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02/25/2008 12:00 AM

Liechtenstein's Shadowy Informant

Tax Whistleblower Sold Data to the US

By SPIEGEL Staff

The shadowy informant who blew the whistle on German tax cheats also sold data to US authorities, SPIEGEL has learned. The man, who was paid almost 5 million euros for DVDs full of information, has now been given a new identity by German intelligence.

A tax evasion scandal involving shadowy foundations in Liechtenstein has gripped Germany.
AP

A tax evasion scandal involving shadowy foundations in Liechtenstein has gripped Germany.

He was once kidnapped, the man told the Bundesnachrichtendienst (BND), Germany's foreign intelligence agency, to whom he was trying to sell several DVDs containing secret tax data.

It was in 1997, in Argentina, he told the agents. The kidnappers, he said, locked him up for 10 days and mistreated him, sometimes by burning him with lit cigarettes; he still had the scars to prove it. He told the BND that he had had to come up with the ransom money himself, and that all of his and the Liechtenstein authorities' efforts to retrieve the money have failed.

Is this why he needed so much money? And is this why he sold the DVDs to the agents for close to €5 million ($7.4 million)? And just how much credence should be given to the story of a man who steals and sells data?

There are still many unanswered questions about this man, whose actions have kept Germany enthralled for more than 10 days. Nevertheless, more and more details of the man and his negotiations with the BND are coming to light.

The identity of the informant from Liechtenstein is now known, or at least his past identity is. He used to be 42-year-old Heinrich Kieber. He now has a new name, courtesy of the German government. And he lives somewhere else, in an undisclosed location -- wealthy, but alone.

Kieber, code-named "Henry," sold the BND several DVDs with data on 1,400 Germans, many of whom had invested their money in foundations in Liechtenstein to circumvent German taxation. The name of the first of the prominent offenders was revealed last Thursday: Klaus Zumwinkel, the head of Deutsche Post World Net. But his case was only one of many investigations launched last week and of other investigations to come.

At stake are billions of euros in tax revenues lost to the German government. Also at stake is Germany's relationship with countries like Liechtenstein and Switzerland, home to banks that have offered lucrative arrangements to German tax evaders. But the Alpine tax havens are incensed over the accusations. Prince Alois, Liechtenstein's head of state, denounced the German investigation as an "unprovoked attack by a large country." Roger Köppel, the editor-in-chief of the Swiss weekly newspaper Die Weltwoche, described it as a "fatwa by the German tax authorities against businesses and employees seeking to withdraw from a fundamentalist taxation system."

But for Germany the issue is much more a domestic one, as evidenced by the heated debates over the tax scandal. German politicians were quick to rush to the microphones and voice their displeasure. Kurt Beck, the head of the Social Democratic Party (SPD), let it slip that he had detected "criminal behavior." Chancellor Angela Merkel characterized the situation as "difficult and depressing."

The politicians may have been in agreement, but the reality is that the DVDs will only contribute to further divisions within Germany. They have already been turned into ammunition in the political battle between the two members of Berlin's grand coalition, the SPD and Merkel's Christian Democratic Union (CDU), and they will shape the debates over fairness in the coming weeks and months.

None of this was foreseeable when, on Jan. 24, 2006, the BND received an email through its regular Internet address. The sender, using an alias, claimed to have secret data from Liechtenstein that he was prepared to offer the BND. The material, he wrote, related to financial investments worth €3.5 billion ($5.2 billion). He added that he was not reporting the information in return for payment, but because it struck him as deeply unfair that multimillionaires could continue to amass their fortunes without paying taxes.

The unknown whistleblower provided an address he would use to stay in touch with the agency, and on May 11, after several months of correspondence, BND agents met face-to-face with their potential informant for the first time.

The man brought along a police certificate which showed he had no prior convictions. The BND agents now knew that they were dealing with Heinrich Kieber -- but not that Kieber had, in fact, been convicted of a crime in the past.

'The BND Did Everything Correctly'

Spanish investigators were after Kieber for a 1996 fraudulent real estate deal in Barcelona, which had earned Kieber 600,000 Swiss francs ($553,000). He apparently fled to Argentina before returning to Liechtenstein, where he began working for LGT Bank in April 2001. No one at LGT was familiar with his past history in Barcelona.

Liechtenstein's image has been damaged by the scandal.
AFP

Liechtenstein's image has been damaged by the scandal.

