07/18/2008 06:15 PM

Liechtenstein Affair

Court Hands Down First Tax-Cheat Sentence

A court in Bochum has handed down the first sentence of what are expected to be hundreds of trials involving people who illegally hid money from German tax authorities in Liechtenstein. Many are handing over their expected fines -- even before they go on trial.

The first of hundreds of tax-evasion trials connected with tax havens in Liechtenstein was brought to a close Thursday in Bochum.

The first of hundreds of tax-evasion trials connected with tax havens in Liechtenstein was brought to a close Thursday in Bochum.

With a two-year suspended sentence and massive fine, a court in Bochum has brought to a close the first of what are expected to be hundreds of trials against Germans who evaded taxes by hiding money in Liechtenstein.

The man from Bad Homburg, identified only as Elmar S., was convicted after the one-day trial of having hid €11 million ($17.4 million) in two foundations he set up in Liechtenstein between 2001 and 2006. He never declared the proceeds from the investments, thereby dodging €7.5 million ($11.8 million) in taxes. The 66-year-old retired real estate agent was order to pay €1 million to charities and €6.5 million to the state of North Rhine-Westphalia as a fine, which he has already done.

"We're talking about an amount of money that is almost unimaginable to the average wage-earner," said Gerhard Riechert, the court's presiding judge. The sentence matched the one sought by prosecutors, who had agreed to ask for a lenient penalty as a way to reward the man for having cooperating with investigators.

The case is part of Germany's massive investigationof hundreds of people suspected of having put money in foundations in Liechtenstein as a way to evade paying taxes. Authorities have staged 200 raids, opened 350 cases and are weighing investigations of another 420 individuals, according to the AP.

"At the moment," said Eduard Güroff, a spokesman for the prosecutor's office in Bochum, "we're still searching through things a bit."

The larger investigation was launched in February after the BND, German's foreign intelligence agency, paid an informant named Heinrich Kieber up to €5 million ($7.9 million) for a DVD containing data about suspected German tax evaders. The informant had been an employee of the LGT Group, the bank owned by Liechtenstein's ruling family.

Klaus Zumwinkel, the former CEO of Deutsche Post and one of Germany's most influential businessmen, was the first -- and, to date, the most prominent -- target of the wider campaign against tax evaders. Law enforcement and tax authorities made their investigation public in February when they raided Zumwinkel's residence near Cologne. No trial date has been set for Zumwinkel, who resigned immediately after the raid.

On Friday, prosecuters announced that nearly 210 German citizens under investigation or charged with evading taxes by hiding money in Liechtenstein had already handed over €110 million ($174 million) to tax authorities, despite the fact that trials against them have yet to begin. Authorities suspect that thousands of Germans might have hidden up to €3 billion ($4.75 billion) in Liechtenstein.

"This will show everybody that you will lose your money if you take it abroad to evade taxes," said lead prosecutor Margrit Lichtinghagen, according to the Bloomberg news agency.

Cross-Atlantic Investigation

In related news, Heinrich Kieber, the same informant who provided the German government with the DVD containing information about German tax dodgers, provided videotaped testimony to the US Congress Thursday. In the tape, a disguised Kieber told the Senate Homeland Security and Governmental Affairs investigations subcommittee about how European banks concealed money from government tax authorities.

For example, Kieber -- who now lives in the witness protection program under an assumed name -- described ruses the LGT Group bank used to hide money, such as setting up shell companies, which he described as "high-grade camouflage."

The testimony came one day after the same panel took aim at the LGT bank and Swiss banking giant UBS in a report accusing the banks of helping Americans evade paying up to $100 billion (€63.3 billion) annually.

"Tax havens are engaged in economic warfare against the United States," Democratic Sen. Carl Levin told the committee Thursday, "and honest, hardworking American taxpayers." Levin added that the banks had "relied on secrecy and deception to hide not just the tax avoidance schemes of their clients but the actions they themselves took to facilitate US tax evasion."

In response to the criticism, Mark Branson, chief financial officer of UBS Global Wealth Management and Business Banking, expressed regret on behalf of the company. In addition, Branson announced that his bank would no longer provide US residents with offshore banking and securities services from Switzerland-based branches, but only from branches based in the US.

Branson also added that the bank would cooperate with US authorities "to identify the names of US clients who may have engaged in tax fraud," according to the AP. Branson justified the decision by saying that the client-identity protections in Swiss laws were not meant to extend to cases involving tax fraud.



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