Koskotas scandal (Greek: Σκάνδαλο Κοσκωτά) was a corruption and financial scandal in 1989 Greece centered on George Koskotas, owner of the Bank of Crete and mass media magnate, implicating the highest-ranking members of the Greek government, including Prime Minister Andreas Papandreou.^[1]

Koskotas was shaken by early investigations of Greek publishers on the rapid changes in the ownership of the media landscape in the mid-1980s and left Greece to the United States to avoid justice. However, he was caught by US authorities for unrelated fraud crimes on 24 November 1988. In prison, Koskotas' alleged that the missing over US$200 million^[i] from his bank was embezzled with the support of several government ministers and Papandreou. In return, Koskotas supported Papandreou's socialist political party (PASOK) through his magazines and newspapers, some of which were bought with embezzled money, including conservative newspapers such as Kathimerini.^[2][3] The revelation attracted international attention and caused considerable political turmoil, with six ministers resigning in protest.^[4] A judicial inquiry revealed additional scandals, ranging from illegal commissions to war profiteering,^[5][6][7] further deepening the public disillusionment with the populist government of Papandreou. However, Papandreou, having no constitutional restraints based on the 1986 constitutional amentments, abused his power by introducing legislation to prevent the advancement of Koskotas investigation,^[8] which, if convicted he would go to prison for life,^[9] and changed the electoral law to prevent the opposition from coming to power. Moreover, Papandreou, during the election campaign, promised to empty the coffers of the state to his loyal supporters,^[10][11] and over 90,000 civil service jobs were bestowed as a means to stay in power and suppress the scandal.^[12]

Papandreou lost the June 1989 Greek parliamentary election, owing much to the Koskotas scandal,^[13] but no single political party was able to form a government by itself due to Papandreou's electoral law change. Nevertheless, this led to an unexpected collaboration between conservative New Democracy and radical-left Synaspismos political parties to form a government with a limited mandate for the completion of the investigations of PASOK scandals that became known as "catharsis." This collaboration was extraordinary for Greek society since they were on opposite sides in the Greek civil war, and it was marked as a healing process.^[1][12][14] However, the political polarization had reached its climax when, on the day that the Parliament initiated procedures for the indictment of Papandreou and four of his ministers,^[ii] 17 November terrorist organization assassinated Pavlos Bakoyannis, a member of parliament and the architect of Papandreou's indictment.^[15][16] Both major political parties accused each other for the assassination.^[17] After two more parliamentary elections in less than six months, New Democracy, led by Constantine Mitsotakis, came to power in April 1990.

Koskotas was extradited to Greece in 1991 for the trial, which lasted nine months, with live broadcasts dominating the daily news cycles and public discourse. At the end of the trial, Koskotas and Papandreou's ministers were found guilty, and one of the ministers had a stroke on live TV and died a few days later. Papandreou was acquitted by one vote.^[9][1][18] The trial is considered one of the most significant trials of modern Greece.^[19]

The scandal marked a turning point in Papandreou's populist government, which had a tight control over the state apparatus since 1981. The year 1989, in which the scandals were revealed out of the Koskotas scandal, is called "Dirty 89."^[20]

The Third Hellenic Republic was founded in 1974 in a turbulent period in Greece, right after a seven-year junta (1967-1974) which fell because of its poor handling of the Turkish invasion of Cyprus. Constantine Karamanlis returned from exile and laid the foundations for the new republic with the Constitution of 1975.

At the same period, the Greek economy, having outperformed in the previous two decades, was slowing down due to the oil crisis of the 1970s and the additional competition with the entry into the European Market.

In 1980, Karamanlis became President of Greece, leaving a power vacuum that led Papandreou to become Greece's first socialist prime minister.^[21] The elevation of Papandreou was hailed as a milestone because PASOK was the first non-communist political party and a step in renormalizing the social trauma caused by the Greek civil war (1946-1949). The cohabitation of the two men in the 1981–1985 period was successful since Papandreou governed in a more pragmatic approach compared to his radical polarizing rhetoric by reversing many of his campaign promises.

