New Twists in Tax Affair

A day after German Chancellor Angela Merkel shone a spotlight on Liechtenstein's role in abetting tax evasion, the focus shifted to private banks within Germany who apparently helped wealthy clients shelter millions in murky foundations in the tiny Alpine principality, sandwiched between Austria and Switzerland.

Germany's Sueddeutsche Zeitung reported on Thursday, Feb. 21, that a few private banks and other financial institutions in Germany helped to administer around 50 anonymous foundations for its rich clients in Liechtenstein. The newspaper did not name its sources.

The report was confirmed by Bernd Bieniossek, the leading state prosecutor in the city of Bochum who told German public broadcaster ARD's news Web site that investigators were indeed looking into the role played by German private banks.

Spotlight on German private banks

The daily said German customers of several banks were explicitly advised about the foundations in Liechtenstein, adding that in some cases millions were transferred to accounts in Vaduz using code words.

Guenther Oettinger, premier of the western German state of Baden-Wuerttemberg, told news agency DPA that the newspaper report was plausible.

"We need to examine the allegations," Oettinger said.

However, a few private banks, targeted by tax authorities in recent days as part of nation-wide raids on suspected tax cheats and financial institutions, denied the allegations. A spokesman for one such bank, Hauck & Aufhaeuser, told DPA that the bank was not allowed to advise clients in tax affairs.

Juicy scandal

The investigation into the tax evasion scandal, considered one of the biggest in German history, first broke with raids on the home and offices of Klaus Zumwinkel, the high-profile boss of Deutsche Post, Europe's largest postal service, who is suspected of having dodged taxes to the tune of one million euros ($1.5 million). Zumwinkel has since resigned his post.

Ever since, authorities, armed with a list of 100 tax evaders, have been conducting raids across the country on private individuals for allegedly hiding money in accounts Liechtenstein's biggest bank, the LGT Group, which specializes in setting up foundations.

This week German investigators searched homes and offices in
Frankfurt, Munich, Hamburg and Berlin, including branch offices of Dresdner Bank and UBS.

The affair has prompted a heated debate in Germany about the morals and accountability of the country's well-paid business elite. Equally, attention has focused on the way the scandal has come to light.

Bearing the hallmarks of a gripping thriller, Germany's foreign intelligence agency, BND, is reported to have paid up to five million euros to an anonymous informant, allegedly a former disgruntled employee of the LGT Group in Liechtenstein, for a disc containing the names of hundreds of German tax cheats. Germany's opposition parties have criticized the government for accepting and paying for what they say is stolen information.

BND chief Ernst Uhrlau, however, told a parliamentary investigation committee that the man who spilled the explosive information was neither a fraud nor a former employee of the LGT Group with a previous criminal record.

Politician calls Liechtenstein a "rogue state"

The affair has also strained Germany's ties with the tiny principality of Liechtenstein and sparked discussion on tackling tax havens. Liechtenstein is one of only three countries on the OECD's tax-haven black-list, alongside Andorra and Monaco. The probe has led politicians in Germany to call for radical action against Liechtenstein, the smallest German-speaking country in the world.

Joachim Poss, financial affairs expert of the Social Democratic Party (SPD) accused the principality of systematically abetting tax fraud.

"Their behavior reminds one of a rogue state," Poss said in an interview with German broadcaster, SWR.

The tax evasion scandal has passions running high beyond German borders too. Pierre Mirabaud, chairman of the Swiss Bankers' Association lent his support to embattled Liechtenstein on Thursday, slamming the methods used by German tax investigators.

"These are methods that unfortunately remind you of Gestapo methods," Mirabaud told a Swiss TV station, referring to the dreaded secret police during the Nazi era. Mirabaud later said he regretted the comparision.

German Chancellor Merkel on Wednesday pressed Liechtenstein on its role in abetting tax evasion and raised the prospect of retaliation unless she receives more cooperation on tax policy from the principality. Merkel said she expected Liechtenstein to show progress in talks with the European Union on combating fraud and for it to implement a new EU money-laundering directive.

Liechtenstein's head of state, Prince Alois, said on Thursday he wanted to smooth differences between the two nations and end the "ping-pong game" between Berlin and Vaduz.