Kieber was considered an excellent computer specialist and, as his attorney Robert Müller says, a highly intelligent, "inconspicuous and sensitive man who speaks Spanish well." His job at LGT was to digitize all of the paper documents at a subsidiary of the bank, LGT Treuhand. This explains why the stolen data collection contains so much information, including contracts, meeting minutes, handwritten notes -- essentially the bank's entire inventory of information. Kieber had been given exceptional access to the archives of LGT Treuhand.

Kieber knew that he had been convicted of fraud in Spain and was wanted by the police there. The pressure was probably what prompted him to make a copy of the LGT data. In January 2003, after resigning and going into hiding, he used the stolen data in an attempt to blackmail Liechtenstein authorities. According to Liechtenstein state prosecutor Robert Wallner, in return for being assured of free passage and given two forged passports, Kieber agreed that he would not turn over the stolen client data to "foreign media and authorities."

But the Liechtenstein authorities turned down the offer. Nevertheless, Kieber turned himself in -- and got off lightly. For the Spanish fraud charges, his attorney Müller negotiated a penalty of one year in prison, reduced to three years' probation, which would not be entered into his police record in Liechtenstein. He was not convicted of data theft and, on Jan. 7, 2004, Liechtenstein authorities closed the Kieber case. The bank and the judges were convinced that Kieber had learned his lesson and, out of remorse, would return all of the client data unused.

How wrong they were.

Kieber must have begun his final mission shortly after the court issued its decision. He negotiated with the Americans first, then with the British. He obviously came to some agreement with the Americans, because US tax investigators have apparently hit pay dirt in 50 cases since the summer of 2007.

The government of then Prime Minister Tony Blair, on the other hand, refused to pay Kieber until it had collected on its tax claims. The Germans would probably never have found out about the Liechtenstein goldmine if British tax authorities hadn't taken so long to recover the money owed to them. Kieber became impatient, cancelled his negotiations with the British and contacted the BND instead.

On June 21, 2006, Kieber gave the BND a sample of the ultimate prize -- 14 sets of data from the Liechtenstein bank. At first, he would only allow the German agents to read the data on a laptop screen, but eventually he gave them excerpts. On July 10, 2006, tax investigators in the western German city of Wuppertal, who were working with the BND, confirmed that what Kieber had delivered was "important material." It was a signal for the BND to request another meeting with the man from Liechtenstein.

The meeting, which took place in the summer of 2006, was a kind of summit. It may have been the pivot point of the whole affair. The Wuppertal tax investigators spent two days, Aug. 16 and 17, talking with Kieber, first in the southwestern city of Offenburg and then across the border in Strasbourg in eastern France. The BND was there, but kept its distance. Its agents prepared a schedule for the meetings, rented the hotel space and provided security. The tax investigators asked Kieber for a list of names, preferably of people from the state of North Rhine-Westphalia -- where Wuppertal is located -- for which he could provide financial data. Ten days later, a list was delivered, through a BND courier, of 150 names from North Rhine-Westphalia -- and it was hot stuff.

But the negotiations dragged on. The Liechtenstein informant wanted €6 million ($8.9 million). The Germans offered to place him in the witness protection program of Germany's Federal Office of Criminal Investigation (BKA), but that wasn't enough for Kieber. He wanted a new identity -- and he got one. The investigators knew they needed his help to interpret the information: Kieber had not only collected the data but had also developed his own software to manage it.

On Dec. 14, 2006, the BND brought the Chancellery on board. The deal with Kieber was already in the works by then, but both the intelligence agency and the Chancellery wanted to make sure that it was completely watertight.

Kieber had contacted the BND at a time when it was under great pressure. A government panel in Berlin was investigating a number of the agency's foreign missions in which its director, Ernst Uhrlau, had played a key role. Because of his involvement, Uhrlau wanted to ensure that his agency's actions in the Kieber case were completely above reproach. The lawyers invoked Paragraph 116 of Germany's tax code, which stipulates that government agencies must report "circumstances of which they become aware professionally and that suggest tax fraud" to the relevant tax authorities.

The BND also took steps to cover its bases on a second level: It had the tax investigators issue a written request for assistance. Was Germany in fact acting as "a big-time receiver of stolen goods," as Liechtenstein's Prince Alois put it last week?

The debate mixes legal aspects with moral unease. There is a sense that a line was crossed when the German foreign intelligence agency started acting in an area -- tax evasion -- in which it shouldn't have been involved. Had the BND simply set up contact between the data thief and the tax investigators and then withdrawn, its involvement would have looked cleaner.

