2008 Liechtenstein tax affair

The 2008 Liechtenstein tax affair is a series of tax investigations in numerous countries whose governments suspect that some of their citizens may have evaded tax obligations by using banks and trusts in Liechtenstein; the affair broke open with the biggest complex of investigations ever initiated for tax evasion in the Federal Republic of Germany. [cite news |title=Skandal gigantischen Ausmaßes |url=http://www.sueddeutsche.de/,tt2m2/wirtschaft/artikel/599/158176/ |work=Süddeutsche Zeitung |language=German |date=2008-02-15 |accessdate=2008-02-21] It is seen also as an attempt to put pressure on Liechtenstein, one of the remaining "uncooperative tax havens" — along with Andorra and Monaco — as identified by the Paris-based Organization for Economic Cooperation and Development in 2007.cite news |last=Esterl |first=Mike |coauthors=Simpson, Glenn R., Crawford, David
title=Stolen Data Spur Tax Probes |url=http://groups.google.com/group/alt.lawyers/browse_thread/thread/6782128a239af406/67aab034a3fcf850
publisher=Google Groups |work=The Wall Street Journal |date=2008-02-19 |accessdate=2008-02-20]

Background

Millions of Euros belonging to hundreds of citizens living in Germany were channeled into the LGT Bank and other banks in Liechtenstein, [cite news |last=Keuchel |first=Jan |coauthors=Andresen, Tino |title=Nächste Woche knallt es wieder |url=http://www.handelsblatt.com/News/Recht-Steuern/Meldungen/_pv/_p/204872/_t/ft/_b/1391899/default.aspx/naechste-woche-knallt-es-wieder.html
work=Handelsblatt |language=German |date=2008-02-16 |accessdate=2008-02-21] taking advantage of Liechtenstein-based trusts to evade paying taxes in Germany. According to the prosecutor's office these trusts “have been created apparently only to evade paying taxes.”cite news |title=In Deutschland bahnt sich riesiger Steuerskandal an |url=http://afp.google.com/article/ALeqM5ge8TKcKQFThzZG8HkM21Nc0TLKEQ |work=Agence France Presse |language=German |date=2008-02-15
accessdate=2008-02-21] According to the law in Liechtenstein, such trusts allow the separation of monetary assets from their owners and are kept anonymously. In contrast to trusts of most other countries, Liechtenstein trusts can be revoked at any time and the assets will be returned to the owner. Furthermore, such trusts as well as their maintaining shell entities are only charged 0.1% (minimum 1,000 Swiss francs) annually.cite news |title=German Banks Suspected of Helping Clients Evade Taxes |url=http://www.spiegel.de/international/business/0,1518,536777,00.html |work=Der Spiegel |date=2008-02-21 |accessdate=2008-02-21] Liechtenstein thus is known to be a tax haven.cite news |last=Pfanner
first=Eric |coauthors=Landler, Mark |title=Liechtenstein defends its banks in German tax-evasion inquiry |url=http://www.iht.com/articles/2008/02/19/business/tax.php |publisher=International Herald Tribune |date=2008-02-19 |accessdate=2008-02-20]

Investigations

Germany

According to the lead prosecuting office responsible for economic crime in Bochum, [cite press release |url=http://www.sta-bochum.nrw.de/pressmit/Presse15_2.doc |title=Press release of the prosecuting office, Bochum |language=German |date=2008-02-15 |accessdate=2008-02-15|format=DOC] which is supported by prosecuting offices in other towns as well as the criminal police, currently about 600 to 700 individuals are suspected in the investigations. In addition, search warrants have been issued. An official confirmation about the total number of suspects and amount of money involved has not yet been issued. According to the prosecutors, current investigations provide a “very high level of evidence.”

