Red faces at failure to enact EC law: The hard-bargaining, high-living former head of Germany's biggest union is a fallen hero after an insider dealing scandal. John Eisenhammer reports

WHEN Hilmar Kopper, the head of Deutsche Bank, recently complained that legislation outlawing insider trading 'is clearly overdue and I cannot understand why it is taking so long', he was speaking for many in the international financial community.

It is almost a year after the July 1992 deadline to comply with an EC directive on insider trading. But Germany's draft legislation remains bogged down in official committees, with little prospect of being put into action in the foreseeable future.

What was an awkward delay has, with the Steinkuhler affair, suddenly become a serious embarrassment. Suspicions of insider trading prompted by the Steinkuhler affair have swung the spotlight back on to what appears to be Germany's lax attitude to an act that is a criminal offence in every other big financial centre in the world. Until now, Germany's eight regional stock exchanges have tried to prevent insider trading through voluntary codes. But a rash of scandals in recent years has exposed how ineffective these voluntary arrangements are.

What was for long appreciated by locals as Frankfurt's cosy, clubby atmosphere is now increasingly seen as unacceptable provincialism, and a serious hindrance to the city's bid to challenge London for the position as Europe's main financial centre.

Frankfurt's lax attitude to insider dealing is now taken by many as evidence of its failure to compete as an international financial market.

Last weekend, Karl-Otto Pohl, the former chairman of the Bundesbank, bemoaned the potential damage to Frankfurt's position caused by the inability of Germany's legislators to get to grips with the problem.

Frankfurt's insider trading commission has six staff, compared with the 2,800 staff in the employ of the US Securities and Exchange Commission. Its success rate has been slim, and its censure usually amounts to no more than a slap on the wrist and a requirement to repay any ill-gotten profits.

The commission's president, Carl-Friedrich zur Megede, is a retired judge who does the job on an honorary basis. His modest team is trying to investigate 50 or so bank accounts in connection with the purchase of the Mercedes Holding shares that prompted the downfall of Steinkuhler.

Stung by the renewed criticism of Germany's inadequate protection for investors, Theo Waigel, the Finance Minister, said he hoped the new legislation - including prison sentences of up to three years - would be in effect by the new year.

But the proposals are said to involve a complex system of authority involving the insider trading commissions of the eight regional bourses, with the whole operation overseen by a central supervisory body. This organisation could take a long time to put in place.

In the meantime, because insider trading is not illegal, the only way prosecutors can get at a suspected offender, such as Steinkuhler, is on grounds of having failed to pay taxes on the trading profits.

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