However, in 1985, Papandreou triggered a constitutional crisis by suddenly declaring not to support Constantine Karamanlis for a second term as President of the Republic, and proposing constitutional amendments designed to further increase the power of his position by reducing the presidential powers that were acting as checks and balances against the powerful executive branch.^[22] The new president was elected by the Parliament in a tense and confrontational atmosphere due to constitutionally questionable procedures by Papandreou.^[23] The constitutional amendments took effect in 1986, effectively making the position of prime minister a "parliamentary autocrat."^[24][25]

Early in Papandreou's second administration, press reports on PASOK's corruption multiplied, with notable ones being the "Yugoslav corn scandal," the "telephone tapping scandal," and the "public utilities scandal."^[26][5] However, Papandreou himself was implicated in the Koskotas scandal, which overshadowed all other PASOK's scandals.

Koskotas was born in Athens in 1954 to parents of limited means.^[27] In 1969, at the age of 15 and following his parents, he left Greece for the US to work as a worker in renovating houses at his father's business.^[27] He attended Fordham University and Lehman College in New York. During his 10-year stay in the US, Koskotas gained a reputation for deception offenses involving forging signatures, academic records, and assuming false identities, having a total official record of 64 offenses.^[27]

On 3 July 1979, Koskotas joined the Bank of Crete's financial administration department, which consisted of the accounting and computing sections.^[28] He was rapidly promoted to different positions, gaining access to the inner parts of the bank. From 18 July 1980 onwards, Koskotas started misappropriating large amounts of the bank's money in his accounts; some of the embezzled money was used to buy shares of the Bank of Crete,^[28] primarily from the major shareholder at the time, Ioannis Karras.^[29] Increasingly, he could change personnel with loyal people and execute his directives without questions. By 18 January 1985, Koskotas had gained complete control of the Bank by becoming President of the Bank's board and executive director of the Bank.^[28] Between 1984 and 1989, Koskotas tripled the number of Bank of Crete stores throughout Greece and abroad, as well as made significant acquisitions, such Hotel Grande Bretagne.^[30] He was described in the press as the "Donald Trump of Greece" due to his sudden rise in wealth and the display of it.^[31]

In 1982, Koskotas set up the mass media company 'Line' (Greek: Γραμμή) and became chairman of the board in the following year. Soon, Koskotas had complete control of the company after forcing the founding members and major shareholders to withdraw.^[32] He created SKY 100.4 radio station, which later became Skai Group.^[30] Koskotas continued to increase his position in the Greek media landscape by acquiring the two largest conservative newspapers, Kathimerini from Helen Vlachos in May 1987 and Vradyni in June 1988. Both newspapers had been critical of Papandreou's policies until their acquisition from Koskotas.^[33] Effectively, Koskotas had embezzled large sums from the bank's clients and illegally used this money to form a mass media empire to support PASOK exclusively.^[2][3]

George Koskotas had, in a short time, acquired several newspapers and magazines, a radio station, and one of the top soccer teams, Olympiacos F.C., in the mid-80s.^[3][34] Publishers became suspicious of the rapid changes in the media landscape and started investigating where Koskotas was finding all this money, as well as, his close relationship with Papandreou and some of PASOK's ministers.^[3] Publishers began to make public their findings from investigations on Koskotas' past, and Koskotas responded by suing them for defamation.^[30] Moreover, it became apparent that Koskotas had help from the PASOK government in overcoming bureaucratic barriers to expand his media empire^[3] and the government resisted demands for investigation after Koskotas took over the Bank of Crete in 1985.^[35]

In October of 1987, Koskotas was invited to a dinner by Ronald Reagan at the White House, but at the event, he was arrested by Internal Revenue Service agents for some of his crimes committed when he was living in the US.^[30] He was released with a bail of one million dollars but without his passport.^[30] Koskotas went to the Greek embassy accompanied by Alexis Papahelas, who at the time was a journalist in Line, and requested documentation to return to Greece by claiming that he had lost his passport.^[30] Upon his return to Greece, Koskotas attempts to buy more mass media companies in response to publishers' requests for judicial investigation.^[30]

The negative publicity of Koskotas and rumors caused depositors of the Bank of Crete to withdraw their money, causing liquity concerns.^[35] At that point, according to Ioannis Palaiokrassas, who was a member of the parliamentary committee investigating the case, "We know that in the summer of 1988, during which Koskotas met with the prime minister at least once, large sums of money were deposited with the Bank of Crete by a dozen governmental organizations and enterprises."^[35] Approximately $35 million was deposited into the Bank of Crete, doubling its deposits, and they were from various state companies, including Olympic Airways, Greek Telecommunications Corporation, Attica Bank, and Hellenic Post.^[35]