The affair became known on February 14, 2008, when a raid was conducted against Klaus Zumwinkel, the chief executive of Deutsche Post AG, under the suspicion that he evaded about 1 million € ($1.46 million) in taxes.cite news |last=Dougherty |first=Carter |coauthors=Landler, Mark |title=Tax Scandal in Germany Fans Complaints of Inequity |url=http://www.nytimes.com/2008/02/18/business/worldbusiness/18tax.html |publisher=The New York Times |date=2008-02-18 |accessdate=2008-02-20] cite news |last=Moore |first=Matt |title=Germany expands probe of Liechtenstein tax evasion |url=http://www.usatoday.com/money/world/2008-02-18-germany-tax-evasion_N.htm |work=Associated Press |publisher=USA Today |date=2008-02-18 |accessdate=2008-02-20] Pressured by the government, Zumwinkel resigned from his position.cite news |title=Liechtenstein tax scandal hits banks |url=http://www.theaustralian.news.com.au/story/0,25197,23238389-20501,00.html |work=Reuters |publisher=The Australian |date=2008-02-19 |accessdate=2008-02-20] Similarly a number of other individuals have been under investigation for months, and the appearance that the well-to-do have ways and means to evade the German tax laws has caused complaints about inequality.

According to a report by the "Süddeutsche Zeitung", Heinrich Kieber, a bank computer technician, [ [http://www.landespolizei.li/News/Pressemitteilungen/tabid/850/articleType/ArticleView/articleId/263/ffentliche-Fahndung-nach-Heinrich-KIEBER.aspx Kiebler's profile @ Liechtenstein's police website] ] sold a CD with incriminating bank information to the Bundesnachrichtendienst (BND), which handed the material over to the tax investigation office in Wuppertal. [cite news |first=Philip |last=Eppelsheim |authorlink= |coauthors= |title=Deutschland vor historischem Steuerskandal |url=http://www.faz.net/s/RubA5A53ED802AB47C6AFC5F33A9E1AA71F/Doc~ED3D316A995614567A8DBF27E57AE8BA0~ATpl~Ecommon~Sspezial.html |work=Frankfurter Allgemeine Zeitung |publisher= | language=German |date=2008-02-15 |accessdate=2008-02-24 ] Kieber was paid €4.2 million by the Federal Ministry of Finance for the data on which the investigation is based. Facing death threats, the informant is currently in hiding and has asked for police protection. [cite news |first=Friedrich |last=Kuhn |authorlink= |coauthors= |title=Informant im Fadenkreuz - Tippgeber von Liechtenstein muss völlig neue Identität erhalten - Fahnder rätseln über Zumwinkels Motiv |url=http://www.live-pr.com/ddp-djn-hintergrund-informant-im-r1048182772.htm |work=ddp |publisher= |language=German |date=2008-02-17 |accessdate=2008-02-24 ] The "Wall Street Journal" indicated on February 19, 2008, the name of the informant who apparently lives now in Australia and had sold the data to tax ministries of a number of countries, including the USA.

Since February 18 a number of raids have been conducted in Hamburg, Munich, Frankfurt, and other cities. Several banks were searched including Bankhaus Metzler, the Hauck & Aufhäuser bank, Dresdner Bank, UBS in Munich and the Berenberg Bank in Hamburg. [cite news |first= |last= |authorlink= |coauthors= |title=Fahnder durchsuchen erneut Banken in München und Hamburg |url=http://www.spiegel.de/wirtschaft/0,1518,536284,00.html |work=Spiegel Online |publisher= |language=German |date=2008-02-19 |accessdate=2008-02-24 ] In the meantime revenue offices also noted a higher number of voluntary self-incriminations - this will avoid or reduce punitive damages - for possible tax evasions by people with financial assets in Liechtenstein. [cite news |first=Jens |last=Tartler |authorlink= |coauthors=Ehrlich, Peter; Lockhart, Ina; Lambrecht, Matthias |title=Razzia bei deutschen Privatbanken |url=http://www.ftd.de/politik/:Razzia%20Privatbanken/319075.html |work=Financial Times Deutschland |publisher= |language=German |date=2008-02-19 |accessdate=2008-02-24 ]

While the BND received the data in 2006, the LGT Group indicated that in 2002 secret information had been stolen but the informant had been caught and tried in 2003, and all material had been returned.

