Austria’s Corruption problem from MS Lucona to Ibiza

This is not who we are,” said the patient and ever-decent Austrian President Alexander Van der Bellen (VdB) . He was speaking to the nation right after the Ibiza scandal broke in May 2019. An incriminating video, showing then Vizekanzler Heinz-Christian Strache promising state contracts in return for media support, had just been published. VdB was doing his best to soothe the soul of a shocked nation, suggesting (with a nod to Jean-Paul Sartre) that somehow, it’s other people who are corrupt. It was likely the right thing to say at the time. However, a review of the last hundred years or more suggests that Austria (be it with the MS Lucona or Ibiza Scandals) has always had its fair share of corruption. It would be disingenuous to expect otherwise.

So step right this way, for a historical tour of some of the best.

Table of Contents

In the times of the Habsburg monarchy, the aristocracy was involved in scandal, too. Baroness Mary von Vetsera (left) was found dead next to Crown Prince Rudolf. Empress Elisabeth (Sisi) was said to have owned a secret bank account in Switzerland./(C) Wikimedia Commons

Protecting Austria’s corrupt and powerful

What better place to begin than the famous Mayerling scandal. A juicy mix of Habsburg Kitsch, royal adultery and bloody death. At first glance, this was just another celebrity sex scandal, designed for the yellow press. “Crown Prince and Mistress Found Dead in Secret Love Nest.” It is the aftermath that fits our theme. This was an early broadsheet-era example of government cover-up and managed misinformation, directed from the peak of the power pyramid to protect the interests of the powerful.

Rudolf, Crown Prince of Austria, often did not see eye to eye with his father, Emperor Franz Joseph. Here depicted with his wife, Princess Stéphanie of Belgium, the prince committed suicide in 1889 with his mistress, Mary von Vetsera, in the hunting lodge of Mayerling – a scandal that the machinery of the Court sought to obscure, downplay and hide./(C) Wikimedia Commons

Early morning January 30, 1889. Heir to the throne Archduke Rudolf was found dead in his hunting lodge just outside Vienna. Covered in blood, he was also not alone. Nearby lay the young Baroness Mary von Vetsera, also dead. The first person to enter, his valet Johann Loschek, reported the two bodies on the big double bed. Later artist’s impressions show Rudolf draped tragically (and fully dressed) over a nearby sofa. The spin was beginning.

Loschek’s reported his first impression, that the couple had succumbed to poison, to the imperial parents. The Court immediately morphed this to heart attack. As Mary’s distraught mother, Baroness Helene, was finally admitted to see the Empress, she was coolly told: “Just remember, it was a heart attack.” The servants laid Rudolf’s body out in a bronze casket but dumped Mary’s in a laundry basket for the family to take it away under cover of darkness. The beautiful Sissi, her star-spangled coiffeur gracing a thousand candy boxes, was cold as ice when it came to Staatsräson. And for good reasons.

QAnon Would Be Proud

The doctors reported internally that both had died from gunshot wounds. The clinical description of the archduke’s shattered skull showed enlarged areas in the cranium thought compatible with mental disorders. This offered the spin machine a dual solution: credibility with the general public and church cooperation for the religious formalities. That a healthy 30-year-old would die of heart failure was a stretch. And the Catholic Church expressly forbade memorial services for self-inflicted death.

But “suicide while of unsound mind” was something Franz Joseph and Sissi could live with. For the Emperor, it offered a flimsy, but workable, cover for the Crown Prince’s liberal tendencies. QAnon-style conspiracy theories took off. Among the wildest, were that Bismarck had sent in a hit squad to silence the publicly anti-German Crown Prince. Or that the Emperor himself had ordered his dangerously progressive son removed to ensure the stability of the dynasty.

Like most political cover-ups it largely failed. As Michael Gehler and Hubert Sickinger’s masterly panorama of corruption in Austria (Politische Affären und Skandale in Österreich) summed up: “Rudolf’s death did not bring about the fall of the Habsburg monarchy, but he died because the Empire was dying anyway.”

Austria – Less Corruption Than US

The only thing missing at Mayerling was money, usually the core of any self-respecting corruption scandal. Transparency International, an independently funded corruption watchdog, rates Austria a CPI (Corruption Perceptions Index) score of 76 out of 100. This puts us in place 15 out of 198 countries rated. This is not as good as the squeaky-clean Nordics (Denmark is No. 1 with 88/100), but level with Belgium. Not quite as clean as Germany, but far better than the US in 25th position with 69/100.

