Supplier tip triggered VW corruption affair -ex-CEO

BRUNSWICK, Germany Tue Jan 15, 2008 6:46am EST

BRUNSWICK, Germany Jan 15 (Reuters) - A supplier's tip-off that Volkswagen (VOWG.DE) officials solicited him for a bribe triggered a corruption scandal at the carmaker, ex-Chief Executive Bernd Pischetsrieder testified on Tuesday.

Pischetsrieder, who was forced out as CEO in 2006, told a German court he had no idea before the tip in June 2005 that company funds were plying VW labour leaders with perks and prostitutes, as emerged when the scandal erupted.

Former VW works council head Klaus Volkert is charged with incitement to breach of trust in the case, while his management liaison, Klaus-Joachim Gebauer, is accused of breach of trust.

Pischetsrieder said he sought out VW's personnel director, Peter Hartz, when the unnamed supplier came forward to say he had received the dubious contract signed by Gebauer and Helmuth Schuster, then personnel director at VW Czech unit Skoda.

"Mr Hartz was shocked," Pischetsrieder recalled, but Hartz hesitated "not a second" in declaring both men had to go should the bribery suspicion turn out to be true.

Gebauer and Schuster left the company, and Gebauer revealed details about lavish spending on works council members to keep them loyal to management.

VW Chairman Ferdinand Piech last week also denied any knowledge that the carmaker was showering money and women on labour leaders when he was chief executive from 1993 to 2002.

Hartz, who was convicted in the case last year, has testified that he -- not Piech -- decided to pay Volkert lucrative bonuses so that he felt like a senior executive and would be inclined to support management's restructuring plans.

Attorneys for Volkert and Gebauer hope to show that top VW management was aware of the pay-offs so that the defendants get more lenient sentences.

Volkert, once a powerful VW figure who stepped down when the affair came to light, is accused of soliciting nearly 2 million euros ($2.97 million) in company funds for personal gain. He denies he put his employer up to the payments.

Witnesses have testified that VW labour leaders -- key players under the German system that gives workers a big say in running companies -- were extensively wined and dined for years at VW's expense, including visits to nightclubs and prostitutes.

The court is expected to give its verdict on March 27. (Reporting by Sabine Ehrhardt; Editing by Louise Ireland)