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

Prosecutors and tax investigators are once again going after millionaires who have hidden their assets in foundations with Lichtenstein's LGT Treuhand in what has become the biggest tax-evasion scandal in German history. After years of hide-and-seek, many are relieved to have been discovered.

By John Goetz, and


Liechtenstein's LGT Bank: "Simply knowing that they are rich gives them the greatest pleasure."
DPA

Liechtenstein's LGT Bank: "Simply knowing that they are rich gives them the greatest pleasure."

The investigators were more discreet this time -- no cameras, no flurry of flashbulbs, no live broadcasts from the scene of the crime. In fact, authorities were anxious to avoid repeating the sort of spectacle that had unfolded when officials searched the home of Deutsche Post CEO Klaus Zumwinkel in Cologne back in February.

There were no streets being sealed off in the early morning hours last week, nor were there any flashing lights or even officers in uniform. Instead, about a dozen men and women arrived in inconspicuous cars, rang doorbells during normal business hours and disappeared into several Munich villas and commercial buildings without even attracting the neighbors' attention.

For their latest wave of house searches, prosecutors and tax investigators from the western German city of Bochum have set their sights on a handful of Munich millionaires. Authorities believed that the would-be suspects, like Zumwinkel, could be guilty of tax evasion in Germany, illegally parking their money with foundations operated by the LGT Treuhand bank in Liechtenstein.

The investigators' suspicions are based on the data on DVDs that Heinrich Kieber, a former LGT employee, sold to the BND, Germany's foreign intelligence service, for €4.6 million ($7.1 million) in mid-2007. The damaging collection of data contains up to 900 files with information about the hidden assets of German investors.

An Investment with Golden Returns

Including the Munich finds, there were close to 200 cases against LGT customers noted on the Kieber DVDs. More than 200 tax evaders have turned themselves in, as have another 330 people who erroneously believed that they were on the list. Purchasing the DVDs turned out to be a worthwhile investment for the government, with tax authorities already collecting up to €250 million ($390 million) in advance payments.

In their latest series of raids in Munich, investigators focused on several "especially hard nuts to crack." The names on the list are not part of the Bavarian capital's flashy jet set, but instead belong to the more dignified, inconspicuous old-money aristocracy. Those who don't cooperate and confess could face tough penalties, possibly even jail time. Prosecutors plan to take drastic action in the case.

A few of the suspects attempted to avert disaster at the last minute. One extremely rich Munich resident allegedly turned himself in. He is believed to have hidden at least €1 million in one of LGT's foundations.

But the man was out of luck. Tax authorities apparently received his amended tax return exactly four minutes too late. At precisely the time recorded on the tax office's fax machine, investigators were already inside his Munich mansion.

One Hamburg heir, who is also believed to have stashed away millions in a Liechtenstein foundation, apparently submitted his amended tax return in time. From faraway Mallorca, where he officially resides, he can now breathe a sigh of relief as German investigators continue their crusade.

The owner of a luxury hotel in one of Bavaria's most appealing vacation regions was also quick to repent. In time to avoid prosecution, the man confessed that he had used a Liechtenstein foundation to conceal millions of his assets from German tax authorities.

Bavarian privacy commissioner Karl Michael Betzl: One of the southern German state's most respected officials has become embroiled in the country's biggest-ever tax evasion scandal.
DPA

Bavarian privacy commissioner Karl Michael Betzl: One of the southern German state's most respected officials has become embroiled in the country's biggest-ever tax evasion scandal.

But Karl Michael Betzl, the Bavarian government's commissioner for privacy protection, can expect to face a more lengthy investigation. Betzl, one of the most respected senior government officials in Bavaria, is alleged to have hidden about €700,000 in assets in a family foundation under the LGT Treuhand umbrella. State prosecutors in the western German city of Bochum in North Rhine-Westphalia have since been forced to transfer the case to their Bavarian counterparts in Munich. Betzl, who has been temporarily suspended from his position, also stands accused of being an accessory to social security insurance fraud.

When they searched Betzl's residence, authorities found large numbers of envelopes, each containing between €300 and €500 in cash. Betzl apparently claimed that he was holding onto the cash for a young woman living on government assistance. But the woman, he added, was living with a wealthy acquaintance and didn't need the money at the moment. Betzl told Alois Glück, the president of the Bavarian state parliament, that he was innocent and would clear all the accusations against him. He also claims that he no longer has the alleged €700,000.

Moving Billions to Liechtenstein

For the Bochum investigators, the suspects' stories paint an odd picture of the habits of wealthy Germans. The smallest fish among them have "only" taken €150,000 across the border, while a handful of the ultra-rich have stashed away up to €35 million in Liechtenstein foundations. The biggest fish caught in the investigations conducted to date is a northern German textile manufacturer who allegedly owes €800 million in back taxes. To owe that much, he would have to have moved several billion euros to Liechtenstein.

Some LGT customers seem practically relieved that the game of hide-and-seek has finally come to an end. Many felt hounded by the thought of their illegal millions. Munich attorney Klaus Höchstetter says that some of his clients have even suffered from sleeplessness and cardiac arrhythmia as a result of their family secrets.

The constant fear of being discovered has settled over their lives like a dark shadow, preventing them from enjoying their expensive cars, luxury vacations and lakeside villas. Many consider their situation to be so hopeless that they have not touched fortunes that their grandfathers once parked in a Liechtenstein foundation for decades. "Many don't even know how much they have in the accounts now. They say to themselves: Let my children worry about it," says Höchstetter.

Some of the tax evaders are so relieved that they have literally welcomed investigators with open arms. In March, when Bochum Public Prosecutor Margrit Lichtinghagen paid a visit to a wealthy Munich resident who had hidden roughly €1 million at LGT, he served her coffee and cake before opening his file cabinets. "I am honored that you are coming to me personally," the man confessed, "now I will be able to sleep well again."

Investigators have been as surprised by the tax evaders' bad conscience as they have been by the suspects' insatiable greed. During the course of the LGT investigations, Munich tax expert Jan Olaf Leisner met clients who, loath to buy a briefcase, carried the account statements for their Liechtenstein millions into his office in shopping bags from the discount supermarket Aldi. Apparently they felt file folders would have been too expensive. Others had been living in depressing apartment buildings on the city's outskirts for years, with plastic chairs on their balconies and threadbare furniture in their small, poorly ventilated living rooms. One tax evader, who is believed to have several million euros hidden away in Vaduz accounts, even collects German welfare payments for the long-term unemployed.

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