In mid-February 2008 the press reported that the simmering tax inquiry against prominent German businessman Klaus Zumwinkel arose from information obtained by the German Federal Finance Ministry relevant to bank accounts held by Zumwinkel and others at Liechtenstein bank LGT. It also reported that the information had been acquired by the German secret service, which paid e4m (£3.14m) to a former employee of a subsidiary of the bank, Heinrich Kieber. Other states, including the UK and France, are reported to have purchased, presumably from the German government, some of this information in relation to their own taxpayers.
In March it was reported that Michael Freitag, an employee of another Lichtenstein bank, LLB, had bribed the bank for payments by threatening to publish client information he had stolen. He had been arrested in Germany on charges of bribery and, following the press reports relating to LGT, sought to offer the information to German’s Federal Ministry of Finance, presumably in the context of a plea bargain.
These stories and their derivatives attracted much attention in the international press. Most of the coverage focused on the implications for ‘tax haven’ jurisdictions, both within the EU (Luxembourg) and outside the EU in places such as Switzerland, Monaco and Andorra. It also elevated the debate within the EU about banking secrecy to the point where the hard-won accord on transitory provisions, ;through ;the implementation ;of ;the European Savings Tax Directive, which apply until 2011, may come up for renegotiation as early as autumn 2008.
Criminal behaviourWhile no one can question the legitimate expectation of the German state that those persons bound by law to pay tax in Germany pay the taxes due by them, a number of questions arise.
For instance, is it legitimate for one country to encourage criminal behaviour in another country in order to enforce its own laws? Clearly Kieber’s reported actions are against the law of Liechtenstein and that country is now seeking to extradite and prosecute him (and the German secret service agents). Regardless of whether Kieber himself or the agency initiated the transaction, the payment the German government has admitted to making would constitute ‘proceeds of crime’ in any jurisdiction that has introduced Financial Action Task Force money-laundering guidelines.
Can any bank accept a payment from a government agency made to a person in consideration of disclosing information illegally? The answer, surely, is no, and remains no regardless of whether the agency making the payment did so in the public interest, albeit of another state.
Public policy?Are there international public policy considerations applying to tax collecting that would make it acceptable for one state to encourage criminal conduct in another sovereign state? Once again, the answer must be no.
The application of tax rules are very often peculiar to a particular state (even within the EU) and there will always be differences that would allow individuals or companies an opportunity to arbitrate these to their advantage. In this way tax rules are no different from traffic rules or building codes. Nevertheless, the German government, with apparent public support, appears to take the view that any means of trapping tax evaders is justified and this would override any rights to privacy and even the sovereignty of a neighbouring state. This could potentially lead to increasingly intrusive actions against individual liberties and increasing disdain for the laws of other countries.
It is worth remembering that operating a bank account in a tax haven is not the offence the German government is seeking to prosecute. It is rather the failure to disclose the account and any income earned on the account, or, alternatively, where the opt-out from the EU Savings and Tax Directive applies, a failure to declare the account as one for which withholding tax is due. If it is true, as reported, that the accounts held in LGT were accounts of Liechtenstein foundations rather than those of individuals, then part of the offence may be a failure to declare a donation to the foundation.
These potential offences may have occurred in Germany at the time the tax declarations should have been made, regardless of where the funds were ultimately held, so do not blame Liechtenstein for the tax morality of the German taxpayers. For all we know, every one of the account holders who have been shamed publicly might have made proper tax declarations. nSteve Georgala is managing director of legal services support company Maitland