The Minister of Justice Agamemnon Koutsogiorgas introduced legislation (Law 1806/1988) that provided Koskotas protection from potential investigations.^[36] By this moment, the PASOK government was able to contain any investigations of the scandal. However, the Chief Judge of the Court of Appeals, Dimitris Blachos, went for holidays in Corfu on 5 July 1988, leaving the next judge in seniority in charge, Dimitris Tsevas, who re-initiated the judicial inquiry on 11 July 1988.^[30] Upon hearing the news, Blachos interrupted his holidays and reported Tsevas for disciplinary violation. At the same time, the newspaper Eleftherotypia published the initial findings of the judicial inquiry.^[30]

In August 1988, Papandreou (at age 70) underwent major heart surgery in London and had to stay there for three months,^[37][38] and Koutsogiorgas was governing in his place though Papandreou refused to step down officially. However, in London, it was revealed that next to him was not his wife but Dimitra Liani, an Olympic Airways steward aged 33, who had met in 1986, and she was a constant companion in the last months before the surgery.^[39] After his return, she appeared frequently next to Papandreou, who was still married, receiving wide publicity in the Greek press.^[40]

On 20 October 1988, the Greek courts suspended Koskotas as chairman of the Bank of Crete and indicted him on five counts of forgery and embezzlement.^[41] On 31 October, the courts also restricted Koskotas from leaving Greece while the investigation was pending.^[41][42] To avoid justice, he left Greece for the United States (with an intermediary stop at Brazil) on 5 November 1988 despite being under strict surveillance by Greek security forces,^[42] and left from Athens Airport with the help of Argyris Saliarelis [el] and his private jet.^[35] On 7 November 1988, the Minister of Public Order, Tassos Sehiotis [el], resigned since his ministry was responsible for police surveillance of Koskotas.^[41] On 11 November, Minister of Justice Koutsogiorgas also resigned due to accusations of illegal financial transactions with Koskotas.^[35][42] The opposition leader, Mitsotakis, accused the PASOK government in Parliament: "The Greek people are left with the conviction that George Koskotas was spirited away so that he would not speak. The responsibility goes all the way to the top of the government."^[43] He demanded Papandreou and his government to resign.^[43]

Upon arrival at Boston airport in Massachusetts, Koskotas was arrested on 24 November 1988 for the unresolved fraud crimes of his past and was jailed in the United States.^[43] On 28 November, Federal District Judge Miriam G. Cedarbaum froze Koskotas' United States assets (estimated between 30 to 35 million dollars) after the Bank of Crete filed in Manhattan a lawsuit accusing Koskotas of having embezzled hundreds of millions of dollars.^[41] The day after, Ron Liebman, Koskotas' lawyer, said that his client sought entry to the United States "because he had been advised that Greek operatives had been dispatched to kill him."^[41]

In December 1988, after the opposition and various respected former ministers called for a clean-up, Papandreou, who had returned from London on 22 October from heart surgery, reshuffled the ministers and yielded under pressure to a parliamentary commission inquiry. Demetrios Halikias, the governor of the Bank of Greece, testified to the commission on 7 December 1988 that two senior PASOK ministers (one of who was Koutsogiorgas) had tried to prevent an audit of the Bank of Crete.^[35][7] Resignations followed (Stathis Yiotas, Deputy Defence Minister, and Theodore Karatzas, Finance Under Secretary) upon the revelations during the inquiry that the members of Papandreou's government were profiteering by illegal arms sales to both sides in the Iran–Iraq War and the apartheid state of South Africa.^{[5][6][7][35]} It also revealed that for the "purchase of the century" (40 American F-16 and 40 French Mirage 2000 aircraft^[44]), the Greek state overpaid by as much as 20% above the true cost due to illegal commissions to PASOK members.^[45][46][47]

In March 1989, Time magazine published an article describing in detail the allegations that Koskotas made to US officials.^[48] Koskotas alleged that Papandreou and other PASOK high functionaries had ordered state corporations to deposit funds (over $200 million^[i]) with the Bank of Crete, which went missing in the form of bribes and acquisition of mass media companies. Koskotas claimed that on one occasion, he had delivered to Papandreou himself $600,000 stuffed in a Pampers Diapers box.^[49][50] Papandreou denied the story, accused the US of manufacturing this scandal to destroy him,^[51] and even sued Time magazine.