United States of America

The informant also had sold data to the government of the United States. After the affair broke open, Senator Carl Levin, chairman of a senate investigations committee, indicated his intention to probe to what degree American citizens have used the LGT bank to evade taxes. [cite news|url=http://news.morningstar.com/newsnet/ViewNews.aspx?article=/DJ/200802211720DOWJONESDJONLINE001112_univ.xml|title=Sen Levin Concerned Liechtenstein Bank Drawing Tax Evaders |author= AFP |publisher=Morningstar | date=2008-02-21| accessdate=2008-02-23] In July 2008 the U.S. Subcommittee determined that offshore tax haven supported tax cheats to the cost of about $100 billion per year for the U.S. taxpayer. Specifically mentioned were Switzerland's UBS AG and Lichtenstein's LGT Group. The report indicates that the LGT Group contributed to a "culture of secrecy and deception" According to the report UBS holds 1,000 declared accounts versus 19,000 that are not declared to the IRS. The report recommended a number of steps including tighter regulations for financial institutions. [cite web |url=http://www.cnbc.com//id/25713850 |author=AP |title=USB, Liechtenstein Aided US Tax Cheats: Senate| Date=2008-07-17]

Other countries

On 2008-02-24 it became apparent that secret bank information had also been sold to the British tax authorities and that about 100 individuals in the UK are at risk for investigations for tax evasion. [cite news| url=http://business.timesonline.co.uk/tol/business/money/tax/article3423428.ece |title=Revenue men prise open princely tax haven, Liechtenstein |Last=Watts|First=Robert|coauthor=Matthew Campbell, Nicola Smith |publisher=The Sunday Times (Timesonline) |date=2008-02-24 |accessdate=2008-02-24] The informant also provided the governments of Australia, Canada, and France with data.cite news | url=http://www.spiegel.de/wirtschaft/0,1518,537742,00.html | title=Deutschland verschenkt Steuersünder-Daten an Regierungen in aller Welt
publisher=Der Spiegel | date=2008-02-26 | accessdate=2008-02-26] On February 26 it became known that the German government was willing to share relevant data of the about 4,500 accounts with other governments; two third of these accounts belong to accounts of non-German individuals or entities. Fiscal authorities in Ireland [cite news| url=http://www.ft.com/cms/s/0/ea80a8c2-e57e-11dc-9334-0000779fd2ac,dwp_uuid=70662e7c-3027-11da-ba9f-00000e2511c8.html |title=Monaco vows to help German tax probe |publisher=The Financial Times (ft.com) |date=2008-02-24 |accessdate=2008-03-05] , Finland, Italy, the Netherlands, Norway, Greece and Sweden indicated interest, and while the Danish government initially declined - it considered the material to have been stolen - it appears to have reversed its position. [cite news| url=http://www.spiegel.de/wirtschaft/0,1518,538014,00.html| title=Affäre Liechtenstein. Steuerskandal erfasst Europa und die USA.| publisher=Der Spiegel | date=2008-02-26 | accessdate=2008-02-26] The governments of the Czech Republic and Spain have also announced investigations derived from Germany's list. [cite news| url=http://www.ft.com/cms/s/0/ea80a8c2-e57e-11dc-9334-0000779fd2ac,dwp_uuid=70662e7c-3027-11da-ba9f-00000e2511c8.html |title=Monaco vows to help German tax probe |publisher=The Financial Times (ft.com) |date=2008-02-24 |accessdate=2008-03-05] India, however, has thus far not considered Germany's offer despite reports that many wealthy Indian citizens might have accounts in the bank. [cite news| url=http://timesofindia.indiatimes.com/Germany_offers_black_money_data_to_India/articleshow/3057422.cms|title=Germany offers black money data, India dithers |publisher=The Times of India |date=2008-05-21 | accessdate=2008-05-21]

Reactions

The principality of Liechtenstein is directly affected by the affair as the LGT Bank is owned by the ruling royal family. [cite news |first= |last= |authorlink= |coauthors= |title= Liechtensteins Ruf ist ruiniert |url=http://www.welt.de/finanzen/article1678860/Liechtensteins_Ruf_ist_ruiniert.html |work=Die Welt Online |language=German |date=2008-02-15 |accessdate=2008-02-24 ] The affair overshadowed the previously planned visit of Otmar Hasler, the Prime Minister of Liechtenstein, to Berlin on February 19, 2008 to meet with the Minister of Finance, Peer Steinbrück and the Chancellor, Angela Merkel. [cite press release |title=Regierungschef Otmar Hasler bei Bundeskanzlerin Angela Merkel |publisher= |date=2008-02-15 |url=http://www.presseportal.ch/de/pm/100000148/100554858/presse_informationsamt_des_fuerstentums_liechtenstein |format= |language=German |accessdate= |quote= ] Merkel asked for help in the investigation and cooperation in prevention of tax evasion, pointing out that Liechtenstein provided the US Internal Revenue Service with some data but not the German Ministry of Finances. [cite news |first=Eric |last=Pfanner |authorlink= |coauthors=Landler, Mark |title=Tax Inquiry? Principality Is Offended |url= |work=New York Times |publisher= |date=2008-02-20 |accessdate=2008-02-20 ]

