.
In August 1988 the Prime Minister suddenly flew to London for triple-bypass heart surgery. The day before Papandreou left, Koskotas says, Louvaris came to pick up the customary cash, a suitcase of 90 million drachmas ($600,000). After the surgery, Papandreou for the first time made public what many already knew: his relationship with Liani. That further undermined his slipping political standing. Rumors of the Koskotas money connection were also circulating; now opponents called for a reckoning.
The governor of the Bank of Greece started to press for a special audit of the Bank of Crete. Koutsogiorgas told Koskotas that the investigation could not be stopped. Fearing abandonment, Koskotas made a last threat. "If I am destroyed," he says he told Koutsogiorgas, "we'll all be destroyed. You know what they will find at the bank."
Soon 40 secret service agents were keeping a discreet surveillance over Koskotas. He began to think he might be killed. One day a friend in Greek intelligence told him he would be arrested by 6:30 that evening; Koskotas fled. He slipped out of his printing plant unseen, hidden in the back of one of his newspaper delivery trucks, to start a desperate journey across three continents. Three weeks later he fetched up in the U.S., where he was apprehended.
Locked in the Salem prison and fighting extradition, George Koskotas started to get advice to keep quiet from old accomplices. One of them, Yannis Mantzouranis, former secretary to the Greek Cabinet, sounded especially anxious to learn if the prisoner was going to talk. Mantzouranis, Koskotas says, was still holding a $2 million payoff to Koutsogiorgas in a Swiss bank account. The existence of the account would implicate him.
Hoping to entrap Mantzouranis, Koskotas instructed his wife to make tape recordings of the phone calls from Athens. The objective was to goad the unwitting Cabinet secretary into telling more about PASOK corruption. Mantzouranis warns of the consequences of saying too much. "I know them better than George," he says of his PASOK colleagues. "They wouldn't hesitate to do anything."
Mantzouranis relates how his own life has changed drastically. "You must understand that I am in danger," he says. "I do not circulate at night. I no longer live at my house."
In jail, listening to the cassette, Koskotas heard the fright in the caller's voice. It was an echo of his own fears. Mantzouranis had an important message to pass on: Koutsogiorgas wants to be certain the prisoner knows what he is doing. "Menios says," the voice from Greece emphasized, "that George should not betray the only people who can help him now." Koskotas pondered silently and for a second felt a twinge of his old power. Then he dismissed the warning. He wanted to talk.
Throughout last week TIME sought comments and answers from government officials -- including Prime Minister Papandreou -- on the accusations in this story. When all refused to be interviewed, a list of questions was submitted to them. TIME did not disclose that it had interviewed Koskotas, but made clear that it was publishing a major story that contained serious and damaging allegations. Papandreou did address the affair in a Feb. 14 memorandum to investigators. He said he met Koskotas only three times, at the banker's initiative, between March 4, 1987, and June 30, 1988, during which the two discussed only Koskotas' business and, later, the accusations against him.
CHART: NOT AVAILABLE
CREDIT: TIME Chart by Joe Lertola
CAPTION: KOSKOTAS' TALE OF CORRUPTION. HE ALLEGES: