A fast-spreading scandal has toppled one of the country’s most prominent executives, the head of the postal service, Klaus Zumwinkel, and shone an unflattering light on what was long an open secret among wealthy Germans — that dodging the country’s high personal income taxes is a sport they play gleefully. A favourite destination for their money is Liechtenstein, the tiny principality at Germany’s doorstep known for its Alpine scenery and discreet banks.
After an opening phase that bore all the hallmarks of a thriller novel, with payoffs to a mysterious informant who gave German spies a computer disc with incriminating banking data, the investigation went nationwide over the weekend. Prosecutors are now nearly certain that they can obtain convictions of hundreds of wealthy tax cheats, and blow the lid off Liechtenstein’s role in the scams.
The bombshell over the massive tax evasion investigation has outraged Germans and has amplified skepticism about business-friendly economic reforms advocated by Chancellor Angela Merkel.
Indeed, evidence that Germany’s monied big shots hid away their cash in Liechtenstein is giving rise to a new narrative in German politics: the betrayal of the elites, who have spent much of the past decade calling for painful reform of the welfare state, even as they avoided paying their fair share.
German prosecutors began unraveling the scandal in 2006, when a person whose identity has not been revealed approached the Germany Federal Intelligence Service with an offer of a CD-ROM full of data on German clients of a bank in Liechtenstein. After a verification of some of the data, the German finance minister, Peer Steinbrueck, last year authorised a payment of about 5 million euros, or $7.3 million, to the informant in exchange for the information, which was then passed on to tax enforcers.
Steinbrueck handed the matter over to the German spy agency after authorising the informant’s payment from the federal treasury, largely to keep the circle of people with knowledge of the investigation small in order to minimise leaks. Tax collection is a matter for the states in Germany. The German Tax Union, an advocacy group, estimates that the government loses 30 billion euros a year to tax evasion.
Efforts by the former chancellor, Gerhard Schroeder, to lure tax-evading Germans back to the fold with a 15-month tax amnesty in mid-2005 brought in only a fifth of the 5 billion euros that the finance ministry had hoped for when it took the controversial step.
Much of that tax is hidden in the tiny realm of Liechtenstein, where banks grant favourable treatment to foundations that are filled with cash spirited out of Germany through various means — some as simple as filling a suitcase with cash and driving across the border (Smugglers are caught regularly). Foundations are taxed there at a rate in the low single digits, and allowed to disburse money to their founders, and to founders’ family members.
Most importantly, Liechtenstein offers a hard shell of anonymity to protect its banking clients. A foundation created by a German tax evader also creates bank accounts in its own name outside of the principality, allowing owners access to their cash abroad. Any attempt to trace their owners runs up against tough banking secrecy laws.
International Herald Tribune
