2008 Liechtenstein tax affair
Encyclopedia
Liechtenstein
The Principality of Liechtenstein is a doubly landlocked alpine country in Central Europe, bordered by Switzerland to the west and south and by Austria to the east. Its area is just over , and it has an estimated population of 35,000. Its capital is Vaduz. The biggest town is Schaan...
; the affair broke open with the biggest complex of investigations ever initiated for tax evasion
Tax evasion
Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability,...
in the Federal Republic of Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
. It is seen also as an attempt to put pressure on Liechtenstein, one of the remaining uncooperative tax havens
FATF Blacklist
The FATF blacklist was the common shorthand description for the Financial Action Task Force list of "Non-Cooperative Countries or Territories" ; that is, countries which it perceived to be non-cooperative in the global fight against money laundering and terrorist financing...
— along with Andorra
Andorra
Andorra , officially the Principality of Andorra , also called the Principality of the Valleys of Andorra, , is a small landlocked country in southwestern Europe, located in the eastern Pyrenees mountains and bordered by Spain and France. It is the sixth smallest nation in Europe having an area of...
and Monaco
Monaco
Monaco , officially the Principality of Monaco , is a sovereign city state on the French Riviera. It is bordered on three sides by its neighbour, France, and its centre is about from Italy. Its area is with a population of 35,986 as of 2011 and is the most densely populated country in the...
— as identified by the Paris-based Organization for Economic Cooperation and Development in 2007.
Background
Millions of euroEuro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...
s belonging to hundreds of citizens living in Germany were channeled into the LGT Bank and other banks in Liechtenstein, taking advantage of Liechtenstein-based trusts
Trust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...
to evade paying taxes in Germany. According to the prosecutor's office these trusts "have been created apparently only to evade paying taxes." 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 franc
Swiss franc
The franc is the currency and legal tender of Switzerland and Liechtenstein; it is also legal tender in the Italian exclave Campione d'Italia. Although not formally legal tender in the German exclave Büsingen , it is in wide daily use there...
s) annually. Liechtenstein thus is known to be a tax haven
Tax haven
A tax haven is a state or a country or territory where certain taxes are levied at a low rate or not at all while offering due process, good governance and a low corruption rate....
.
Germany
According to the lead prosecuting office responsible for economic crime in BochumBochum
Bochum is a city in North Rhine-Westphalia, western Germany. It is located in the Ruhr area and is surrounded by the cities of Essen, Gelsenkirchen, Herne, Castrop-Rauxel, Dortmund, Witten and Hattingen.-History:...
, 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
Klaus Zumwinkel
Klaus Peter Richard Otto Zumwinkel was Chief Executive Officer and Chairman of Deutsche Post between 1990 and 2008. Being under suspicion of tax fraud, he resigned from office on February 15, 2008...
, the chief executive of Deutsche Post AG
Deutsche Post
Deutsche Post AG, operating under the trade name Deutsche Post DHL, is the world's largest logistics group. With its headquarters in Bonn, the corporation has 467,088 employees in more than 220 countries and territories worldwide and generated revenue of € 51.48 billion in 2010...
, under the suspicion that he evaded about 1 million € ($
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
1.46 million) in taxes. Pressured by the government, Zumwinkel resigned from his position. 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
Süddeutsche Zeitung
The Süddeutsche Zeitung , published in Munich, is the largest German national subscription daily newspaper.-Profile:The title literally translates as "South German Newspaper". It is read throughout Germany by 1.1 million readers daily and boasts a relatively high circulation abroad...
, Heinrich Kieber, a bank computer technician, sold a CD
Compact Disc
The Compact Disc is an optical disc used to store digital data. It was originally developed to store and playback sound recordings exclusively, but later expanded to encompass data storage , write-once audio and data storage , rewritable media , Video Compact Discs , Super Video Compact Discs ,...
with incriminating bank information to the Bundesnachrichtendienst
Bundesnachrichtendienst
The Bundesnachrichtendienst [ˌbʊndəsˈnaːχʁɪçtnˌdiːnst] is the foreign intelligence agency of Germany, directly subordinated to the Chancellor's Office. Its headquarters are in Pullach near Munich, and Berlin . The BND has 300 locations in Germany and foreign countries...