"The BND did everything correctly," says senior SPD politician Thomas Oppermann, who is chairman of the Bundestag supervisory committee which is investigating the BND. "Not only did it have the right to act, but it was in fact obligated to act the way it did."

But not every government agency can do as it sees fit in the name of helping other agencies, says Frankfurt constitution law expert Erhard Denninger, because that sort of assistance is acceptable only in isolated cases. But if the BND's claim that the informant contacted the agency of his own accord is true, the agents were in fact obligated to act on the information.

The courts will likely be called upon to resolve the question of whether the German investigators obtained the data legally and, therefore, whether the data can even be used in criminal proceedings against tax evaders. The BND already faces a lawsuit, and there is also likely to be an appeal to Germany's Federal Constitutional Court about whether the BND's actions were in accordance with the constitution. Klaus Zumwinkel's lawyers have also already publicly expressed their outrage. LGT has obtained a legal opinion that concludes that the BND may have "abetted the betrayal of business and company secrets," and that breach of trust could also be an issue. But the Liechtenstein bank's argument doesn't sound very convincing.

There are some indications that the material can be used, after all. Of course, says Denninger, the DVDs, "are tainted, being stolen goods." However, this "fruit of the poisonous tree," as this type of evidence is known in the United States, is not automatically disqualified from being used in court.

When BND President Uhrlau approved the administrative assistance request on May 11, 2007, the most important question on his mind was whether he was authorized to pass on the DVDs to domestic authorities. On June 12, 2007, Kieber turned over the DVDs to the tax investigators, while the BND provided security for the meeting.

German authorities paid close to €5 million ($7.4 million) for the DVDs. The money, which was withdrawn from a BND account, includes an informant's fee of just over €4.6 million ($6.8 million). In an ironic twist, the fee had to be taxed at a flat, 10-percent rate for informants, leaving Kieber with €4.2 million ($6.2 million) after taxes. In addition to the fee, the government paid the cost of notary fees and of establishing the informant's new identity. As a result, the BND used up almost the entire budget of €5 million ($7.4 million) approved by the Finance Ministry.

The BND divided Kieber's fee into three checks, each for between €1 million and €2 million, drawn on accounts with three different banks. Two of the banks allowed the transfer to proceed without a hitch, but employees at the third bank became suspicious. The amount of the check seemed too high and the procedure seemed unusual. They held up the payment and contacted the tax authorities, saying that they suspected money laundering.

A Political Bombshell

But Kieber eventually got his money. The material he delivered in return was divided up. The tax investigators in Wuppertal and public prosecutors in nearby Bochum dealt with the domestic cases, while the BND took charge of foreign cases.

The DVDs contain information on 4,527 Liechtenstein foundations and institutions, 1,400 of which are owned by German investors. According to rumors circulating in Berlin late last week, the list includes several members of the Bundestag, although the Bochum public prosecutor's office denies that it includes any current lawmakers. The DVDs contain data covering a period from the 1970s to approximately 2003, as well as some data through the end of 2005. About 65 of the foundations listed were still in existence at the beginning of 2008.

In most cases, the funds deposited into these foundations consist of inherited money, illicit earnings and unofficial profits from the sale of businesses and real estate. The size of the funds ranges from €100,000 ($148,000) to amounts in the high, double-digit millions. One of the investigators was perplexed over the €100,000 fund and said: "They would have been better off depositing their money with the postal savings bank; even after taxes, they would have had more money left over than they now have in Liechtenstein." A foundation is usually only worth its while with assets of €1.5 million ($2.2 million). Many asset management companies require a minimum investment of €3 million ($4.4 million).

Another problematic area, though not quite as significant as the foundation, revolves around so-called "establishments" (Anstalten), a legal entity unique to Liechtenstein which also utilizes LGT's fiduciary services. Liechtenstein's company law expressly provides for these entities. While family foundations are designed to allow estates to be passed on to heirs, these establishments provide many other options, especially for active businesspeople. For example, an establishment can write invoices and request expert reports, the purpose being to reduce taxable earnings in Germany.

The tax investigators with the German task force (known as EK Liechtenstein II) set up to investigate the Liechtenstein accounts have their work cut out for them, because it involves examining the entire accounts of suspicious companies. The Liechtenstein establishments can also be used to bring money back into Germany relatively unnoticed.