In 2013, the US State Department Country Report on Austria declared that corruption was not a serious problem in Austria. US companies had not reported instances of corruption that would inhibit FDI (Foreign Direct Investment) in 2020.

Austria may not be perfect, but Prince Metternich’s famous sneer, that “the Balkans begin on the Rennweg”, is in this respect unfair.

Gaming the System

Bitterly poor refugees from Galicia huddle in a shelter in the camp of Niederalm, near Salzburg, during World War I. Their supplies were sold at profit by local politician Eduard Rambousek./(C) Wikimedia Commons

Fast forward to the last century’s first big money scandal, the Affäre Rambousek. This was a classical case of a creaky bureaucracy offering easy spoils for corrupt insiders. It was 1918: The war was going badly and basic provisions in Austria were in short supply. Enter Dr. Eduard Rambousek, a Czech-born civil servant who had built an astonishing career in the Salzburg state administration. Through hard work, he had gained the complete confidence of Salzburg’s State President Felix von Schmitt-Gasteiger.

While the population was starving and refugees from across the monarchy were arriving, local Salzburg politician Eduard Rambousek embezzled 7 million Kronen(€3.6 million in today’s money) meant for the city’s food supply. The scandal became public shortly before the end of World War I and Rambousek was arrested, but the corrupt Austrian killed himself before the trial./(C) Wikimedia Commons

Rambousek developed a simple scam, purchasing food and supplies on behalf of state agencies at inflated prices, taking a generous cut for himself. It came to light when a trader complained about irregularities to a public official, who claimed he was “just following regulations” that traced back to instructions from Rambousek. By this time, Rambousek had collected 7 million Kronen (about €3.6 million in today’s money). The public prosecutor’s office in Salzburg began looking for the money. Shortly after, they arrested Rambousek while packing personal effects and funds to leave for Switzerland. He killed himself in his cell.

But that was more or less it. Then, as on so many occasions, there was never any real follow-up or consequences. The public chastised Salzburg State President von Schmitt-Gasteiger for having been overly trusting. A minor official and one of the enabling traders went to prison and Dr Rambousek was dead. And in any case, Rambousek was actually Czech and the trader Jewish, so none of us were really guilty. “This is not who we are.” Again.

Too Big to Fail

The worldwide financial crisis in the late 1920s and early 1930s hit Austria hard. In June 1931, Credit-Anstalt (CA) announced it had lost 140 million Schilling (ca. €500 million today) in the previous trading year, an amount it could no longer cover with existing assets. The CA was not just another bank, but synonymous with the Austrian economy. “The biggest bank east of Germany,” wrote Jürgen Nauz in his densely researched essay Die CA-Krise 1931. For years it had been propping up 70% of Austria’s industry and lending generously to foreign creditors attracted by the government’s high-interest policy. As corporate clients were no longer able to service their debts the bank had taken on their stock, now increasingly worthless.

Austria’s Christian Socialist cabinet Buresch (1932) had to deal with the ramifications of the near-collapse of the country’s biggest bank, the Credit-Anstalt, in 1931. The ensuing bailout seemed sensible at first, but when it emerged that the CA had been defrauded, the government collapsed, paving the way for Austro-fascism./(C) Wikimedia Commons

So, CA did just what banks do today in our financially enlightened times: They turned to the government for a bailout. A classic case of too big to fail.

The state charmingly camouflaged an emergency weekend meeting with the new Kanzler, Karl Buresch, his Finance Minister, the Austrian National Bank (OeB) and several foreign national banks with attendance at Vienna’s noble Trabrennbahn (Harness Racing Track). In the days that followed, the government was able to announce a decent solution: A capital injection of 160 million Schilling, 100 million in treasury bonds and 30 million each from the OeB and the Rothschild bank. The deal made the Christian-Socialist government look like good crisis managers; even the opposition Socialists voted in favour. The CA Board half-heartedly accepted a little blame, citing general economic recession and a recently forced merger with another failed bank.

The scandal was still to come.

Not Cosmetics, But Fraud

For several years the business press and insider rumours had been reporting that all was not well at the CA. “I was totally surprised,” said the bank’s general director, Ludwig von Neurath, unconvincingly. Leaks soon confirmed that the financial reporting had been cosmetically adjusted for some time. Worse still, the numbers underlying the rescue package were dramatically low: The shortfall was not 140 million but 900 million. This was no longer cosmetics, but fraud. They had been touching up the make-up on a corpse.