(BND, English: Federal Intelligence Service), which handed the material over to the tax investigation office in Wuppertal
Wuppertal
Wuppertal is a city in North Rhine-Westphalia, Germany. It is located in and around the Wupper river valley, and is situated east of the city of Düsseldorf and south of the Ruhr area. With a population of approximately 350,000, it is the largest city in the Bergisches Land...
. 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. Kieber is wanted by Interpol. 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
Hauck & Aufhäuser
Hauck & Aufhäuser is a private bank with offices in Frankfurt am Main and Munich. Established in 1796, Hauck & Aufhäuser is one of the few private banks operated as limited partnership with personally liable partners....
bank, Dresdner Bank
Dresdner Bank
Dresdner Bank AG was one of Germany's largest banking corporations and was based in Frankfurt. It was acquired by competitor Commerzbank in December 2009.- 19th century :...
, UBS
UBS AG
UBS AG is a Swiss global financial services company headquartered in Basel and Zürich, Switzerland, which provides investment banking, asset management, and wealth management services for private, corporate, and institutional clients worldwide, as well as retail clients in Switzerland...
in Munich and the Berenberg Bank
Berenberg Bank
Joh. Berenberg, Gossler & Co. KG, Berenberg Bank for short, is a German financial institution set up under the legal form of a limited partnership and based in Hamburg.- History :...
in Hamburg. In the meantime revenue offices also noted a higher number of voluntary self-incrimination
Self-incrimination
Self-incrimination is the act of accusing oneself of a crime for which a person can then be prosecuted. Self-incrimination can occur either directly or indirectly: directly, by means of interrogation where information of a self-incriminatory nature is disclosed; indirectly, when information of a...
s - this will avoid or reduce punitive damages - for possible tax evasions by people with financial assets in Liechtenstein.
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 LevinCarl Levin
Carl Milton Levin is a Jewish-American United States Senator from Michigan, serving since 1979. He is the Chairman of the Senate Committee on Armed Services. He is a member of the Democratic Party....
, chairman of a senate investigations committee, indicated his intention to probe to what degree American citizens have used the LGT bank to evade taxes. 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
UBS AG
UBS AG is a Swiss global financial services company headquartered in Basel and Zürich, Switzerland, which provides investment banking, asset management, and wealth management services for private, corporate, and institutional clients worldwide, as well as retail clients in Switzerland...
and Liechtenstein'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.
Other countries
On February 24, 2008, it became apparent that secret bank information had also been sold to the BritishUnited Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
tax authorities and that about 100 individuals in the UK are at risk for investigations for tax evasion.
The informant also provided the governments of Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
, Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
and France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
with data. 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
Ireland
Ireland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...
, Finland
Finland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...
, Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
, the Netherlands, Norway
Norway
Norway , officially the Kingdom of Norway, is a Nordic unitary constitutional monarchy whose territory comprises the western portion of the Scandinavian Peninsula, Jan Mayen, and the Arctic archipelago of Svalbard and Bouvet Island. Norway has a total area of and a population of about 4.9 million...
, Greece
Greece
Greece , officially the Hellenic Republic , and historically Hellas or the Republic of Greece in English, is a country in southeastern Europe....
and Sweden
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....
indicated interest, and while the Danish
Denmark
Denmark is a Scandinavian country in Northern Europe. The countries of Denmark and Greenland, as well as the Faroe Islands, constitute the Kingdom of Denmark . It is the southernmost of the Nordic countries, southwest of Sweden and south of Norway, and bordered to the south by Germany. Denmark...
government initially declined - it considered the material to have been stolen - it appears to have reversed its position. The governments of the Czech Republic
Czech Republic
The Czech Republic is a landlocked country in Central Europe. The country is bordered by Poland to the northeast, Slovakia to the east, Austria to the south, and Germany to the west and northwest....
and Spain
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
have also announced investigations derived from Germany's list. India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
, however, has thus far not considered Germany's offer despite reports that many wealthy Indian citizens might have accounts in the bank.