More than half of the investors and about 3,100 foundations and establishments on the DVDs are from abroad. Some are part of organized crime in the Balkans and in Russia, including both well-known and relatively unknown companies. This represents another, less high-profile element of this affair, and it is also the reason that German authorities believe that the informant's life is in danger. The DVDs he sold to the BND have provided the agency with a mountain of details about the international flow of money, so much information, in fact, that the agency would be hard-pressed to process it all on its own.

This explains why Germany's Federal Office of Criminal Investigation (BKA) was asked to help out. Its officers are looking into the possibility of launching investigations into money laundering, although the BKA has already said in advance that money laundering lies outside its jurisdiction.

The collection of data also includes material with a potentially devastating impact on relations between Germany and Liechtenstein. According to the investigators, the DVDs contain training material for LGT employees outlining a step-by-step process of enticing investors to put their money into Liechtenstein foundations. Internal dossiers explain how anyone seeking to defraud his or her government of tax revenues can circumvent the respective tax laws. The investigators even believe that they have uncovered a highly unusual service. The EK Liechtenstein II task force considered taking action against an LTG Group money courier who is alleged to have transported cash into the tiny Alpine state. A bank spokesman has "categorically denied" the claims.

Another reason that the BND documents are such a political bombshell is that they demonstrate that the principality did not, by any means, clean up its act after an intelligence affair that already harmed the Liechtenstein-Germany relationship at the turn of the millennium. At the time, the BND in a secret report accused the miniature state of being "an important hub for the movement of capital of all kinds" -- legal and illegal.

The report turned into a diplomatic incident, complete with mutual accusations between the governments in Berlin and the Liechtenstein capital Vaduz, before the country's then head of state, Prince Hans-Adam II, quietly met with officials at the Chancellery to explore ways to settle the dispute. In a number of high-level meetings with August Hanning, the head of the BND at the time, and his then intelligence coordinator at the Chancellery, Ernst Uhrlau, the prince promised that his country would more closely investigate suspicious flows of funds in the future.

This apparently didn't happen, which explains why there was so much anticipation surrounding Liechtenstein Prime Minister Otmar Hasler's visit to Berlin last week. His meeting with Chancellor Merkel had been planned for some time, but now it was more relevant than ever.

He arrived on Wednesday, and during an interview in his suite at Berlin's luxury Regent hotel, he came across as so friendly and respectable, with his hair graying at the temples and his trustworthy expression, that he could almost be Klaus Zumwinkel's brother. Hasler, a 54-year-old high school teacher, is the embodiment of harmlessness and honesty. He spent three quarters of an hour repeating the same mantra over and over again, no matter what he was asked: Liechtenstein is reforming itself and is on the right track.

Logically, any entity which is reforming itself must have a need for reform. Doesn't this suggest that something was amiss? No, said Hasler, he couldn't agree with this logic. Liechtenstein was super, is still super and can only become more super in the future. Liechtenstein is reforming itself and is on the right track.

A conversation with Hasler is a pleasant experience. He never loses his cool, he speaks slowly and not too loudly. He doesn't say anything unpleasant, nor does he say anything about stolen goods or an "attack by a large country."

His conversation with Merkel was just as pleasant -- that is, until the chancellor mentioned that Germany has yet to ratify a resolution that would allow Liechtenstein to join the Schengen zone of passport-free travel. It would not be an easy decision for Germany, she said, but the sooner Liechtenstein signed an agreement to provide legal assistance on matters of tax evasion, the easier it would be for Berlin to ratify the resolution. It was a threat delivered in a bouquet of flowers. Liechtenstein is reforming itself and is on the right track, the prime minister told the chancellor.

'My Son Hasn't Found the Right Woman Yet'

The scandal has also cast a not entirely flattering light on several German banks, which apparently had their own fingers in the Liechtenstein pie. A total of up to 20 bank employees, members of foundation boards and account managers in Liechtenstein and Germany are under investigation for their alleged roles in developing tax savings models. Two Frankfurt-based private banks, Metzler and Hauck & Aufhäuser, are at the center of the investigation. Another private bank, the Hamburg-based Berenberg Bank, was also investigated, simply because the wife of an LGT client has a safe deposit box there.

The affair strongly reminds veteran investigators of the "bank cases" in the late 1990s, which led to thousands of investigations after a series of spectacular raids of German banks. Prior to the raids, bank advisors had recommended to their clients that they move their assets to accounts with the banks' subsidiaries in Luxembourg, so as to circumvent a capital gains tax which was introduced in Germany in 1993.

