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. Last Updated: 07/27/2016

Europe's Watergate




A slow-motion version of Watergate has been unfolding in Europe over the past several years, little noticed or understood in the United States. But to quote one of the memorable phrases of the Nixon scandals of a generation ago, "every tree in the forest could fall" as this one widens.


The Euro-scandals center on a French state-owned oil company, Elf Aquitaine, which during the early 1990s operated as a kind of corrupt piggy bank - generating payoffs that were shared by politicians from Gabon to Bonn. The Elf network of kickbacks became pervasive, a secret glue uniting French and Germans, politicians and business tycoons, communists and capitalists.


Helmut Kohl, the former German chancellor, is the latest European politician to be hit by the falling debris of the Elf scandal. German prosecutors are investigating allegations that his Christian Democratic Union shared in $40 million in "commissions" paid by Elf when it purchased the dilapidated Leuna refinery in eastern Germany in 1992.


Corruption produces strange bedfellows. Here was French President Fran?ois Mitterrand, a socialist, allegedly ordering Elf to buy the refinery to assist his friend Kohl, a conservative.


"Germany must be helped," Mitterrand reportedly told the head of Elf. The ancient refinery was duly acquired for a price as much as three times its true worth, and a shadowy network of operatives began packaging the payoffs with a financial finesse worthy of Goldman Sachs.


According to French press reports, Elf paid about $40 million to a company in Geneva called Noblepac, which was controlled by a notorious Corsican businessman named Andre Guelfi, nicknamed "Dede le Sardine." Guelfi passed the money along to two more dummy companies, Showfast Ltd. and Stand-By Establishment. The money was then diverted to "charitable" foundations, and at least some of it allegedly went to Kohl's party.


The German payoffs are just the latest example of how Elf worked. Earlier chapters of this scandal chronicled a payoff for an African leader; a slush fund for the mistress of former French Foreign Minister Roland Dumas; payments to operatives of former French Interior Minister Charles Pasqua; payments to the secretary of former French Finance Minister Dominique Strauss-Kahn. Indeed, the scandal touches nearly every sector of the French establishment - and from there it has spread outward to Europe, Asia and the Middle East.


We know these details of Elf's activities only because of the courageous crusade of a French magistrate named Eva Joly, who has been trying to unravel the company's accounts since 1995. Despite a series of death threats, she has pushed onward - jailing Guelfi and former Elf president Loik Le Floch-Prigent to compel their testimony.


In the past, the French Establishment would have been able to throttle such a meddlesome investigation before it did any serious damage. The fact that it failed in this case suggests France has developed a genuinely independent judiciary.


The Elf scandal has revealed Europe's dirtiest secret: the corrupt intersection of business and government. It's now clear that many of the big state-owned companies of Europe, symbolized by Elf, have been private preserves for corruption. Their executives have often been cronies of the ruling politicians, and their coffers have too often been used to pay bribes and kickbacks around the world. It's a kind of bald corruption that has become rare in the United States. That's not because Americans are more honest than Europeans, but because the U.S. system is different.


The main culprits in the Elf scandal are two features of modern European social democracy. The first is the high rate of income taxation - it can still run at nearly 60 percent in France - which pushes people toward thievery and secret offshore bank accounts. The second is government ownership of business. While nominally a vestige of socialism, it can operate as a form of organized looting. Corruption may be the only reason these state-owned behemoths survived so long.


Nearly 20 years ago I wrote in the Wall Street Journal about an Italian oil-commission scandal - remarkably similar to some of the recent Elf shenanigans - involving an Italian state-owned oil company, ENI. I can only conclude that the system itself is "criminogenic" - that is, it creates criminals out of people who might otherwise make an honest living. Happily, the era of state ownership seems to be passing - symbolized by Elf's acquisition by a gung-ho private oil company, Total.


So where's the European Watergate heading next? Here's a guess:


The investigation is broadening to include the activities of another giant, formerly state-owned company Thomson CSF. According to French press reports, that company's headquarters were searched in mid-December as part of an investigation by another magistrate, Marie-Pierre Maligner-Peyron. She is also reportedly examining the activities of an attorney named Olivier Lambert, who worked closely with Thomson's former chairman, Alain Gomez. Because of Thomson's involvement in sensitive arms deals around the world, this new investigation could produce more explosions.


So stayed tuned, mes amis. This European version of Watergate still has a ways to run.


David Ignatius writes for The Washington Post, where this comment initially appeared.