Early reactions
The principality of LiechtensteinLiechtenstein
The Principality of Liechtenstein is a doubly landlocked alpine country in Central Europe, bordered by Switzerland to the west and south and by Austria to the east. Its area is just over , and it has an estimated population of 35,000. Its capital is Vaduz. The biggest town is Schaan...
is directly affected by the affair as the LGT Bank is owned by the ruling royal family. The affair overshadowed the previously planned visit of Otmar Hasler
Otmar Hasler
Otmar Hasler was the Prime Minister of Liechtenstein from 5 April 2001 to 25 March 2009. He was educated at the University of Fribourg. He was appointed on 5 April 2001, replacing Mario Frick, and led a government of the Progressive Citizens' Party in Liechtenstein and the Patriotic Union...
, the Prime Minister of Liechtenstein, to Berlin on February 19, 2008, to meet with the Minister of Finance, Peer Steinbrück
Peer Steinbrück
Peer Steinbrück is a German social democratic politician. From 2005 to 2009 he served as German Federal Minister of Finance in the cabinet of Angela Merkel.- Early political career, Minister President :...
, and the Chancellor, Angela Merkel
Angela Merkel
Angela Dorothea Merkel is the current Chancellor of Germany . Merkel, elected to the Bundestag from Mecklenburg-Vorpommern, has been the chairwoman of the Christian Democratic Union since 2000, and chairwoman of the CDU-CSU parliamentary coalition from 2002 to 2005.From 2005 to 2009 she led a...
. Merkel asked for help in the investigation and cooperation in prevention of tax evasion, pointing out that Liechtenstein provided the US Internal Revenue Service
Internal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
with some data but not the German Ministry of Finances.
The newspaper Die Welt
Die Welt
Die Welt is a German national daily newspaper published by the Axel Springer AG company.It was founded in Hamburg in 1946 by the British occupying forces, aiming to provide a "quality newspaper" modelled on The Times...
described the event as a "government crisis". The Regent of Liechtenstein, Erbprinz Alois von Liechtenstein
Alois, Hereditary Prince of Liechtenstein
Alois Philipp Maria, Hereditary Prince of Liechtenstein, Count of Rietberg is the eldest son of Hans Adam II, Prince of Liechtenstein and Countess Marie Aglaë Kinsky of Wchinitz and Tettau. Alois has been Regent of Liechtenstein since 15 August 2004...
called the investigations an "attack" on Liechtenstein 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
Indictment
An indictment , in the common-law legal system, is a formal accusation that a person has committed a crime. In jurisdictions that maintain the concept of felonies, the serious criminal offence is a felony; jurisdictions that lack the concept of felonies often use that of an indictable offence—an...
"against unknown perpetrators for the violation of company secrets for a foreign country". Also, two lawyers in Berlin initiated lawsuit
Lawsuit
A lawsuit or "suit in law" is a civil action brought in a court of law in which a plaintiff, a party who claims to have incurred loss as a result of a defendant's actions, demands a legal or equitable remedy. The defendant is required to respond to the plaintiff's complaint...
s against the BND and the Federal government claiming among others "infidelity toward the taxpayer" and "spying of data".
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". The government may consider a number of possible actions: Liechtenstein is about to join the Schengen Agreement
Schengen Agreement
The Schengen Agreement is a treaty signed on 14 June 1985 near the town of Schengen in Luxembourg, between five of the ten member states of the European Economic Community. It was supplemented by the Convention implementing the Schengen Agreement 5 years later...
which would eliminate its border controls towards Austria
Austria
Austria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...
, 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.
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). In March 2009 Germany announced that it will not grant judicial assistance to Liechtenstein in the prosecution of the assumed perpetrator, claiming Ordre public overrides its duty to do so under the European Mutual Legal Assistance Agreement.
Tax treaties
Liechtenstein entered negotiations with a number of countries to discuss tax avoidance issues. It reached an agreement with the United Kingdom in 2009 that will allow the about 5,000 British customers of Liechtenstein's banks that hold for them about ₤2-3 billion in secret accounts to come clear with British tax authorities under terms of a significantly reduced penalty. The agreement would open up Liechtenstein's banks to greater transparency, but remains controversial in Liechtenstein; some banks fear that clients will just move their money elsewhere.Externals links
- "Tax Me If You Can", Australian Broadcast Commission TV, Four Corners page including streaming video, reporter Liz Jackson, first broadcast on 6 October 2008.