For the banks, this meant that they could retain their clients' accounts, and in some cases could even earn a little additional revenue in transfer fees for moving the money to the Luxembourg accounts. But according to one former investigator who was deeply involved in the 1990s bank investigations, some German banks apparently preferred models that allowed them to keep the funds in-house.

Under this model, assets already deposited in Germany would be transferred abroad using a series of transactions intended to camouflage the flow of money, and would then be transferred back to the same bank, but into a new account. The only difference was that, after making its accounting excursion to Liechtenstein, the money in this new account no longer formally belonged to a bank client liable for German tax. Instead, the assets had become the property of a Liechtenstein foundation, establishment or similar fiduciary entity under Liechtenstein law. The real owners of the assets were known to only a handful of insiders in the Alpine principality -- and possibly to an account advisor at the German bank.

The management of foreign assets for German clients is "a completely normal process," says a spokesman of Metzler, the Frankfurt private bank. But the deciding factor in determining whether criminal activity was involved, according to the Metzler spokesman, was whether the bank was aware of its client's goal of using the Liechtenstein entity for tax evasion. "As far as our clients were concerned, we assume that this was not the case," says the Metzler spokesman.

Investigators searched the banks office's last Monday, and the public prosecutor's office in Bochum is investigating three of Metzler's employees on the suspicion that they may have been accessories to tax evasion. Hauck & Aufhäuser has also confirmed that it is being investigated, although it declined to comment on the matter.

All of this is turning into ammunition in the context of a growing social confrontation in Germany. The public debate over Germany's Hartz IV welfare reforms and excessively high executive compensation has already drawn attention to the ever-widening gap between rich and poor. While life at the bottom of society is characterized by inadequacy and uncertainty, those at the top are accused of living in excess and eroding the cherished German principle of social solidarity.

The tax affair adds new fodder to this conflict. The left-of-center crowd has only one adversary, executives and tax evaders, and somehow the politicians on the other side of the aisle are lumped into this group. SPD leader Kurt Beck set a precedent when he told the German magazine Stern: "Apparently a lack of a sense of wrongdoing has gradually developed in recent years. When historians look back on this phenomenon, they will probably conclude that it was triggered by the CDU contributions scandal (in 1999), which has never been cleared up."

In this way the battle lines for the coming years are being drawn. Beck is pushing to the left, making common cause between the SPD and the far-left Left Party. Meanwhile, the more irresponsible members of the elite continue to provide the kind of material that allows the left to register its indignation.

The country is becoming emotionally charged, making life more difficult for its more levelheaded citizens. The tax scandal could well represent the final nail in the coffin of Germany's mooted social and economic reforms.

None of this is of much concern to Heinrich Kieber. A week and a half ago, he called his mother, who now lives in the Swiss town of Bellach. Playing the devoted son, Kieber asked his mother about her health. Maria Kieber, who was born in Spain, had a shoulder operation in January. "At that time, he called me once in a while," she says.

She hasn't seen her son in a long time. There was no family get-together at Christmas, which her son spent near San Francisco. Maria Kieber has neither a telephone number nor an address for her son. But this isn't unusual, she adds, saying that he's always been this way, "ever since he finished school." According to his mother, Kieber "likes to travel and he's very athletic. He likes mountain-biking." She says Kieber spent several months in Australia, working and traveling around. He only visited his mother now and again.

Kieber's parents met in Barcelona almost 50 years ago. During a beach vacation, the father, a press photographer from Liechtenstein, stayed in the same hotel as Maria and her parents. The couple married and had three children.

But the marriage didn't last long. Until his death, Kieber's father lived in Liechtenstein with his second wife, a Filipino woman. His first wife moved to Switzerland.

Kieber himself led an unsettled life. He sometimes worked in Liechtenstein, at other times in Switzerland. At one point, when he was working in the computer center of the now bankrupt airline Swissair, he became friends with a pilot.

Kieber never managed to hit it off with women. "My son is a perfectionist and thrifty; he hasn't found the right woman yet," says his mother. She is convinced that her son is innocent, and that he returned the data to its rightful owner at the time.

And the newspaper reports? Completely made up, she says. Her daughter has not been in touch with her brother by email because, as Maria Kieber says, "like me, she doesn't know anything about computers."

Maria Kieber's son turns 43 this year. She doesn't want to reveal the exact date. But she is hoping for a phone call.

BEAT BALZLI, MATTHIAS BARTSCH, DIRK KURBJUWEIT, CONNY NEUMANN, BARBARA SCHMID, HOLGER STARK

Translated from the German by Christopher Sultan

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