Scandal Hits Greek Tourism Agency

By ALKMAN GRANITSAS and NEKTARIA STAMOULI

ATHENS—A multimillion-dollar embezzlement case involving Greece's national tourism agency has dealt a new blow to the crisis-hit country's political establishment, which already is reeling from a scandal over its failure to go after wealthy suspected tax evaders.

Auditors in December were asked to examine what government officials say is a hole in the agency's books, after an incident involving an allegedly fraudulent check raised questions about possible corruption at the agency. The auditors have discovered a series of improper transactions totaling about €12 million ($15.8 million) and extending back as far as 2003, two senior government officials said.

Political appointees connected to Greece's two mainstream parties—both of which are part of the country's current, fragile coalition government—could be implicated, officials and analysts said.

The officials said that, at the very least, past appointees to the agency should have had better oversight of the agency's finances.

The developments underscore how, despite years of international monitoring and efforts to control state spending, Greece has yet to fully address its past practices, which analysts said contributed to its current crisis.

How the government handles the case could indicate whether the parties—conservative New Democracy and Socialist Pasok— that have alternately ruled Greece for most of the past four decades are serious about tackling corruption, some analysts said.

"If this proves to be a big scandal, all hell will break loose. I have no doubt this may even cause the fall of the government," said Thanos Veremis, a professor of political history at the University of Athens. "Public opinion is looking for blood and rightly so. So the government cannot afford not to do something. It had better do so, otherwise it could fall."

The allegedly missing money at the tourism agency comes on the heels of a public outcry over the failure of politicians to pursue tax-evasion investigations against thousands of Greeks who have some $2 billion in Swiss bank accounts, some of whom authorities suspect of having salted away income abroad that was never declared.

That scandal over the so-called Lagarde List, after International Monetary Fund chief Christine Lagarde, who passed the information to the Greek government when she was French finance minister, has tarnished the reputation of the country's political leaders.

Greece's coalition government this week formally petitioned Parliament to launch a special probe into the alleged actions of a former finance minister, who the government has accused of tampering with the list during his term in office in an effort to shield family members from potential tax audits.

The former finance minister, George Papaconstantinou, has denied any wrongdoing and suggested that others were responsible for tampering with the list.

The problems at the tourism agency emerged when Greek police arrested five people for allegedly attempting to defraud the tourism agency by trying to cash a €147,600 check for services that were never rendered.

The check was made out to a hotel on the tourist island of Syros and was discovered after one of those arrested, a woman, attempted to cash it at Greece's central bank toward the close of business on Dec. 21, police said.

In attempting to confirm the payment, an official at the central bank called the tourism agency, and was told to stop payment on the check, police said.

Greece's tourism sector is one of the few money generators for the country's recession-ravaged economy, and accounts for roughly one-sixth of gross domestic product.

The national tourist organization is tasked with promoting Greece abroad, mainly through marketing campaigns and promotions.

One of those arrested was a 39-year-old former special adviser to the recent general secretary of the agency, Nikos Karahalios, whose signature was purportedly on the check. The special adviser hasn't publicly commented on the case.

Mr. Karahalios, a stalwart of the New Democracy party who had just stepped down as head of the agency after only 12 weeks in office, said his signature was forged.

In a statement issued soon after the arrests, he said he was being set up after uncovering the previously undetected hole in the agency's accounts.

After learning of the case, his boss, Tourism Minister Olga Kefalogianni, also from New Democracy, ordered that it be immediately referred to a public prosecutor, but she hasn't spoken publicly about the case itself.

Reacting to the allegations, Greece's general accounting office rushed a special three-person auditing team to the offices of the Greek National Tourism Organization late last week. A formal report isn't expected for a month.

One of the officials familiar with the case said the probe is looking into years of alleged overspending on media campaigns and hotel stays by the tourism agency.

Greece's opposition Syriza party has called for a wider investigation into the scandal.

Write to Alkman Granitsas at alkman.granitsas@dowjones.com and Nektaria Stamouli at nektaria.stamouli@dowjones.com

Notes on the subject:

The tourism industry has bolstered Greece's bottom line…

Contribution to gross domestic product: 16.5%

Contribution to employment: 18.4%

Employment: 758,300

International tourism receipts: $13.9 billion

International tourist arrivals: 16.4 million

Note: Data from 2011

Sources: Association of Greek Tourism Enterprises; Greek Tourism Facts & Figures 2012 Edition

...But the country remains plagued by corruption allegations

March 8, 2012 Six employees at Greece's main IKA pension fund are arrested on suspicion of fraud.

Early March Two employees at development ministry arrested on suspicion of seeking bribes.

April 11 Former Greek defense minister arrested in judicial probe into money laundering.

Sept. 19 Greek health ministry takes disciplinary action against local officials on island of Zakynthos for granting hundreds of subsidies for vision impairment to persons who weren't blind.

Oct. 2 Greece's Socialist party leader hands over previously missing list of some 2,000 Greeks with Swiss bank accounts, known as the Lagarde List.

Dec. 5 Greece ranked most corrupt European Union country in annual Transparency International corruption index.

Dec. 24 Joint report by the International Monetary Fund and European Union says Greece hasn't done enough to crack down on tax evasion.

Dec. 24-25 Greek police arrest five people on suspicion of defrauding Greece's national tourism agency.

Dec. 27 Greece's general accounting office ordered to begin special audit of national tourism agency after an alleged €12 million hole in the agency's accounts is disclosed.

Dec. 28 Greek prosecutors disclose that earlier version of the Lagarde List has been tampered with to remove the names of relatives of a former finance minister.

Dec. 31 Greek government asks for special parliamentary probe into former finance minister's handling of Lagarde List.

Source: staff reports

Link: http://online.wsj.com/article/SB10001424127887323374504578217591572056534.html