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The World from Berlin

'The Fortress of Liechtenstein Is Wobbling'

As the tax evasion scandal in Germany widens to the rest of Europe and even Australia and New Zealand, Liechtenstein finds itself in an uncomfortable spot. German commentators predict tough times ahead for the tiny principality.

When the tax dodging scandal first broke in Germany earlier this month, many were wondering whether a DVD bought by Germany's foreign intelligence agency from a data thief would be admissible in court. Turns out, it may not matter.

German authorities said on Tuesday that €27.8 million in back taxes had flowed into state coffers since raids against hundreds of tax dodgers began in the mid-February. Since the first, highly-publicized raid on Deutsche Post CEO Klaus Zumwinkel, who promptly resigned, 91 people have admitted to the allegations levied against them and investigators are optimistic that millions more euros will turn up in tax office accounts in the next few weeks.

In short, for the German government, the return on its investment has been strong. (Agents from Germany's intelligence service BND paid just under €5 million to an informantnamed Heinrich Kieber for the DVDs.) Meanwhile pressure is growing on Liechtenstein, where much of the untaxed money was sheltered. Estimates of the total amount of German tax debt stashed there, as measured by Kieber's information, top €200 million.

With a number of other European countries in touch with Germany about possible tax evasion committed by their citizens, the spotlight on the tiny principality promises to shine all the brighter in the near future. Britain too has paid money to the same informant for details on possible tax evasion by dozens of Britons. On Wednesday, La Repubblica reported that Italy was also in on the act: Rome had opened investigations into 150 citizens based on a list from German officials. Also on Wednesday, Reuters reported that officials in both Australia and New Zealand have mounted raids against citizens suspected of parking money tax-free in Liechtenstein.

German commentators on Wednesday ponder the effects of the scandal on Liechtenstein, and on German society itself.

The center-left Süddeutsche Zeitung writes on Wednesday:

"The precipitous fall of former Deutsche Post head Klaus Zumwinkel … has had a strange effect. Parading Zumwinkel before the public eye was insufferable. But it made a deep impression on other tax evaders. The avalanche of confessions was also helped by the unusually high quality of the information in possession of the German tax authorities. Those who read their Liechtenstein files tend to regain their memories very quickly."

"The fortress of Liechtenstein is wobbling. The evidence shows that the banks in Vaduz were hardly poor victims of data theft pushed into a corner by their clients. Rather, they systematically tried to attract tax exiles. A socially damaging system is being laid bare. Those who offer safe harbor to tax evaders should not be tolerated."

The center-right daily Frankfurter Allgemeine Zeitung on Wednesday is wondering what next:

"Even higher penalties, increased controls and the high yet questionable payment to the Liechtenstein data thief will not lead to more tax compliance. That's not just clear from the relatively low number of those who have turned themselves in, but also from the fact that tax evasion -- like illegal labor -- has turned into a mass phenomenon."

"It is a fairy tale that the rich hardly pay taxes. Ten percent of wage earners pay more than half of all income tax: the redistribution of wealth clearly works. But why has tax evasion, whether on a small or large scale, become something of a national sport? Because the state grabs too much money from its citizens. From every extra euro paid to an average wage earner, the state takes 68 percent in the form of direct taxes, deductions and indirect taxes like sales tax. In addition, hardly anyone understands the German tax code nor do they know the numerous loopholes. The result is that many have the feeling that everyone else pays less. That has to change so that trust grows in the fairness of the German tax system. "

The Financial Times Deutschland is concerned about damage done to Germany's foreign intelligence service, the BND, as a result of the massive tax investigation and the publicity that has accompanied it:

"It has become increasingly apparent how much the publicity interests of Germany's finance ministry runs counter to those of the BND.... While public prosecutors proudly go public with the millions in back taxes they have received, the BND is becoming increasingly annoyed by the public unveiling of the identity of the source which provided them with the Liechtenstein data. In the future, informants will surely question the BND's discretion."

"The BND's core responsibility is that of defending Germany from dangers abroad. When the intelligence agency allows itself to be used by other agencies that have little interest in secrecy, the BND's ability to do so is harmed."

The financial daily Handelsblatt takes a look at what might lie ahead for Liechtenstein:

"German Finance Minister Peer Steinbrück's hopes are realistic that the tax data now being used to hunt tax evaders could help unite the European Union in a united fight against the uncooperative tax oases Liechtenstein, Monaco and Andorra. Germany is being generous with the data and is thus gaining support from finance ministers across the EU."

"For Liechtenstein, but also for Monaco and Andorra, the results may well be dramatic: A large chunk of their gross domestic products depend on a reputation for maintaining absolute bank secrecy. Liechtenstein's aura has already been destroyed -- possible clients have surely been deterred."

"In the case of tax crimes, one assumes that none of the three mini-states will be able to persevere for long. The data from Liechtenstein has shown what experts have long suspected: that the structures of foundations in the country are primarily used for tax evasion purposes. The excuse that only a few criminals take advantage no longer holds water."

-- Charles Hawley; 11:30 a.m. CET