For months the German public has been entertained and outraged by courtroom tales of lovers and prostitutes subsidised by a slush fund run by Volkswagen, Europe's largest car manufacturer.

Yesterday the shutters came down again: a Brunswick court jailed Klaus Volkert, a high-living works council director, for two years and nine months on charges of “incitement to fraud”. In practice, that meant obtaining €2million (£1.5million) of bonuses to finance his Brazilian mistress. One jewellery bill - duly submitted to a VW executive in the human resources department - came to £2,200 and the woman was paid £5,000 a month to manage “intercultural projects”.

The verdict on Mr Volkert and on the administrator of the slush fund, Klaus-Joachim Gebauer, who was sentenced yesterday to a suspended one-year jail term, marks the end of one of Germany's most sensitive corporate trials. The sheer mass of evidence, including many incriminating e-mails, could have rocked the whole shaky edifice of Germany's consensus-based labour model. The point of the slush fund was to sugar the lives of works council delegates who, under German law, are informed and consulted on every important investment decision.

Instead, however, courtroom observers came away with the impression that Volkswagen had dodged the most damaging claims and had deflected blame from Ferdinand Piech, the chief executive between 1993 and 2002. Instead, the buck stopped with the head of the works council, Mr Volkert.

Johann Schwenn, defence lawyer for Mr Volkert, said: “What we are seeing here is two-class justice. Peter Hartz travelled first class and received a suspended sentence, whereas Klaus Volkert is supposed to go straight to jail.”

Mr Hartz, once head of VW's human resources department and architect of Germany's welfare reforms, cut a deal with the prosecutor and was allowed to walk free last year. Yet it was Mr Hartz who authorised the special treatment for the works council directors.

Judge Gerstin Dreyer said yesterday that Mr Volkert's prime responsibility was to the workforce of VW, but that he had behaved as if he were a top manager, entitled to profit-related bonuses. He was also aware that the bonuses were being drawn from a special account. “He must therefore be considered liable to the more severe charge of incitement to fraud rather than accomplice,” the judge said.

Mr Volkert, 65, flinched but said nothing yesterday when he was found guilty on 48 counts. The slush fund paid for an evening spent in a Prague brothel, cash or shopping vouchers for wives and Viagra tablets for the unionists. During the trial VW secretaries testified that they were kept busy arranging the flight schedules and hotel bookings of mistresses.

Both defendants had argued that they contributed to the wellbeing of Volkswagen - Mr Volkert had dissuaded workers at a Spanish plant from going on strike - and that the slush fund had been approved from on high. They could not, therefore, have defrauded the company, but rather were instruments of company policy.

However, the defence team failed to establish a paper trail leading to the top of VW. In the witness box, Mr Piech, now aged 70 and at the heart of Porsche's present takeover of VW, declared: “Had I heard about this, I would have put a stop to it.” He argued that VW operates between 6,000 and 7,000 bank accounts and he had no knowledge of the account, coded 1860, that concealed the slush fund. Other senior VW managers closed ranks and denied knowledge of the sleaze.

This begged the question of what happened to the various receipts obtained and submitted by Mr Gebauer.

Wolfgang Kubicki, his lawyer, said that his client had been merely obeying orders. “If he hadn't done as he was told, he would have lost his job and his career,”

Mr Kubicki said. Mr Gebauer had received a lesser sentence because he had not personally profited from the cash. Both men said yesterday that they would appeal the sentences.

How the scandal unfolded:

June 28, 2005

VW starts legal action against Helmuth Schuster, the former head of personnel for Skoda, alleging that he took bribes

June 30, 2005

Klaus Volkert, one of Schuster's friends, resigns as head of VW works council

July 2005

Peter Hartz, head of VW human resources, offers resignation after brothel bills come to light

January 2007

Hartz, after co-operating with prosecutor, given suspended two-year jail sentence for breach of trust

June 14, 2007

Social Democrat deputy Hans-Jürgen Uhl fined for perjury. He had sworn under oath that he did not make use of a brothel sponsored by VW slush fund

November 15, 2007

Trial begins of Volkert and Klaus Joachim Gebauer, the slush fund manager

January 9, 2008

VW patriarch Ferdinand Piech denies under oath that he knew of slush fund

February 22, 2008

Volkert jailed for two years and nine months for incitement to defraud VW. Gebauer is given supended one year term. Both men say that they will appeal

Explore Law

• Columnists

• Law Panel

• Law Reports

• Student Law

Times Recommends

• BGC 'set aside £40m to lure Tullett brokers'
• Legal aid review to ensure value
• Fears as 21 magistrates' courts face closure