How safe is it for British businesses to invest in Austria? A flying visit this week suggests its response to allegations of white-collar crime leaves a lot to be desired. Despite reforms last year, the relationship between Austrian prosecutors, pre-trial judges and criminal defence lawyers still seems far too cosy.

I travelled to Vienna as the guest of Julius Meinl, a British banker of Austrian descent. Meinl, 49, is the fifth member of his family to bear the name of his great-great-grandfather, who founded an upmarket food retailing empire in 1862 on the idea of ready-roasted coffee beans. Its food hall is the Fortnum & Mason of Vienna.

More than 20 years ago, the family business moved into investment banking. Meinl Bank acted as broker to Meinl European Land (MEL), a Jersey-based property fund that bought shopping centres in the former Soviet bloc.

Austria does not have a mature system of public share ownership. But small investors who had bought bearer certificates representing shares in MEL were outraged to discover in the summer of 2007 that a fund named after such a well-respected brand could go down as well as up. Fraud was alleged and the Austrian prosecuting authorities began an investigation.

Julius Meinl had headed the executive board of Meinl Bank and was invited to answer allegations that MEL had bought its own shares to prop up their price and that Meinl Bank had overcharged MEL on sales commissions. After travelling to Vienna on 1 April, he found himself under arrest.

If that was no April Fool, the size of his bail surely was. It was €100m, around £85m at today’s rates, and a world record. And it had to be paid into court before he could be released from prison.

Talking to me in London, this softly-spoken man in his impeccable hand-made clothes says he is ‘shattered’ by the investors’ losses and by their professed ignorance of the risks they ran. He tells me the property base is sound and the fund will recover. It was set up under Jersey law on advice from Linklaters and Deloitte. There was no market manipulation: MEL had decided to repurchase its shares in order to sell a significant stake to a potential strategic partner.

There are serious allegations against Meinl. He firmly denies them and I have no idea where the truth lies. But this case is disturbing for anyone brought up in the common law tradition.

First, the bail. Why was it such an enormous sum? Bettina Deutenhauser, the procedural judge, decided that Meinl was a flight risk. An escape to Britain, she said, ‘might make it doubtful whether the accused would be extradited to Austria’.

But surely she knows that Britain has always been prepared to extradite its own citizens? What about the European Arrest Warrant? Indeed, but the prosecutor’s spokesman, Gerhard Jarosch, insists that extradition from Britain is far from easy. He says bail was set to reflect the alleged losses and Meinl’s assets.

Meinl suspects that that the cash was intended to compensate 100,000 or more small investors whose bearer certificates lost value. Like other European countries, Austria allows civil parties to attach their compensation claims to a criminal prosecution. Jarosch accepts that the money could go to them, but only if Meinl were to jump bail.

And why arrest Meinl? He was not a director, officer or employee of MEL or of its management company. But Markus Fussenegger, the prosecutor, says ‘it must be assumed at present that the entire Meinl group, including Meinl European Land, was led and controlled by a single person, namely Julius Lindbergh Meinl’.

Peter Weinzierl, a member of the Meinl Bank board who used to be on the board of MEL’s management company, says it is ‘inconceivable’ that anyone reading MEL’s minutes could think that its members were Meinl’s ‘puppets’.

But the assumption is apparently based on a report by Thomas Havranek, a tax advisor whose appointment as the prosecutor’s ‘expert’ seems to have resulted from a magazine article he wrote two years ago. Meinl has identified more than 100 factual errors in Havranek’s 22-page report and is challenging his expertise. But Jarosch says the prosecutor is ‘very happy’ with Havranek.

According to James Lewis QC, arresting a defendant during the course of an investigation is an unusual step to take in any continental country unless he is caught at the scene of the crime. No other suspect has been arrested. But Jarosch says that Austrians were not flight risks.

Meinl could be forgiven for suspecting a darker reason. He is not only British. He is Jewish. His family fled to Britain in 1938. He thinks carefully before responding to my suggestion that he has been singled out.

‘I think it’s much of the Fred Goodwin factor,’ he tells me, ‘underlined by the argument that I’m British and probably aided by the history of my family.’

Meinl has been subjected to an extraordinary degree of vilification in the Austrian business press. Format magazine implicitly compared him to Hitler last month, carrying a front-page photograph of him with staring eyes under the headline ‘Meinls Kampf’. The current edition publishes extracts from his confidential statement to the prosecutor; Jarosch says that leaking information is not in the prosecutor’s interests.

Meinl Bank has responded with advertisements showing that MEL, now called Atrium, is currently trading at the same level as comparable property funds. Jarosch insists that any criminal investigation has long-term benefits. But the real fear in the Austrian business community is that institutional investors from common law jurisdictions will steer well clear of Austria in future.