Koskotas's accusations gained international attention. Several months after the arrest of Koskotas, six ministers (including Costas Simitis^[38]) resigned in protest of the corruption among the most senior members of PASOK.^[4] There were demands for a vote of no confidence against the government, which Papandreou defeated in December 1988 and another one in March 1989.^[52] Still, three members of PASOK voted against the party line, however, Papandreou responded by removing them from PASOK, including Antonis Tritsis, who was a founding member of PASOK.^[53]

Despite the rising public frustration with the state of affairs, Papandreou abused his position to stay in power since he had successfully removed constitutional restraints in 1985. Notable actions include but are not limited to the following:

• Papandreou changed the electoral law shortly before the June 1989 general elections, a move designed to prevent New Democracy from securing an absolute majority.^{[iii][54][55][46]}
• Bestowing public appointments to about 90,000 people to gain additional votes six months before the 1989 elections.^[12] Papandreou's blatant patronage reached the point of giving in one of his rallies a public command to the Minister of Finance Dimitris Tsovolas to "give it all [to them]" (Greek: Τσοβόλα δώσ'τα όλα) and "Tsovolas, empty the coffers [of the state]," and the crowd chanted these back.^[10][11]
• During the judicial inquiries of the Koskotas scandal, it was revealed that Papandreou used the Junta's surveillance infrastructure (filing and wiretapping) against any Greek citizen who was not loyal to him.^[56][26][57] In the list of "suspected terrorists" according to Papandreou included prominent politicians across the political spectrum, his ministers, publishers, policy chiefs, and even PASOK's governmental spokesman.^[58]
• Judicial independence was damaged when Papandreou passed a law via emergency procedures despite massive backlash from lawyers, judges, and clerks, to prevent the judicial investigation of the Koskotas scandal from advancing to Athens Appeals Court.^[8]

The election campaigns were conducted under a polarised atmosphere with inflammatory allegations and vitriolic personal attacks, even between the two leaders of the dominant political parties.^[59] PASOK's programme avoided mentioning the Koskota scandal and instead emphasized economic modernization with slogans, "For Victory and New Progress," and "PASOK is here: certainty for the present, hope for the future."^[60] New Democracy's campaign strategy was based on liberalization of the market, i.e., "free the competitive forces of the market" from the overreaching state, but also criticized PASOK about the scandals with the slogan, "We deserve a better Greece."^[61]

On 2 June, Avriani [el], a tabloid newspaper supporting PASOK, published a transcript of a conversation between Mitsotakis and an unidentified mistress that was supposedly being taped and also claimed to possess 'pornographic' photographs of Mitsotakis but never published.^[59] This was in response to the publication of nude photos of Liani, Papandreou's then-mistress.^[59] The rhetorical confrontation between the two leaders in the campaigns was personal. Papandreou implied that Mitsotakis was a Nazi collaborator and talked about Mitsotakis' "treachery" against his father's government in Apostasia of 1965.^[62] On the other side, Mitsotakis, invoking the Koskotas scandal, talked of Papandreou's "little corrupt team that has looted Greece" and that PASOK was led by "a bunch of thieves."^[62] Papandreou's defense was that the scandal was created and used against him: "The Americans and the Right together with the crook Koskotas are conspiring to otherthrow socialism in Greece."^[62] Despite the friction in the newspapers, PASOK had the advantage of being the governing party having control of the radio and television services, which at the time became an undisguised component of PASOK's propaganda.^[63]

In the June 1989 elections, PASOK's electoral percentage fell to 38% from 48% in 1981, owing much to the Koskotas scandal.^[13] However, Mitsotakis' party got 43%, but it was insufficient to form a government; Papandreou's last-minute change of the electoral law required a party to win 50% of the vote to govern alone. Papandreou hoped that while PASOK might come second in electoral votes, it could form a government with the support of the other leftist parties, but he was rejected.^[64] Instead, New Democracy (right wing) collaborated with the Synaspismos (radical left), led by Charilaos Florakis, to form a government under Tzannis Tzannetakis; while on the opposite ideological sides (as well in the Greek Civil War), both sought a "catharsis," i.e., investigation and trial of PASOK's corruption was completed.^[1][12][14] The decision carried additional responsibility because if no charges were brought against Papandreou under the current collaboration between New Democracy and Synaspismos, no future government could do so based on the Greek constitution.^[65][66] The participation of Synaspismos party in the government marked the end of the militarized politics of the past since there was no reaction from the military. Papandreou denounced the collaborative government as "unholy and unprincipled."^[67] The Minister of Justice became Fotis Kouvelis, President of the Athens Bar Association, and he was tasked with organizing the judicial processes of parliamentary investigation and indictments.^[67] While the Minister of the Interior became Nikos Konstantopoulos, a PASOK defector, was tasked to cleanse the state machine for the upcoming November election.^[67] On 8 July, the collaborative government receive 174 out of 300 votes of confidence, signaling the start of parliamentary investigations.^[67] The collaborative government also granted the first private television broadcast licenses to publishers who were critical to PASOK as a counterbalance to state media to avoid future political exploitation from any future omnipotent prime minister.^[68]

