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
LiechtensteinThe Principality of Liechtenstein is a doubly landlocked alpine microstate in Western Europe, bordered by Switzerland to the west and south and by Austria to the east. Its area is just over 160 km² and it has an estimated population of 35,000...
; the affair broke open with the biggest complex of investigations ever initiated for tax evasion in the Federal Republic of Germany. It is seen also as an attempt to put pressure on Liechtenstein, one of the remaining
uncooperative tax havens — along with
AndorraAndorra , 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
MonacoMonaco , officially the Principality of Monaco , is a small sovereign city-state located in South Western Europe on the northern central coast of the Mediterranean Sea, having a land border on three sides only with France, and being about away from Italy. Its size is just under 2 km² with an...
— as identified by the Paris-based Organization for Economic Cooperation and Development in 2007.
Background
Millions of
EuroThe euro is the official currency of 16 of the 27 Member States of the European Union . The states, known collectively as the Eurozone, are Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain...
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
trustIn common law legal systems, a trust is an arrangement whereby property is managed by one person for the benefit of another. A trust is created by a settlor , who entrusts some or all of his property to people of his choice...
s 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 francThe 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 widely used on a day-to-day basis...
s) annually. Liechtenstein thus is known to be a
tax havenA tax haven is a country or territory where certain taxes are levied at a low rate or not at all.Individuals and/or Corporate entities can find it attractive to move themselves to areas with reduced or nil taxation levels. This creates a situation of tax competition among governments...
.
Germany
According to the lead prosecuting office responsible for economic crime in
BochumBochum is a city in North Rhine-Westphalia, western Germany. It is located in the Ruhr area and 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 ZumwinkelDr. Klaus Peter Richard Otto Zumwinkel was Chief Executive Officer and Chairman of Deutsche Post between 1990 and 2008...
, the chief executive of
Deutsche Post AGDeutsche 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 470,000 employees in more than 220 countries and territories worldwide and generated revenue of € 63.5 billion in 2007...
, under the suspicion that he evaded about 1 million € (
$The United States dollar is the unit of currency of the United States. The U.S. dollar is normally abbreviated as the dollar sign, $, or as USD or US$ to distinguish it from other dollar-denominated currencies and from others that use the $ symbol. It is divided into 100 cents .The U.S...
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 ZeitungThe Süddeutsche Zeitung is the largest German national subscription daily newspaper. It is published in Munich, Germany's third largest city and capital of Bavaria.-Profile:...
, Heinrich Kieber, a bank computer technician, sold a
CDA Compact Disc is an optical disc used to store digital data. It was originally developed to store sound recordings exclusively, but later it also allowed the preservation of other types of data. Audio CDs have been commercially available since October 1982...
with incriminating bank information to the
BundesnachrichtendienstThe Bundesnachrichtendienst is the foreign intelligence agency of the German government, under the control of 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 is a city in North Rhine-Westphalia, Germany. It is located on the Wupper river south of the Ruhr area. Population 361,333 ....
. 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 & AufhäuserHauck & 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 BankDresdner Bank AG was one of Germany's largest banking corporations and was based in Frankfurt.- 19th century :Dresdner Bank was established on 12 November 1872 through the conversion of financial institution Michael Kaskel...
,
UBSUBS AG is a diversified global financial services company, with its main headquarters in Basel and Zürich, Switzerland. It is the world's largest manager of private wealth assets, "the world's biggest manager of other people's money" and is also the second-largest bank in Europe, by both market...
in Munich and the Berenberg Bank in Hamburg. In the meantime revenue offices also noted a higher number of voluntary
self-incriminationSelf-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 Milton Levin is a Democratic United States Senator from Michigan and is the Chairman of the Senate Committee on Armed Services. He has been in the Senate since 1979 and Michigan's senior senator since 1995...
, 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 AGUBS AG is a diversified global financial services company, with its main headquarters in Basel and Zürich, Switzerland. It is the world's largest manager of private wealth assets, "the world's biggest manager of other people's money" and is also the second-largest bank in Europe, by both market...
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
BritishThe United Kingdom of Great Britain and Northern Ireland is a sovereign state located off the northwestern coast of continental Europe. It is an island country, spanning an archipelago including Great Britain, the northeastern part of Ireland, and many small islands...
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
AustraliaAustralia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the continental mainland , the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans...
,
CanadaCanada is a country occupying most of northern North America, extending from the Atlantic Ocean in the east to the Pacific Ocean in the west and northward into the Arctic Ocean...
and
FranceFrance , officially the French Republic , is a country located in Western Europe, with several overseas islands and territories located on other continents. Metropolitan France extends from the Mediterranean Sea to the English Channel and the North Sea, and from the Rhine to the Atlantic Ocean...
