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  Bulging Panties and Oversized Tax Evasion: Secret Lives of the Super Rich

Bulging Panties and Oversized Tax Evasion Secret Lives of the Super Rich

By John Goetz, Conny Neumann and Barbara Schmid

Part 2: The Scrooge McDuck Principle

One of the first things that struck investigators about Zumwinkel, the former CEO of Deutsche Post, was his frugality. A multimillionaire, he lived in a large mansion, and yet when officials searched the house they encountered threadbare carpets, dilapidated cabinets and a neglected swimming pool. Bonn attorney Karsten Randt is one of a handful of lawyers representing clients in the LGT case. He refers to their behavior as the Scrooge McDuck Principle. "Simply knowing that they are rich gives them the greatest pleasure," he says.

But it is a pleasure that few are eager to share, not even with their own families. One of Randt's clients was a parsimonious mid-level civil servant who showed up in his office one day with securities worth €500,000 ($775,000). The man told Randt that he was plagued by his bad conscience and wanted to turn himself in for tax evasion. He had one problem, though: He was afraid to go home alone. For years his wife, who had no knowledge of his financial dealings, had been forced to live in a small rented apartment in the Rhineland region. The man had even denied his wife the money for a cheap vacation. The attorney had to help the man confess his secret fortune to his wife. "But his fears of divorce," says Randt, never materialized.

Stashing Unclaimed Cash in Socks and Panties

In the wake of the Kieber revelations, an 80-year-old man from Bavaria, fearing that he would lose his fortune, hid his millions in his socks and made countless trips to bring them back to Germany from Liechtenstein.

Meanwhile, the panic among tax evaders is driving up legal fees. According to one lawyer, tax evaders are willing to pay even the most astronomical of fees to avoid trouble with the tax authorities. After the Bochum investigators had conducted their first searches, the number of clients at respected law firms specializing in tax issues began growing week after week. "We are earning a living on the basis of people having believed that they would never be caught," says one attorney.

The panic is justified. The rule of thumb for anyone who doesn't cooperate with the investigators is one year in prison for each million in unpaid taxes. But even without a prison sentence, many could still face financial ruin. In the interest of simplicity, investigators have developed a flat-rate table to compute tax debts. A fine of €2 million ($3.1 million) is imposed funor each million in evaded taxes, bringing the total amount due to €3 million ($4.65 million). Tax evaders who turn themselves in voluntarily and those who submit extensive confessions are given a discount. In many cases, tax evaders stand to lose one-third or more of assets parked illegally abroad.

A few of the tax evaders named on the Kieber DVDs are no longer in a position to pay such large amounts. They invested in a special product that LGT Treuhand had offered: black funds, which acquired the name because no financial statements are published. The customers were led to believe that these investments were especially safe. Accordingly, the fees were high.

But under German law, such funds are subject to especially high punitive taxes that can amount to up to 90 percent of the invested capital. Almost all of the LGT customers now known to authorities invested in black funds and find themselves faced with a 90-percent tax, on top of the double penalty. Many have no idea how they can come up with the money to pay the fines.

The more the details become known, the greater is the astonishment among experts over how amateurishly these assets were managed in the Liechtenstein foundations. "Their main concern was to hide the money from the tax authorities. Nothing else mattered," says attorney Randt. According to Randt, investors no longer cared what the bank was doing with their money.

The tax evaders would only occasionally contact their bankers in Liechtenstein, and when they did they were required to state a password, like "Alpenglow" or "Pussycat." Fearing that they would forget their passwords, most of the owners of foundation shares carefully entered them into their address books -- to the delight of investigators.

Caution was of little use for one especially nervous Bavarian retiree. Fearing discovery, she had her Liechtenstein account registered in a friend's name. After that, she paid no further attention to her hidden assets. But when she decided to turn herself in, she found that both her account information and her money had become inaccessible. The friend refused to provide the information to tax authorities, claiming that it was her money. It will be difficult to prove her wrong.

A well-to-do Munich pharmacist considered herself above suspicion. A few years ago, the 65-year-old had inherited about €2.75 million from her husband and deposited it abroad. Whenever she needed money, she would take a train to the bank, make a withdrawal and hide the cash in her panties. But customs investigators from Germany's southern Allgäu region became suspicious. While traveling on the Eurocity 93 train between the two Bavarian towns of Lindau and Memmingen, she was asked to remove everything she was carrying on her person -- including the €150,000 she had been smuggling.

Insurance Packages and Office 'Mock Dawn Raids'

Although it has long been clear that the Bochum investigations have already mushroomed into Germany's biggest tax scandal ever, the number of possible suspects is apparently much larger than anticipated. "Private companies are getting ready," says Roswitha Müller-Piepenkötter, the justice minister for the state of North Rhine-Westphalia. Some have their employees play the board game "Razzia" to prepare them for visits by tax inspectors.

Linklaters, a high-end Düsseldorf law firm, even offers its clients "mock dawn raids." "Agitated employees are quick to make mistakes," says attorney Anne Federle, explaining that there is growing interest for programs that offer professional preparation for unannounced government raids.

Roland, a German insurance company, even offers a "Detention While Awaiting Trial Package," including per diem and a pickup service for the company limousine. The package also includes a good defense attorney -- and high blood pressure tablets.

Translated from the German by Christopher Sultan.

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