Political polarization reached a climax five weeks before the scheduled elections of November 1989, when the Greek parliament was about to start deliberations on whether Papandreou and four of his ministers^[ii] would be indicted. On this day (26 September 1989) and hours before deliberations began, Pavlos Bakoyannis (son-in-law of Mitsotakis), a prominent conservative member of parliament and the architect of collaboration between the left and right wings for Papandreou's indictment, was shot by 17 November terrorist group outside his office in Athens.^[15][16] Both major political parties (New Democracy and PASOK) accused each other for the assassination.^[17] A few months before, 17 November attempted to assassinate George Petsos [el], who was slightly injured from a car explosion en route to work, for the alleged involvement in the Koskotas scandal.^[69] A day after the death of Bakoyannis, Papandreou stormed out of Parliament, shouting, "I accuse my accusers," just before the parliamentary vote on his indictment;^[15] Papandreou and four of his ministers were indicted.^[70][71] It was the first and only time a prime minister of Greece had been indicted.^[71] On 22 October, there was an assassination attempt against Mitsotakis hours before addressing his supporters in Mytilini.^[72]

In the November 1989 elections, New Democracy got 46% of the vote but could still not produce a government. All the parties in Parliament (New Democracy, PASOK, and Synaspismos) entered a National Union government,^[12] which excluded the leaders of the three parties, under Xenophon Zolotas (a retired banker at the age of 85) as a way out of the deadlock and to restore public trust in political institutions. Zolotas resigned in April 1990 due to the inability to reverse the continuous deterioration of the Greek economy from Papandreou's handling in previous years.^[1][73] In the elections of April 1990, Mitsotakis received sufficient (by one seat above the threshold) support to form a government, and Papandreou became the opposition leader.^[1] This marked the end of the political dominance of PASOK in its first era.^[74]

Koskotas was extradited to Greece in 1991 for the trial, and Papandreou's trial began in Athens on 11 March 1991.^[1] However, as a former prime minister, he exercised his constitutional right not to attend the trial and proclaimed that the trial was a witch-hunt. In January 1992, the Parliament-appointed tribunal of 13 judges of Supreme Special Court, having heard over 100 witnesses and investigated 50,000 pages of documents over ten months, acquitted Papandreou of the charge of instigating the loss of funds of state companies with a 7–6 vote and a bribery charge of receiving the proceeds of a crime with a vote 10–3.^[9][1][18] During the trial, the deputy of the Prime Minister, Agamemnon Koutsogeorgas, who was also accused and a close friend of Papandreou, had a stroke on live television during his sentencing and died a few days afterward. Dimitris Tsovolas, former Minister of Finance, was sentenced to two-and-a-half jail years.^[75] Koskotas was tried and sentenced to a 25-year prison term.

When Constantine Karamanlis was asked about the verdict, he commented, "In democracies, prime ministers do not go to prison. They return home." by both reaffirming the court's decision while at the same time admitting the existence of both positive and negative implications for the country.^[76] The trial was characterized as the "trial of trials" and the most critical judicial decision in modern Greek history since the Trial of the Six in 1922.^[19]

In 1993, PASOK returned to power and introduced legislation (Law 2298/1995) to contain other cases under investigation from the fallout of the Koskotas scandal. This was a constitutional violation (Article 4 of the Greek Constitution).^[77]

Since the Koskotas scandal, the banking systems in Greece have been modernized, and banking supervision has become stricter. Specifically, all banks and companies in Athens Stock Exchange adhere to a mandatory corporate governance code, which requires an internal auditor to report to the audit committee of members of the board of directors.^[77] In 2002, this corporate governance code became mandatory.^[77] The need for auditors led to the creation of new auditing firms and the establishment of the Accounting Standardization Committee, a public body that supervises auditing reports in Greece and takes disciplinary action against improprieties from the banks, companies, and auditors who fail to perform their duties.^[77]

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