Massive Tax Evasion Scandal in Germany: The Liechtenstein Connection

With one bigwig already toppled for tax evasion and hundreds more likely waiting their turn, all roads lead to the tiny principality of Liechtenstein. According to SPIEGEL sources, Germany's largest post-war economic scandal started with a single intelligence source.

It is rapidly becoming one of the largest economic scandals ever in Germany's post-World War II history. As many as 900 wealthy Germans -- many of them well-known -- might be involved. Berlin may have been shorted up to 4 billion euros in taxes. And the accusatory finger is pointing increasingly at what many feel is rampant greed among of many of Germany's top earners -- and at a handful of banks and foundations in the tiny principality of Liechtenstein that help the affluent hide their assets.

German investigators have their hands on LGT Bank data that may implicate hundreds of wealthy Germans of being involved in tax evasion.
DPA

German investigators have their hands on LGT Bank data that may implicate hundreds of wealthy Germans of being involved in tax evasion.

The first to fall was Deutsche Post CEO Klaus Zumwinkel. He resigned on Friday after raids on his home and office by officials looking for evidence of massive tax invasion. But with officials planning to launch up to 125 additional tax evasion investigations next week, it is likely that Zumwinkel will soon have to share headline space.

The growing investigation has its roots in information handed to tax investigators by Germany's foreign intelligence agency, the Bundesnachrichtendienst (BND). Last week, the BND insisted it had been little more than a messenger, but according to SPIEGEL sources, its involvement is more reminiscent of a Tom Clancy novel than of a run-of-the-mill operation.

In 2006, a man approached the BND offering agents a DVD full of information detailing foreign investments and following capital flows from Germany into those investments. In addition, the source claimed to have particulars pertaining to a number of accounts held by the LGT Group, a bank managed by the principality of Liechtenstein. But he was charging a hefty price for the DVD.

BND agents moved slowly. Their source, whose identity has not been made public, offered up samples from his data for German officials to test. And they were satisfied with the information's trustworthiness. In the end, the source was wired 5 million euros for the data disk, and he also requested personal protection out of fear for his life. The payment was made with the knowledge of German Finance Minister Peer Steinbrück.

While hundreds of its customers may be compromised by the information now in the hands of eager German investigators, the bank is doing its best to assure its clients that the DVD contained details stolen from LGT Trust Ltd, a part of the LTD Group located in Vaduz, Liechtenstein six years ago. That case was closed in 2003 after the perpetrator was convicted. The data, the bank says, was "illegally passed on." The bank claims that "there is no indication that customer information has been stolen since 2002."

But according to SPIEGEL sources, German investigators are in possession of bank data on Liechtenstein-based tax evasion that goes all the way through the end of 2005. They also have account information from the Liechtensteinische Landesbank (LLB) which may reveal tax evasion. The LLB announced at the beginning of the week that it too had been the victim of a major data theft. According to SPIEGEL sources, that data too is still in circulation.

Regardless of how the data landed on the desks of German tax investigators, the growing scandal has caused outrage across the country and in the capital. German Chancellor Angela Merkel on Friday once again reminded German economic leaders that they carry a huge responsibility. "Responsible behavior from companies is an elementary prerequisite for a functioning socially-responsible market economy," she said. Minister of the Economy Michael Glos, a conservative like Merkel, told the Sunday tabloid Bild am Sonntag that German managers have to "become aware that they are role models for society." Otherwise, he said, "faith in our market economy will be lost."

Others were a bit more pointed. Interior Minister Wolfgang Schäuble, from Merkel's Christian Democrats, told SPIEGEL "I have zero understanding for this kind of greed. Uncontrolled capitalism, greed and massive losses on speculative investments -- that is a combination that makes people furious." Steinbrück, the Social Democratic Finance Minister, told the online version of the weekly Die Zeit: "It is the elites who are threatening to cause the system to collapse."

On Monday, the SPD plans to pass a resolution looking at whether prison sentences for tax evasion should be lengthened. The party accuses elites in Germany of ignoring the responsibility they have for the common good. "The money that perpetrators keep from the community short-changes education, security and infrastructure," the draft document reads.

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