Are you sure?

Germany and Liechtenstein spar over tax havens

Liechtenstein accused Germany on Tuesday of illegally acquiring secret bank data that has set off a major tax evasion probe, escalating a row between the two that could spark a Europe-wide debate on tax havens.

The spat between the largest and smallest German-speaking nations began last week when German prosecutors announced a far-reaching investigation into tax dodging, targeting 1,000 people suspected of parking money in Liechtenstein banks. The probe, which has involved raids on homes and offices across Germany, has already forced out the CEO of Deutsche Post, Klaus Zumwinkel, and is fuelling calls in Germany for a crackdown on tax havens. Prince Alois von und zu Liechtenstein, the acting head of the tiny alpine state, hit back on Tuesday, accusing Germany of violating the law by purchasing information on suspected tax dodgers from an informant the principality views as a criminal. “It is surely a crisis, when one is shot at in this way by such a big country,” the prince told a news conference in the capital Vaduz. “Germany would be better off using its tax revenues to get its own tax system in order instead of paying millions for stolen data.”

German media have reported that the BND foreign intelligence service paid the informant about €4.2 million ($6.14 million) for a compact disk containing Liechtenstein bank data on over 1,000 people suspected of tax evasion. The German finance ministry, which expects a tax windfall of hundreds of millions of euros as a result of the investigation, says the money paid for the information was “well spent”. But Liechtenstein has condemned the move and two German lawyers announced on Tuesday they had filed a legal complaint against, both the government and the BND over the payoff.

LGT, a private bank owned by Prince Alois’s family, said last week that some of its client data had been stolen six years ago. The Wall Street Journal Europe has reported that the man, who handed over the data to Germany, is now in Australia. German investigators have searched the Munich branch office of Dresdner Bank, part of Europe’s biggest insurer Allianz, as well as private investment bank Bankhaus Metzler and private bank Hauck & Aufhaeuser as part of what they say are more than 100 raids planned for this week. German media have speculated that other high-profile names could join Deutsche Post’s Zumwinkel as targets of the probe.

European ministers to diskuss
Luxembourg Prime Minister Jean-Claude Juncker told reporters in Berlin, he expected European finance ministers to discuss tax havens, like Liechtenstein at a regular meeting in March. German politicians urged Chancellor Angela Merkel to press the principality’s prime minister, Otmar Hasler, for action, when the two meet in Berlin on Wednesday. “I assume, the chancellor will make it very clear to her guest, that Liechtenstein can no longer provide support for criminal behavior,” Peter Struck, leader of the Social Democrats (SPD) in parliament, told the Tagesspiegel daily.

Liechtenstein, a tiny slice of land between Switzerland and Austria, whose economy is heavily dependent on the financial sector, is one of only three countries on the Organization for Economic Cooperation and Development’s blacklist of uncooperative tax havens, alongside Andorra and Monaco. It is home to private banks and scores of wealth managers, who offer discreet banking services for international clients. OECD Secretary-General Angel Gurria said the German case highlighted a broader challenge of how to respond to countries profiting from tax dodging by residents of other jurisdictions. "As long as there are financial centers that refuse to cooperate in bilateral tax information exchange and that fail to meet international transparency standards, residents in other countries will continue to be tempted to continue to evade their tax obligations," Gurria said. German public prosecutors said they were widening searches after raiding homes and offices in Frankfurt, Munich, Hamburg and Berlin on Monday, according to sources close to the inquiry.

Polls released over the weekend suggested the tax scandal might have an impact on elections in Hamburg on Sunday, by boosting support for protest groups like the Left party. “We are continuing our work throughout Germany,” said Bernd Bieniossek, public prosecutor in the city of Bochum, which is leading the probe. The investigation has led to a sharp drop in the shares of Liechtenstein’s banks. Ratings agency Standard & Poor’s revised its outlook on LGT to negative from stable on Tuesday, citing risks to the bank’s reputation from the probe. (Reuters)