2008 Liechtenstein tax affair

Last updated
Location of Liechtenstein Europe location LIE.png
Location of Liechtenstein

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. [1] It is seen also as an attempt to put pressure on Liechtenstein, one of the remaining uncooperative tax havens, as identified by the Financial Action Task Force (FATF) on money laundering of the Paris-based Organisation for Economic Co-operation and Development, along with Andorra and Monaco, in 2007. [2]

Contents

Background

Millions of euros belonging to hundreds of citizens living in Germany were channeled into the LGT Bank and other banks in Liechtenstein, [3] 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." [4] 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. [5] Liechtenstein thus is known to be a tax haven. [6]

Investigations

Germany

According to the lead prosecuting office responsible for economic crime in Bochum, [7] 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." [4]

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 (US$1.46 million) in taxes. [8] [9] Pressured by the government, Zumwinkel resigned from his position. [10] 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. [8]

According to a report by the Süddeutsche Zeitung , Heinrich Kieber, a bank computer technician, [11] sold a CD with incriminating bank information to the Bundesnachrichtendienst (BND, English: Federal Intelligence Service), which handed the material over to the tax investigation office in Wuppertal. [12] Kieber was paid €4.2 million by the Federal Ministry of Finance for the data on which the investigation is based. [2] Facing death threats, the informant was in hiding in 2008 and had asked for police protection. [13] At the time, Kieber was wanted by Interpol. [14] Kieber would later state that the secret services of several countries, including Germany, had provided him with a new identity and was protecting him. [15]

A number of raids were 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. [9] [16] 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. [17]

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. [8]

United States

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. [18] In July 2008 the U.S. Subcommittee determined that the offshore tax haven deprived $100 billion per year from the U.S. taxpayer. Specifically mentioned were Switzerland's UBS AG 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. [19]

Finland

According to the LGT Bank some 20 Finns had evaded tax in Finland via accounts containing €50-60 million in deposited funds. This was the largest known tax avoidance case in Finland. Most names are secret. [20] [21] According to Helsingin Sanomat in Sept/Oct 2013 Lichtenstein tax havens accounts include funds of Casimir Ehrnrooth (see UPM, YIT, Jaakko Pöyry and Guggenheim Helsinki Plan) Bertel Paulig (coffee, spices) and a construction company owners in Turku. [22]

Seventeen Finns paid additional taxes totalling €10 million. The taxpayers initiated actions in the Administrative Court. The decisions are not public. According to Finnish law the cost of hidden taxes can be up to 30%. In two cases shown for the reporters the Administrative Court acted c. 1% interest rate payment. In one case hidden funds were in total €483,000 and acted additional tax was €4,350. In addition to this, tax payers must pay the avoided taxes and an interest of the tax funds not paid in time. According to the Supreme Administrative Court of Finland no other legal procedures are possible, than collecting the hidden tax and its 1% interest rate. [23]

Other countries

On February 24, 2008, 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. [24] The informant also provided the governments of Australia, Canada and France with data. [25] 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-thirds of these accounts belong to accounts of non-German individuals or entities. Fiscal authorities in Ireland, [26] Denmark, [27] Belgium, Finland, Greece, Italy, the Netherlands, Norway and Sweden indicated interest. [25] [28] The governments of the Czech Republic and Spain have also announced investigations derived from Germany's list. [26] India, however, has thus far not considered Germany's offer despite reports that many wealthy Indian citizens might have accounts in the bank. [29]

In February 2008, The Wall Street Journal reported that the informant likely was living in Australia. [2] In 2011, Time confirmed that he had been living in the country until 2010-2011, being under the protection of the secret services of several countries. After being found by journalists in Australia, he moved to a new unknown location. [15]

Aftermath

Early reactions

The principality of Liechtenstein is directly affected by the affair as the LGT Bank is owned by the reigning princely family of Liechtenstein. [30] 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. [9] [31] 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. [32]