From this moment Austria’s financial corruption scandal became political, with ominous consequences. The government fell and the ruling Christian Socialists went into coalition with the Heimatblock, the political arm of the right-wing Heimwehr armed militia. For these proto-fascists, the failure of the government’s financial rescue package was proof positive of the failure of democracy. Sadly, in a sense they were right. Hardly a year later the country had an Austro-fascist government under Engelbert Dollfuß and the climate was ripening for Hitler in 1938.

None of the protagonists were punished, only the nation. That was the real scandal.

On Freunderlwirtschaft (“Chumocracy”) and Austria’s Corruption

The scandals of more recent times are plenty salacious but seem less weighty in their consequences. Many of them fall into the grey area between outright corruption and Freunderlwirtschaft, a splendidly Austrian term that translates roughly into “doing business with the boys.” Some would argue, and often rightly, that dealing with established suppliers allows projects to run more smoothly. A simple telephone call, or perhaps a longish lunch in a decent restaurant can iron out minor problems in no time. Even if this supplier’s costs are a little bit higher and a crate of good cognac at Christmas time is not strictly part of the contract, what’s wrong with that?

The NEOS, the young liberal party now established in the Austrian national parliament, take Austria’s corruption issue very seriously: “Transparency” is a key plank in their party’s platform, shining a light into dark corners of the old boy networks. “This is a top priority,” party boss Beate Meinl-Reisinger declared in the opening session of the new parliament in October 2019, “because it is about the credibility of our political system.” This is going to be especially interesting in Vienna city politics. The NEOS are now in coalition with the SPÖ who have been running the city in every free election for a hundred years. Relationships between local government officials and their main suppliers are thus likely to be cosy.

The NEOS party, founded in 2012, wants to change Austria’s widespread Freunderlwirtschaft (“chumocracy”) and cavalier attitude to corruption. Pictured above are NEOS founder Matthias Strolz (center), current chairwom, and Beate Meinl-Reisinger (right) and MEP Angelika Mlinar. Since November 2020, the NEOS rule in Vienna in a coalition with the SPÖ.

Even Corruption in Austria on Christmas

A good example is the allocation of the stands at the Viennese Christmas markets. Under the stark headline INTRANSPARENT, the daily Kurier reported in January 2018 that the son, daughter and wife of an SPÖ functionary each had one of the prized (read profitable) stand places. Curiously, the SPÖ man was a good friend of the other upstanding socialist responsible for the allocations. “This reeks of Freunderlwirtschaft,” thundered the NEOS Meinl-Reisinger again. “We need total transparency and a fair bidding system.” Unsurprisingly, the department responsible was unable to produce any bidding criteria.

The point at which the (relatively) harmless practice of nudging business toward one’s buddies morphs into full-scale corruption is nebulous, but also a slippery slope. A couple of Christmas market stalls are one thing, perhaps mildly embarrassing for the local SPÖ. The corruption scandal of Austria’s ex-Finance Minister Karl-Heinz Grasser of splitting a €9.6 million jackpot of taxpayers’ money with several old friends, is clearly another dimension. But even there, there has been relatively little political fallout.

Unhealthy Hospital

The multistory monster on the Währinger Gürtel, the AKH (General Hospital), symbolizes the city’s excellent health service. It is a great hospital, and also one of the Republik’s greatest financial scandals. Anton Pelinka commented in his chronology, “The deciding factor was the nexus of economic and political interests.” Aggressive investigative journalism from Profil’s Alfred Worm revealed the affair, triggered when one of the principals tried to buy Worm’s silence in April 1980 at a clandestine meeting in (where else?) a Viennese coffeehouse. He passed the tape of the offered bribe onto the authorities.

Those who felt unfairly exposed decried the magazine’s methods as Wanzenjornalismus (journalism by bugging) and lamented the “end of solidarity”. The comment alone speaks volumes about the degree to which cost manipulation and bribery were still (almost) normal in Austria of the 70s and ’80s. This would be a Kavaliersdelikt (another charming diminutive for criminal behaviour, peccadillo, or roughly, boys will be boys). It was a simple criminal abuse of taxpayers’ money: Delay after delay, steadily rising costs and near total lack of transparency. A full narrative of on of Austria’s famous corruption scandals would fill a book but shortly told: All the political parties took part and large sums ended up in private accounts in the principality of Liechtenstein.