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
IrelandIreland is the third-largest island in Europe and the twentieth-largest island in the world. It lies to the north-west of continental Europe and is surrounded by hundreds of islands and islets. To the east of Ireland, separated by the Irish Sea, is the island of Great Britain...
,
FinlandFinland , officially the Republic of Finland
, is a Nordic country and democracy situated in the Fennoscandian region of northern Europe. It borders Sweden on the west, Russia on the east, and Norway on the north, while Estonia lies to its south across the Gulf of Finland...
,
ItalyItaly , officially the Italian Republic , is a country located on the Italian Peninsula in Southern Europe and on the two largest islands in the Mediterranean Sea, Sicily and Sardinia. Italy shares its northern, Alpine boundary with France, Switzerland, Austria and Slovenia...
, the Netherlands,
NorwayNorway , officially the Kingdom of Norway, is a country in Northern Europe occupying the western portion of the Scandinavian Peninsula, as well as Jan Mayen and the Arctic archipelago of Svalbard under the Spitsbergen Treaty...
,
GreeceGreece , officially the Hellenic Republic , is a country in southeastern Europe, situated on the southern end of the Balkan Peninsula....
and
SwedenSweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe...
indicated interest, and while the
DanishDenmark is a Scandinavian country in Northern Europe and the senior member of the Kingdom of Denmark. It is the southernmost of the Nordic countries; southwest of Sweden and south of Norway, and it is bordered to the south by Germany. Denmark borders both the Baltic and the North Sea...
government initially declined - it considered the material to have been stolen - it appears to have reversed its position. The governments of the
Czech RepublicThe Czech Republic is a country in Central Europe that is sometimes considered to be Eastern European. The country borders Poland to the northeast, Germany to the west and northwest, Austria to the south and Slovakia to the east. The capital and largest city is Prague...
and
SpainSpain , officially the Kingdom of Spain , is a country located in southwestern Europe on the Iberian Peninsula.
[The Spanish constitution does not establish any official denomination of the country, even though España , Estado español and Nación española are used interchangeably...]
have also announced investigations derived from Germany's list.
IndiaIndia, 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, and the most populous democracy in the world. Bounded by the Indian Ocean on the south, the Arabian Sea on the west, and the Bay of Bengal...
, 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
LiechtensteinThe Principality of Liechtenstein is a doubly landlocked alpine microstate in Western Europe, bordered by Switzerland to the west and south and by Austria to the east. Its area is just over 160 km² and it has an estimated population of 35,000...
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 HaslerOtmar 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 SteinbrückPeer Steinbrück is a German social democratic politician. Since 2005, he serves as German Federal Minister of Finance in the cabinet of Angela Merkel.- Early political career, Minister President :...
, and the Chancellor,
Angela Merkel' is the current Chancellor of Germany. Merkel, elected to the German Parliament from Mecklenburg-Vorpommern, has been the chairwoman of the Christian Democratic Union since 10 April 2000, and Chairwoman of the CDU-CSU parliamentary party group from 2002 to 2005...
. Merkel asked for help in the investigation and cooperation in prevention of tax evasion, pointing out that Liechtenstein provided the US
Internal Revenue ServiceThe Internal Revenue Service is the United States federal government agency that collects taxes and enforces the internal revenue laws. It is an agency within the U.S. Department of the Treasury and is responsible for interpretation and application of Federal tax law. The official U.S...
with some data but not the German Ministry of Finances.
The newspaper
Die WeltDie 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 LiechtensteinAlois Philipp Maria, Hereditary Prince of Liechtenstein, Count of Rietberg is the eldest son of Prince Hans Adam II of Liechtenstein and his wife/cousin Marie Aglaë, Countess Kinsky of Wchinitz and Tettau...
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
indictmentIn the common law legal system, an indictment is a formal accusation that a person has committed a criminal offence. In those jurisdictions which retain the concept of a felony, the serious criminal offence would be a felony; those jurisdictions which have abolished the concept of a felony often...
"against unknown perpetrators for the violation of company secrets for a foreign country". Also, two lawyers in Berlin initiated
lawsuitA lawsuit is a civil action brought before a court of law in which a plaintiff, a party who claims to have received damages from a defendant's actions, seeks 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 AgreementThe Schengen Agreement is a treaty signed between five of the ten member states of the European Community in 1985. It was supplemented by the Convention implementing the Schengen Agreement some five years later...
which would eliminate its border controls towards
AustriaAustria , officially the Republic of Austria , is a landlocked country of roughly 8.3 million people in Central Europe. It borders both Germany and the Czech Republic to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the west...
, 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 just will 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.