The newspaper Die Welt described the event as a "government crisis". [33] The Regent of Liechtenstein, Alois, Hereditary Prince of Liechtenstein, called the investigations an "attack" on Liechtenstein by the Federal Republic and is considering legal remedies. [6] The German government has been criticized for working with secret bank data that was stolen by the informant. [6] The head prosecutor of Liechtenstein Robert Wallner initiated an indictment "against unknown perpetrators for the violation of company secrets for a foreign country". [34] 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". [35]

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". [36] 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. [37]

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). [38] 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. [39]

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. [40] 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. [40]

Related Research Articles

<span class="mw-page-title-main">Liechtenstein</span> Microstate in the Alps

Liechtenstein, officially the Principality of Liechtenstein, is a doubly landlocked German-speaking microstate in the Central European Alps, between Austria in the east and north and Switzerland in the west and south. Liechtenstein is a semi-constitutional monarchy headed by the prince of Liechtenstein of the House of Liechtenstein, currently led by Hans-Adam II. It is Europe's fourth-smallest country, with an area of just over 160 square kilometres and a population of 40,023. It is the world's smallest country to border two countries, and is one of the few countries with no debt.

<span class="mw-page-title-main">Banking in Switzerland</span>

Banking in Switzerland dates to the early 18th century through Switzerland's merchant trade and over the centuries has grown into a complex and regulated international industry. Banking is seen as emblematic of Switzerland and the country has been one of the largest offshore financial centers and tax havens in the world since the mid-20th century, with a long history of banking secrecy and client confidentiality reaching back to the early 1700s. Starting as a way to protect wealthy European banking interests, Swiss banking secrecy was codified in 1934 with the passage of a landmark federal law, the Federal Act on Banks and Savings Banks. These laws were used to protect assets of persons being persecuted by Nazi authorities but have also been used by people and institutions seeking to illegally evade taxes, hide assets, or to commit other financial crime.

<span class="mw-page-title-main">Otmar Hasler</span> Prime Minister of Liechtenstein from 2001 to 2009

Otmar Hasler is a politician from Liechtenstein who served as the Prime Minister of Liechtenstein from 2001 to 2009. He was previously the President of the Landtag of Liechtenstein in 1995.

<span class="mw-page-title-main">Federal Intelligence Service</span> Foreign intelligence agency of Germany

The Federal Intelligence Service is the foreign intelligence agency of Germany, directly subordinate to the Chancellor's Office. The BND headquarters is located in central Berlin. The BND has 300 locations in Germany and foreign countries. In 2016, it employed around 6,500 people; 10% of them are military personnel who are formally employed by the Office for Military Sciences. The BND is the largest agency of the German Intelligence Community.

Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the taxpayer's tax liability, and it includes dishonest tax reporting, declaring less income, profits or gains than the amounts actually earned, overstating deductions, bribing authorities and hiding money in secret locations.

<span class="mw-page-title-main">Private banking</span> Special banking for wealthy individuals

Private banking is a general description for banking, investment and other financial services provided by banks and financial institutions primarily serving high-net-worth individuals (HNWIs) – those with very high income and/or substantial assets. Private banking is presented by those who provide such services as an exclusive subset of wealth management services, provided to particularly affluent clients. The term "private" refers to customer service rendered on a more personal basis than in mass-market retail banking, usually provided via dedicated bank advisers. It has typically consisted of banking services, discretionary asset management, brokerage, limited tax advisory services and some basic concierge services, typically offered through a gateway provided by a single designated relationship manager.

<span class="mw-page-title-main">LGT Group</span> Private banking and asset management group based in Liechtenstein

LGT Group is the largest royal family-owned private banking and asset management group in the world. LGT, originally known as The Liechtenstein Global Trust, is owned by the princely House of Liechtenstein through the Prince of Liechtenstein Foundation and led by its royal family members H.S.H. Prince Maximilian von und zu Liechtenstein (CEO) and H.S.H. Prince Philipp von und zu Liechtenstein (chairman).

Events in the year 2008 in Germany.

