German bank's brothel loan under scrutiny by regulators

Germany's top financial regulator has questioned a regional bank over ​its financing of one of Europe's largest brothels, a person with ​direct knowledge of the matter said.

BaFin's request for ‌information ​relates to a 2021 loan by Volksbank Koeln Bonn for the purchase of Cologne's Pascha brothel by a Chinese investor, said the person, who spoke on condition of anonymity. Prostitution is legal in Germany. The ‌Volksbank said in a statement that it hired an unidentified law firm in July to conduct an independent investigation into the deal, looking at whether a bank board member "possibly personally benefitted" from the transaction. The Volksbank provided no further details about the loan.

Volksbank Koeln Bonn declined to comment on ‌the questioning by BaFin, the German regulator. It said its own investigation operated on the presumption of innocence and that the board member, ‌whom it has not named, would be on leave while the review is conducted. Lawyer Markus Lehmkuehler told Reuters he was acting for the board member, whom he named as Juergen Neutgens. His disclosure came after Reuters tried to reach Neutgens on LinkedIn.

Neutgens is one of three board members at the Volksbank. He has been on the ⁠board since ​2018 with responsibilities that have included corporate ⁠clients, private banking and treasury. Lehmkuehler said his client denied any wrongdoing and declined to comment on any contact with the regulator.

The bank's decision to conduct an internal ⁠investigation followed German media reports about the loan. The regulator's focus is on the potential payment of a kickback to the board member, the person with direct ​knowledge of the matter said. Reuters could not establish who received the alleged kickback, or its reason.

"My client did not receive ⁠any payments at any time," Lehmkuehler said in a written response to questions. "He believes that the ongoing investigation will show that the accusations against him are unfounded." Germany's Volksbanken are member-owned ⁠cooperative ​banks that form a pillar of the financial sector in Europe's largest economy. They rarely lend to foreigners abroad and generally banks steer clear of business that could harm their reputation.

The Chinese investor, named in company filings as Hu Jing, did not respond to text messages ⁠about the loan sent by Reuters to a phone number in the filings. A lawyer for Hu in Germany said there were "no indications ⁠whatsoever that the property’s owner or operator ⁠was under investigation". Pascha manager Andre Wienstroth, who has operated the brothel since its reopening after Hu's purchase, said his company rented the premises and had nothing to do with the loan.

Reuters was unable to ‌independently confirm this.