The newspaper "Die Welt" described the event as a “government crisis”. [cite news |first= |last= |authorlink= |coauthors= |title= Tausende Verdächtige in Steueraffäre |url=http://www.welt.de/wirtschaft/article1677623/Tausende_Verdaechtige_in_Steueraffaere.html |work=Die Welt Online |publisher= |language=German |date=2008-02-15 |accessdate=2008-02-24 ] The Regent of Liechtenstein, Erbprinz Alois von Liechtenstein called the investigations an “attack” on Lichtenstein by the Federal Republic and is considering legal remedies. The German government has been criticized for working with secret bank data that was stolen by the informant.The head prosecutor of Liechtenstein Robert Wallner initiated an indictment "against unknown perpetrators for the violation of company secrets for a foreign country". [cite audio |people= |date2= |month2= |year2= |title= |url=http://live.radio.li/archiv/radiol-2008-02-18_1230.mp3 |format=MP3 |medium= |publisher=Radio-Liechtenstein |location= |accessdate=2008-02-24 |time= |quote= ] Also, two lawyers in Berlin initiated lawsuits against the BND and the Federal government claiming among others “infidelity toward the taxpayer” and “spying of data”. [cite news |first= |last= |authorlink= |coauthors= |title=Strafanzeige gegen BND und Bundesregierung |url=http://www.netzeitung.de/politik/deutschland/907177.html |work=Netzeitung |publisher= |language=German |date=2008-02-19 |accessdate=2008-02-24 ]

The German government, on the other hand, is considering a coordinated international action: according to internal sources of the Ministry of Finances Liechtenstein supposedly lives to "a good part from the business of evading taxes". [cite news |first= |last= |authorlink= |coauthors= |title=Berlin will Geschäfte mit Liechtenstein radikal einschränken |url=http://www.spiegel.de/wirtschaft/0,1518,536415,00.html |work=Spiegel Online |publisher= |language=German |date=2008-02-19 |accessdate=2008-02-24 ] The government may consider a number of possible actions: Liechtenstein is about to join the Schengen Agreement which would eliminate its border controls towards Austria, and Germany's consent is required; Germany could impose fees on transfers of currency, place taxes on business activities of its citizens in Liechtenstein, and require them to prove that their activities there are legitimate. Furthermore, it counts on the support of other governments who also feel the sting of tax evasion. [cite news |url=http://www.nytimes.com/2008/02/21/business/worldbusiness/21tax.html?ex=1361250000&en=ea5a64a160364fb7&ei=5088&partner=rssnyt&emc=rss |title=Germany Prods Liechtenstein to Fight Fraud |last=Dougherty |first=Carter |coauthors=Landler, Mark |work=The New York Times |date=2008-02-21 |accessdate=2008-02-22]

Questions have also been raised within Germany as to the internal legality of the matter. Concerns have been voiced that the actions taken by BND were outside the agency's national security (and constitutional) remit, with attention also focusing on the wider ethical debate as to whether BND was justified in paying a €4m bribe to a bank official in a foreign country (with financing and approval from both the German chancellery and finance ministry). [cite news|title=Not so fine in Liechtenstein|url=http://www.economist.com/agenda/displaystory.cfm?story_id=10750259|work=The Economist|date=2008-02-22|accessdate=2008-06-03]

References

Externals links

* [http://www.abc.net.au/4corners/content/2008/s2381529.htm "Tax Me If You Can"] , Australian Broadcast Commission TV, Four Corners page including streaming video, reporter Liz Jackson, first broadcast on 06 October, 2008.