<span class="mw-page-title-main">Klaus Zumwinkel</span> German businessman

Klaus-Gerhard Maximilian Zumwinkel was Chief Executive Officer (CEO) and Chairman of Deutsche Post between 1990 and 2008. Being under suspicion of tax fraud, he resigned from office on February 15, 2008. He was convicted in January 2009, and given a suspended sentence of two years imprisonment and fined one million euros.

<span class="mw-page-title-main">Glen Moreno</span> American businessman (born 1943)

Glen Richard Moreno is an American businessman. Moreno has worked for several large companies in the United States and the United Kingdom, and worked as acting-chairman of UK Financial Investments Limited which manages the British government's bank shareholdings. He has been Chairman of Virgin Money UK since May 2015.

<span class="mw-page-title-main">Financial Market Authority (Liechtenstein)</span>

The Financial Market Authority is the primary financial regulatory agency of the Principality of Liechtenstein. It is an independent, integrated financial market supervisory authority operating under public law and covers all financial markets in Liechtenstein.

Castle Bank & Trust was a Bahamian bank that was involved in tax evasion, as well as covertly funneling funds for the Central Intelligence Agency (CIA). The bank was founded in the 1960s by Paul Helliwell, a former Office of Strategic Services and latter CIA officer, and Burton Kanter, a tax lawyer.

<span class="mw-page-title-main">Corruption in Finland</span>

Finland's overall corruption is relatively low, according to public opinion and global indexes and standards. The 2023 Corruption Perceptions Index released by Transparency International scored Finland at 87 on a scale from 0 to 100. When ranked by score, Finland ranked second among the 180 countries in the Index, where the country or countries ranked first are perceived to have the most honest public sector. Finland has ranked first, second or third every year since the current version of the Index was introduced in 2012. For comparison with 2023 worldwide scores, the best score was 90, the average score was 43, and the worst score was 11. For comparison with regional scores, the highest score among Western European and European Union countries was 90, the average score was 65 and the lowest score was 42.

<span class="mw-page-title-main">Tax evasion in the United States</span>

Under the federal law of the United States of America, tax evasion or tax fraud is the purposeful illegal attempt of a taxpayer to evade assessment or payment of a tax imposed by Federal law. Conviction of tax evasion may result in fines and imprisonment. Compared to other countries, Americans are more likely to pay their taxes on time and law-abidingly.

<span class="mw-page-title-main">UBS tax evasion controversies</span> Tax evasion by Swiss bank UBS

The Swiss investment bank and financial services company, UBS Group AG, has been at the center of numerous tax evasion and avoidance investigations undertaken by U.S., French, German, Israeli, and Belgian tax authorities as a consequence of their strict banking secrecy practices.

<span class="mw-page-title-main">Swiss Leaks</span> 2015 exposé of tax avoidance scheme

Swiss Leaks is a journalistic investigation, released in February 2015, of a giant tax evasion scheme allegedly operated with the knowledge and encouragement of the British multinational bank HSBC via its Swiss subsidiary, HSBC Private Bank (Suisse). Triggered by leaked information from French computer analyst Hervé Falciani on accounts held by over 100,000 clients and 20,000 offshore companies with HSBC in Geneva, the disclosed information was then called "the biggest leak in Swiss banking history".

<span class="mw-page-title-main">India–Liechtenstein relations</span> Bilateral relations

India–Liechtenstein relations refers to the bilateral relations between India and Liechtenstein. The Embassy of India in Bern, Switzerland is concurrently accredited to Liechtenstein. Liechtenstein maintains an honorary consul general in New Delhi. Under a 1919 agreement between Liechtenstein and Switzerland, ambassadors and diplomatic missions of Switzerland are authorised to represent Liechtenstein in countries and in diplomatic situations unless Liechtenstein opts to send its own ambassador. Switzerland maintains an embassy in New Delhi and a consulate in Mumbai.

