BONN, OCT. 26 -- Two leaders of the former East German Communist party today admitted that they secretly transferred $70 million to a Soviet front company to hide the funds from authorities.
The Communists' deputy chairman and finance chief quit the party and were immediately arrested by Berlin police on embezzlement charges. Chairman Gregor Gysi, who took office last December promising to sweep out party corruption and wielded an oversized broom to emphasize the point, said he is leaning toward resigning Saturday.
Gysi, who traveled to Moscow and back Thursday to investigate the scam, spoke in a monotone, staring down at his hands as he told reporters that party leaders had sent the money to Soviet-held bank accounts in Norway and the Netherlands in an effort to avoid scrutiny by the German government agency charged with selling off the assets of the East German Communist government.
One week ago, Gysi won widespread sympathy by angrily denouncing Berlin police after they raided his party's headquarters without a warrant. Police were looking for evidence of the secret transfer, but Gysi said then that the money had been sent to a Soviet company, Putnik, to pay a legitimate debt for the education of East German students in the Soviet Union.
The Soviet Communist Party denied any knowledge of the German party's illegal transactions, according to the Tass news agency. The Soviet party said Putnik is a company created to handle Soviet business with Venezuela and Cyprus.
Today, the German Communist party's deputy chairman, Wolfgang Pohl, admitted that he made a "grave political mistake" by sending the money to the Soviet accounts. Pohl said that he and party finance chief Wolfgang Langnitschke set up a secret emergency fund of more than $70 million that could be used if German authorities confiscated the rest of the Communists' assets. A third member of the conspiracy, party official Karl-Heinz Kaufmann, reportedly fled to Moscow today.
"I acted out of fear that the party might be expropriated or even banned in the future," Pohl said.
The admission deals a potentially fatal blow to the party, already struggling to find a place on the left end of united Germany's political spectrum.
The party inherited the massive holdings of the Communist government, a nationwide network of industries, hotels, publishing companies and houses. Until last fall, the East German Communist Party was considered the richest political party in Europe.
Last winter, as details of the party's corruption poured out of its collapsing leadership, East Germans were shocked to learn of huge accounts in Swiss banks, private arms deals by party bosses and the luxurious lifestyles of Central Committee members.
Since then, the party's accounts -- estimated in July to be worth more than $300 million -- have been frozen for the most part, and a German government agency has been charged with selling off many old party assets as part of the privatization of the former East Germany.
German authorities are watching the party closely, trying to figure out how much is left of more than 3 billion East German marks that the Communists controlled as recently as this summer. And the domestic intelligence agency in Bonn said it is watching the Communists in a preliminary investigation of the party's constitutionality.
Gysi said he was not involved in the financial chicanery but added, "I am responsible as party chairman. Perhaps I was too trusting." Asked if he will give up the party leadership and his position as its top candidate in the Dec. 2 German elections, Gysi said, "I cannot explain my inner state to you, nor do I want to. Let me have one night's time."
Gysi, a 40-year-old lawyer who defended dissidents before taking on the task of reforming the party, has won a certain celebrity in recent months, becoming known to German TV viewers as an unusually witty and frank critic of the reunited country's politics.
The Communists, who have 24 seats in the interim all-German parliament, have changed their name to the Party of Democratic Socialism (PDS) as part of their effort to dissociate themselves from the Stalinist regime that East Germans overthrew last fall.
But the PDS, whose membership has plummeted from 1.5 million to 350,000 in one year, has failed in efforts to align itself with other members of the German left. Bonn's major opposition party, the Social Democrats; the environmentalist Greens, and the grass-roots groups that organized the East German revolution each rejected PDS overtures.
So have an increasing number of voters. In March, when East Germans voted freely for the first time in their country's 40-year history, the PDS won 16 percent of the vote. The tally dropped to 13 percent in local elections in May. By this month, when citizens of the former East Germany went to the polls to create their state governments in the reunited Germany, the PDS share was down to 11 percent.
Tonight, nearly every other German party declared the PDS kaputt. The ruling Christian Democrats called the PDS a party not only "with a bad past, but also with a corrupt present."