The Proksch Connection – MS Lucona

While insurance scams are common, most aren’t fatal. The “MS Lucona affair” began with a bang, literally. On January 23, 1977, an explosion aboard MS Lucona just off the Seychelles sank the ship within minutes, taking six of the twelve crew members with it. According to the bill of lading, the freighter, MS Lucona, was supposedly carrying equipment to process uranium valued at about €45 million in today’s money and eight days later the Swiss trading company Zapata SA entered a claim for around $12 million from the insurer. The Austrian insurance company, the Versicherungsanstalt der Österreichischen Bundesländer – today UNIQA – quickly became suspicious: The explosion itself was mysterious and the paperwork documenting Lucona’s cargo and its value confusingly inadequate, with the hard evidence now on the ocean floor.

On top of this, Udo Proksch, an acknowledged enfant terrible of Austrian society, fronted against the insurance claimant, Rudolf Zapata. Proksch had married star actress Erica Pluhar and later Wagner’s great niece Daphne, and briefly owned the famous Konditorei Café Demel under the pseudonym, Serge Kirchhofer. He went into business with Vienna’s legendary Mayor Helmut Zilk, founding a company to bury the dead in vertical plastic tubes, together with Kronen Zeitung publisher Hans Dichand and the brilliantly subversive Kabarettist Helmut Qualtinger as partners.

Bon vivant Rudolf Udo Proksch was at the center of the MS Lucona affair. The insurance fraud involved the freighter ship Lucona supposedly carrying equipment valued at €45 million, which sank in 1977 due to an explosion, taking six crew members with it. Decades later, Proksch was sentenced to life.

Unsurprisingly this heady mix fueled both intense media interest and the determination of the insurer to resist the claim in court. In 1983 a private detective, Dietmar Guggenbichler, filed a criminal complaint against Proksch (and an accomplice) with the Salzburg Gendarmerie, charging fraud, murder and complicity. Then (FPÖ) Minister of Justice Harald Ofner, however, blocked any further legal proceedings in the MS Lucona case.

A well-connected corrupt Austrian

Proksch was notorious, but well connected across the political spectrum, and his connections helped, for a while. Despite numerous interventions, however, Proksch and his partner in crime finally went to jail in February 1985 but signed out after his friend (SPÖ) Foreign Minister Leopold Gratz claimed to have seen the MS Lucona’s freight. Eight months later the authorities detained the Lucona duo again, but days later, they disappeared. As Gerold Freihofner sardonically comments in his chronology: “Miraculously they had ‘forgotten’ to forbid foreign travel.” However, in October 1989, the authorities found Proksch when he tried to re-enter Austria (with a new identity and heavy cosmetic surgery) and at last brought him to justice.

The MS Lucona proceedings were long and involved many grandees of the Austrian establishment, who did not come out looking good. Several ministers had given false evidence but received only slap-on-the-wrist fines. The justice minister and his department officials, who had blocked and delayed the investigations in the MS Lucona affair for years, never faced any consequences. Even Proksch’s first sentence was a scandal: The court found extraordinary extenuating circumstances in the MS Lucona case and sentenced him to (only) 20 years. The prosecution protested vigorously, and the court finally sentenced Proksch to life, where he died in prison in 2001.

Aftermath of the MS Lucano Scandal

Senior Judge Ferdinand Streller’s final summing up encapsulated the full criminal, ethical and political dimensions of the case: “An attempted insurance fraud unique in criminal history […] Proksch had been planning this for years […] He is a horrifyingly cold-blooded, inhuman person […] who unscrupulously put profit before the lives of MS Lucona’s crew […] and shamelessly exploited his political connections.”

There have been other scandals that involved more money than Lucona et al – Wirecard most recently comes to mind – but none that so rigorously exposed the special Austrian nexus of fraud and politics. Freihofner again: “On balance, this scandal shows that Austria doesn’t have more affairs than other European countries, but is particularly sloppy in cleaning up the political and legal consequences.”

Like Freihofner, we are going to leave the last word to Austria’s (much missed) scandal exposing crusader, former politician Peter Pilz: “In Austria, the Lucona sinks again every day. Whether it is Noricum, Mittendorfer Senke or … (other scandals) … business interests, political subservience and bureaucratic capriciousness all combine in the same sleaze.”