<span class="mw-page-title-main">Germany–Liechtenstein relations</span> Bilateral relations

Germany–Liechtenstein relations are the diplomatic relations between Germany and Liechtenstein. Both states are members of the Organization for Security and Cooperation in Europe (OSCE), the Council of Europe and the European Economic Area.

<span class="mw-page-title-main">Second Otmar Hasler cabinet</span> Governing body of Liechtenstein (2005–2009)

The Second Otmar Hasler cabinet was the governing body of Liechtenstein from 21 March 2005 to 25 March 2009. It was appointed by Alois, Hereditary Prince of Liechtenstein and was chaired by Otmar Hasler.

<span class="mw-page-title-main">Corruption in Liechtenstein</span>

Corruption in Liechtenstein has been described as relatively low compared to other nations. This has been achieved by the small European principality through a strong and stringent legal framework and effective implementation mechanisms.

References

  1. ↑ "Skandal gigantischen Ausmaßes". Süddeutsche Zeitung (in German). 2008-02-15. Archived from the original on November 3, 2008. Retrieved 2008-02-21.
  2. 1 2 3 Esterl, Mike; Simpson, Glenn R.; Crawford, David (2008-02-19). "Stolen Data Spur Tax Probes". The Wall Street Journal . Google Groups . Retrieved 2008-02-20.
  3. ↑ Keuchel, Jan; Andresen, Tino (2008-02-16). "Nächste Woche knallt es wieder". Handelsblatt (in German). Archived from the original on 2008-02-19. Retrieved 2008-02-21.
  4. 1 2 "In Deutschland bahnt sich riesiger Steuerskandal an". Agence France Presse (in German). 2008-02-15. Archived from the original on 2008-03-09. Retrieved 2008-02-21.
  5. ↑ "German Banks Suspected of Helping Clients Evade Taxes". Der Spiegel . 2008-02-21. Retrieved 2008-02-21.
  6. 1 2 3 Pfanner, Eric; Landler, Mark (2008-02-19). "Liechtenstein defends its banks in German tax-evasion inquiry". International Herald Tribune. Retrieved 2008-02-20.
  7. ↑ "Press release of the prosecuting office, Bochum" (DOC) (Press release) (in German). 2008-02-15. Retrieved 2008-02-15.[ dead link ]
  8. 1 2 3 Dougherty, Carter; Landler, Mark (2008-02-18). "Tax Scandal in Germany Fans Complaints of Inequity". The New York Times. Retrieved 2008-02-20.
  9. 1 2 3 Moore, Matt (2008-02-18). "Germany expands probe of Liechtenstein tax evasion". USA Today. Associated Press. Retrieved 2008-02-20.
  10. ↑ "Liechtenstein tax scandal hits banks". The Australian. Reuters. 2008-02-19. Archived from the original on 11 August 2011. Retrieved 2008-02-20.
  11. ↑ Kiebler's profile @ Liechtenstein's police website Archived March 17, 2008, at the Wayback Machine
  12. ↑ Eppelsheim, Philip (2008-02-15). "Deutschland vor historischem Steuerskandal". Frankfurter Allgemeine Zeitung (in German). Retrieved 2008-02-24.
  13. ↑ Kuhn, Friedrich (2008-02-17). "Informant im Fadenkreuz - Tippgeber von Liechtenstein muss völlig neue Identität erhalten - Fahnder rätseln über Zumwinkels Motiv". Deutscher Depeschendienst (in German). Archived from the original on 2008-03-05. Retrieved 2012-03-22.
  14. ↑ Quinn, James (2008-08-19). "Interpol seeks Liechtenstein tax mole". The Daily Telegraph. London. Retrieved 2010-04-22.
  15. 1 2 Ritzer, U. (3 August 2011). "How a Tax-Evasion Whistleblower Became One of Europe's Most Wanted". Time. Retrieved 1 March 2023.
