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Germany cracks down on millionaire tax evaders

FWR Staff

19 February 2008

Alpine banking haven says Germany obtained the client information illegally. Liechtenstein's status as a tax haven for Europe's wealthy elite is suffering as German federal authorities raid the homes and offices of hundreds of Germans they suspect of tax evasion. The probe -- fueled by confidential data on capital transfers from Germany to a bank in Liechtenstein -- has shone a spotlight on tax evasion in Germany and created a rift between that country and the German-speaking principality of Liechtenstein.

German police, prosecutors and other investigators -- including members of Germany's clandestine security agency -- have conducted dozens of raids in Frankfurt, Hamburg, Munich, Stuttgart and Ulm. They expect to conduct more than 100 raids targeting more than 1,000 suspected tax evaders before this week is out.

Cloak and dagger

The only person so far fingered in the investigation is Klaus Zumwinkel, who late last week resigned as CEO of Deutsche Post, Germany's semi-private postal, logistics and financial-service agency. German media reports say Zumwinkel has admitted to having shunted money to Liechtenstein to dodge a $1.5-million tax liability.

Authorities in Germany estimate that the country loses about $44 billion in revenue a year to illegal tax evasion.

The current hubbub stems from information provided to Germany's CIA-like Bundesnachrichtendienst by an unnamed (also "unsolicited," say the Germans) informant detailing capital transfers by wealthy Germans to Vaduz, Liechtenstein-based Liechtenstein Global Trust (LGT) and Liechtenstein-based foundations. At issue is over approximately $5 billion in taxes lost to Germany.

The informant -- whom some super-intuitive journalists have decided is "a former employee of a bank in Liechtenstein" (though none seems willing to guess which one) -- has received about $7.4 million and police protection for his trouble, courtesy the German taxpayer.

Absolutely outraged

Meanwhile Liechtenstein, a sliver of a country pressed between Switzerland and Austria, says that Germany obtained the information illegally.

"If media reports are to be believed, German authorities paid a criminal to obtain stolen data," the heir to the country's throne, Prince-Regent Alois of Liechtenstein said in a television broadcast yesterday. "We protest this action."

LGT is headed by the Prince-Regent Alois' younger brother Maximilian of Liechtenstein, and owned, entirely, by the Liechtenstein royal family -- the only European monarchy that still wields real executive authority.

"It can't be our responsibility to view every client as an extended arm of the German government before he opens an account he declare everything he has in Germany," Alois added.

Friendly chat

LGT isn't publicly traded, but, because the German investigation is viewed as a blow to Liechtenstein's reputation as private-banking center, Liechtenstein banks with listings have seen their share prices plummet in recent days.

About a third of Liechtenstein's GDP is derived from banking, which accounts for roughly $145 billion in client assets. In other words, the country's total banking sector is about as big as a mid-size bank in neighboring Switzerland. But then it has a population of just 35,000.

Liechtenstein is one of only three countries the Paris-based Organisation for Economic Cooperation and Development views as recalcitrant tax havens (the other two are Monaco and Andorra), but in recent years the country has attempted to play down its reputation for banking secrecy by trumpeting its attractions as a center for sophisticated wealth management. More recently -- in fact just before the Germans started raiding suspected tax evaders a few days ago -- it also unveiled plans to bring in stricter banking regulations on foreign inflows.

Liechtenstein's Prime Minister Otmar Hasler is meeting with Germany's chancellor Angela Merkel in Berlin this week. Although the get-together was scheduled before the tax fuss erupted last week, the topic is expected to come up. -FWR

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