Graf Affair: Germany's Biggest Tax Scandal

BERLIN - It started as a simple family scandal, albeit a big one: a volatile Svengali of a father allegedly scheming to evade the taxes on his daughter's hard-won millions; a clean-cut tennis idol struggling tearfully to keep her game intact, even as her creator was carted off to jail.

Now, though, the Steffi Graf Affair seems to be blossoming into something more: "the biggest tax scandal ever in Germany involving a private individual," says state legislator Dieter Puchta, one of a growing number of politicians calling for a wide-ranging public investigation.

Not only the names of the U.S. Open's recent victor and her father are being splashed across the front pages of the German press these days. So too are the normally invisible denizens of the German tax bureaucracy, a state minister or two, the German Tennis Federation and such leading lights of the international private sector as Adidas, the German subsidiaries of General Motors and Citibank, the Italian pasta-maker Barilla and a large Stuttgart dairy, Suedmilch, whose yogurt Steffi Graf promoted.

The Graf Affair exploded in May, when 15 investigators from the public prosecutor's office raided the family's southern German estate, seizing documents and keys. Although tax investigations in Germany normally are kept secret, word leaked out that the officials believed Peter Graf had set up illegal tax shelters for his daughter's earnings, enabling him to conceal millions of dollars.

Court refuses $10 million bond

By August, Peter Graf was arrested and placed in a hospital-prison, where he continues to be held in "investigative custody" while prosecutors prepare their case against him. A problem drinker, he is said to be receiving liver and circulatory-system treatments.

He offered to post a $10 million bond, but court officials refused, saying they believe he would flee Germany or destroy evidence if freed. In late September, authorities took the Graf family's tax adviser into custody as well.

Through it all so far, Steffi Graf, 26, has kept to her tennis. She won the U.S. Open in New York last month but then broke down in tears in a post-match news conference, explaining that she was unable to visit her father in prison because she is considered a possible accomplice.

(Graf, who recently was questioned by authorities in connection with the case, has since returned to Germany and been granted permission to see her father.)

`People don't blame Steffi'

Now, with calls mounting here for open hearings and sanctions against the civil servants who may have led the Graf family astray - and with the grotesque relationship between a dominating father and an approval-starved daughter laid bare for all to see - many fear that the pressure will prove too much and that the woman whom Germans routinely call "our Steffi" will retire.

"People don't blame Steffi Graf," says Puchta, chairman of the legislative finance committee for the state of Baden-Wurttemberg. "People say her father did it all for her."

Indeed, in prosperous, proper Germany, the elder Graf, who once sold used cars to GIs, is far too much of a scrambler to fit in. As his daughter's earnings ballooned into the tens of millions - they are estimated to now total $125 million - he hauled cash prizes away from tournaments in bulging grocery bags.

As the story has it, Peter Graf gave his daughter her first sawed-off racket when she was 3. She won her first final when she was 6. He controlled her life completely. When she competed in the Olympics in Seoul in 1988 and Barcelona in 1992, he wouldn't let her live in the Olympic villages, where she might have met young people, but was made to stay with him at off-site hotels.

When at last Steffi Graf began to be seen with a male friend, the auto racer Michael Bartels, her father reportedly told a journalist: "This guy doesn't mean anything. I pay him, so that people won't think Steffi is a lesbian."

Steffi trusted father

Asked today about this bizarre father-daughter relationship, the tennis star appears at a loss. "He is my father, and I will stand by him and always look at him as my father," she recently told the German news weekly Focus in a rare, long interview.

"In the future, I'll bear more responsibility and have to make more (financial) decisions," Graf said, asserting that up until now, she had given her father complete control over her multimillion-dollar earnings and had no clear idea where the money was, or even how much she had made.

"What else was I supposed to do when I was 15, 16 or 17 years old, besides trust my father and his advisers?" she asked. "And later, why should I do anything differently, when everything appeared to be running well? There was no sign for me that everything wasn't in order."

Germans may be willing to accept her protestations of innocence. But there is growing disgust here that there were, apparently, well-placed people who knew perfectly well what was going on - and they either looked the other way or abetted Peter Graf's shenanigans.

Records available so far suggest that as early as 1985 Peter Graf was searching for ways to decrease the 48 percent in taxes that the average German wage-earner pays to the state in one form or another.

Significantly, that same year tennis star Boris Becker - a Baden-Wuerttemberg native - abandoned his home state, moving to the low-tax principality of Monte Carlo.

Father decided against move

Old correspondence shows that a senior Adidas official suggested the next year that Peter Graf solve his tax problems by moving to Switzerland. But Graf apparently decided, instead, to ask his home state officials what they might be willing to do for him.

Just what happened next is murky. Peter Graf boasted to his Adidas friend that the state's prime minister had worked out a "political solution" for him, but the former prime minister categorically denies it.

The state sports minister at the time appears to have been more helpful. Gerhard Mayer-Vorfelder, today the state's finance minister, is reported to have arranged a meeting between the unwilling taxpayer and the state's highest fiscal authorities.

And soon after, Peter Graf opened letter-drop firms, both called Sunpark, in the Netherlands and its former colony, the Netherlands Antilles. German authorities now believe Sunpark's sole business was to secretly collect Steffi Graf's earnings offshore so that they could be hidden from the German tax office.

It was to Sunpark that Peter Graf wanted companies like Adidas, Barilla, Suedmilch and the General Motors and Citibank subsidiaries to send their payments for his daughter's product endorsements. Suedmilch staffers who got stuck making the actual deliveries - sometimes in great wads of cash - were so struck with the weirdness of it all that they dubbed the Sunpark scheme "Operation Goldfinger."

Meanwhile, Peter Graf seems to have gotten the idea that his daughter no longer had to file any tax returns. None were handed in from 1989 to 1992; instead, the Grafs just paid an annual lump sum with no explanation of how they had arrived at the amount. When federal and local tax officials started to grumble, the family made a lump-sum tax payment of $2.5 million - with no supporting documents to show how it was calculated.

Lawsuit triggered investigation

Large though this amount may be, it is but a fraction of the amount Steffi Graf owed.

"It appears that they've paid only 5 percent to 10 percent of their income," says Puchta, the state legislator, noting that a correct payment at Steffi Graf's earnings bracket would have been 50 percent.

None of these goings-on might have come to light had it not been for some sports promoters in the western German city of Essen, who paid Steffi Graf a "starter's fee" to appear in a tennis match. Graf was sick on the appointed day, but her father refused to send back the money. The Essen organizers sued.

The lawsuit itself was small potatoes. But the panel of judges hearing it noticed the irregular ways in which the Graf family was receiving its money and brought the matter to the public prosecutor's office. After years of neglect, someone finally decided to take on the Grafs.

Today, Puchta and other members of Baden-Wuerttemberg's coalition government are eager to hold a formal investigation of the Graf affair, one that would find out which public servants gave Peter Graf the impression he could evade taxes and not be punished. (As yet, the public prosecutor is known to be investigating only the Grafs and their advisers, not any of Baden-Wuerttemberg's fiscal authorities.)