  16. ↑ "Fahnder durchsuchen erneut Banken in München und Hamburg". Spiegel Online (in German). 2008-02-19. Retrieved 2008-02-24.
  17. ↑ Tartler, Jens; Ehrlich, Peter; Lockhart, Ina; Lambrecht, Matthias (2008-02-19). "Razzia bei deutschen Privatbanken". Financial Times Deutschland (in German). Archived from the original on 2008-02-23. Retrieved 2008-02-24.
  18. ↑ AFP (2008-02-21). "Sen Levin Concerned Liechtenstein Bank Drawing Tax Evaders". Morningstar. Retrieved 2008-02-23.
  19. ↑ "USB, Liechtenstein Aided US Tax Cheats: Senate". Associated Press. 2008-07-17.
  20. ↑ Kaikkien aikojen veronkiertotutkinta kuivui kokoon - varoja piilottaneet suomalaiset jäävät ilman rikosseuraamuksia yle 18.9.2013
  21. ↑ Supreme Court ruling hobbles Liechtenstein tax probe Yle 19.9.2013
  22. ↑ Bertel Pauligilla veroparatiisitili 9.10.2013 A9
  23. ↑ Liechtensteinin veronkiertojutussa on määrätty hyvin pieniä veronkorotuksia yle 16.12.2013
  24. ↑ Watts, Robert; Matthew Campbell; Nicola Smith (2008-02-24). "Revenue men prise open princely tax haven, Liechtenstein". London: The Sunday Times (Timesonline). Archived from the original on July 6, 2008. Retrieved 2008-02-24.
  25. 1 2 "Deutschland verschenkt Steuersünder-Daten an Regierungen in aller Welt". Der Spiegel. 2008-02-26. Retrieved 2008-02-26.
  26. 1 2 "Monaco vows to help German tax probe". The Financial Times (ft.com). 2008-02-24. Retrieved 2008-03-05.
  27. ↑ "Skat lun på omstridt Liechtenstein-papir". Berlingske. 2008-02-20. Retrieved 2020-09-26.
  28. ↑ "Affäre Liechtenstein. Steuerskandal erfasst Europa und die USA". Der Spiegel. 2008-02-26. Retrieved 2008-02-26.
  29. ↑ Mohan, Vishwa (2008-05-21). "Germany offers black money data, India dithers". The Times of India . Archived from the original on 2012-10-21. Retrieved 2008-05-21.
  30. ↑ "Liechtensteins Ruf ist ruiniert". Die Welt Online (in German). 2008-02-15. Retrieved 2008-02-24.
  31. ↑ "Regierungschef Otmar Hasler bei Bundeskanzlerin Angela Merkel" (Press release) (in German). 2008-02-15. Archived from the original on 2008-03-05.
  32. ↑ Pfanner, Eric; Landler, Mark (2008-02-20). "Tax Inquiry? Principality Is Offended". The New York Times .
  33. ↑ "Tausende Verdächtige in Steueraffäre". Die Welt Online (in German). 2008-02-15. Retrieved 2008-02-24.
  34. ↑ Head Prosecutor of Liechtenstein initiates indictment "against unknown perpetrators" (MP3). Radio-Liechtenstein. Retrieved 2008-02-24.[ dead link ]
  35. ↑ "Strafanzeige gegen BND und Bundesregierung". Netzeitung (in German). 2008-02-19. Retrieved 2008-02-24.
  36. ↑ "Berlin will Geschäfte mit Liechtenstein radikal einschränken". Spiegel Online (in German). 2008-02-19. Retrieved 2008-02-24.
  37. ↑ Dougherty, Carter; Landler, Mark (2008-02-21). "Germany Prods Liechtenstein to Fight Fraud". The New York Times. Retrieved 2008-02-22.
  38. ↑ "Not so fine in Liechtenstein". The Economist. 2008-02-22. Retrieved 2008-06-03.
  39. ↑ "Fall Heinrich Kieber: Deutschland lehnt Rechtshilfegesuch ab". Liechtensteiner Vaterland. 2009-03-23. Archived from the original on 2024-05-24. Retrieved 2009-04-16.
  40. 1 2 Simonian H (August 12, 2009). "Liechtenstein in talks with Germany on transparency". Financial Times.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.