on March 3, 2008.
The tiny principality of Liechtenstein, an Alpine nation of about 35,000 nestled between Austria and Switzerland, has become the focus of a major scandal involving tax evasion in many countries and possibly billions of dollars in tax revenue.
The scandal began in Germany but has since spread to several European countries, the United States, Canada, and as far afield as New Zealand and Australia. Germany has offered to share data with any other interested tax authorities, leading to the launching of many investigations, including separate initiatives in the United States by the IRS and Senator Carl Levin, D-Mich., as well as many taxpayers who have allegedly committed tax evasion rushing to come clean.
First Inkling of Trouble
The affair first came to light with the February 15 resignation (officially accepted on February 18) of Klaus Zumwinkel, former CEO of Deutsche Post, who faces allegations that he hid up to €1 million (US $1.5 million) through transfers to Liechtenstein Global Trust (LGT), a bank owned by the Liechtenstein royal family, over the past 20 years. (For prior coverage of the German scandal, see Tax Notes Int'l, Feb. 25, 2008, p. 637, Doc 2008-3490, or 2008 WTD 34-1).
The resignation came after a police investigation led to February 14 dawn raids on both Zumwinkel's home in the upscale Marienburg section of Cologne and his Deutsche Post office in Bonn. About five hours after the raids, police escorted Zumwinkel from his home to the prosecutor's office in the city of Bochum.
Zumwinkel was only the first of many high-profile executives, celebrities, and other wealthy individuals implicated in the widening tax scandal through their presence on a list of names obtained by German tax authorities. German prosecutors raided homes and offices in Frankfurt, Munich, Hamburg, Stuttgart, and other cities on February 18. Prosecutors are interested in about 750 people who allegedly failed to declare savings held in Liechtenstein; lost revenue is estimated to be in the hundreds of millions of euros (a report in the U.K.'s Guardian newspaper cites unconfirmed reports of costs to tax authorities of up to €4 billion (US $5.9 billion)).
LGT spokesman Hans-Martin Uehlinger said the list contains "several hundred names" and that LGT is "going to warn all our clients who are on the list." LGT said it thought the data (including the list) that had been stolen in 2002 had all been returned, but realized in 2007 that some client data might have been "passed on illegally to third parties."
The Scandal Spreads
To date, the scandal continues to spread within Germany. According to a February 26 report on Bloomberg.com, as of that date, 163 Germans had confessed to tax evasion, and 91 of those had agreed to pay a total of €27.8 million (US $41.3 million), said prosecutor Hans-Ulrich Krück. "At the moment, this sum is rising daily," he added in a brief statement in Bochum, reported in the February 27 New York Times. "We have already been notified of more voluntary payments."
"The pressure is building on all sides," Sylvia Schenk, chair of Transparency International in Germany was quoted as saying in the Bloomberg.com report. "Public expectations are huge now that these cases will be investigated and be punished."
According to articles in the New York Times of February 18 and 27, the vehicle for hiding the money is Liechtenstein's strict banking secrecy laws and favorable treatment of foundations. Many foundations are filled with cash spirited out of Germany through various means, some as crude as stuffing a suitcase with cash and driving across the border. Smugglers are arrested regularly. Foundations are taxed in the low single digits and are permitted to disburse money to their founders and to founders' family members. The foundations are also permitted to open bank accounts in their own names outside the principality, which gives the owners access abroad to their cash, as well as to undertake investments without reporting capital gains to governments outside Liechtenstein. Any effort to trace the owners of the foundations runs up against Liechtenstein's tough banking secrecy laws.
The allegations come at a time when high-level business leaders in corporate Germany have come under increasing criticism over tax breaks, high salaries, and other corporate perks. Politicians have joined the growing public outcry against the perceived immunity and privilege enjoyed by the business elite exemplified by Zumwinkel. Finance Minister and Social Democratic Party member Peer Steinbrück admitted in a Deutsche Welle article that the investigation was damaging the already shaky state of public confidence. "The moral damage is considerable," Steinbrück said.
He said that he also plans to push for a revival of the EU initiative to force tax havens such as Andorra, Monaco, and Liechtenstein to be more transparent and to seek stricter national sanctions against tax evasion. He joined Christian Democrat colleagues in warning business leaders that this kind of behavior could undermine the support for Germany's "social market economy," which merges free enterprise with generous welfare provisions. "Irresponsible behavior by top managers has undermined confidence in the social market economy," said Christian Democrat Secretary-General Ronald Pofalla. "We are concerned about the damage this could cause," he was quoted as saying in the Financial Times.
The scandal caps a long-running debate about income inequality, and is seen by many as proof that the well-paid have cheated on taxes. "People who do not set a good example cannot lead," said Josef Ackermann, CEO of Deutsche Bank, according to a February 17 report in the Bild newspaper. "All of us in business are going to have to try again to regain the confidence in us that has been lost," he said. Ackermann's €13.2 million annual salary is among those that have raised eyebrows recently (Zumwinkel's annual salary was €4 million, according to the New York Times) in the ongoing questioning of perceived excessive corporate largesse.
The BND and the Fraudster
The tax evasion investigation has not been free of its own controversy, however. The German news magazine Der Spiegel reported that the investigation began when the German foreign intelligence service, the Bundesnachrichtendienst (BND), paid around €5 million (US $7.4 million) for secret bank data that had been stolen from Liechtenstein. According to a report in the February 25 issue of Der Spiegel, a CD-ROM or DVD containing private customer details on 1,400 people was stolen in 2002 by a former employee of LGT Group, the bank implicated in the scandal. On January 24, 2006, the BND reportedly was approached via email by the former employee, Heinrich Kieber, and was offered the information. BND officials finally met him face-to-face on May 11, 2006. Unknown to the BND at the time was the fact that Kieber was already wanted in Spain for a 1996 fraudulent real estate deal in Barcelona. He had fled to Argentina before returning to Liechtenstein in 2001 and taking up his position with LGT.
His job at LGT, according to the Der Spiegel article, was to digitize all of the paper documents at a bank subsidiary, LGT Treuhand. This position gave Kieber access to extensive information, including contracts, meeting minutes, handwritten notes — essentially the bank's entire inventory of information, much of which appears on the stolen discs.
In January 2003, Kieber tried to use the data to blackmail Liechtenstein authorities, asking for free passage and two new passports in exchange for not making the data public. Because the data implicates individuals and banks, it would appear that Kieber anticipated that Liechtenstein authorities would be threatened by the potential damage to the country's standing as a banking destination and related income streams. Otherwise one might have expected him to blackmail the individuals and/or banks directly by threatening to go to Liechtenstein officials.
Liechtenstein refused the deal. Despite the refusal to cooperate, however, Kieber finally turned himself in and was treated leniently. He received three years' probation for the Spain infraction (which was not recorded on his Liechtenstein record), and was not convicted of data theft. The case was closed on January 7, 2004, and the bank assumed all data had been recovered.
However beginning in 2006, Kieber allegedly offered the private customer records to tax officials around the world, including U.S. officials, but finally found a buyer in Germany once North Rhine-Westphalia state tax inspectors, working with the BND, had verified the documents. Kieber is reportedly now in Australia, living under a new identity provided by the BND.
Using Stolen Data?
The German Finance Ministry would not comment on whether tax investigators can rely on stolen documents to build cases, and would not confirm how much had been paid for the information. Because the BND, a federal institution, does not have a mandate to investigate tax evasion (which is a state issue), some politicians called for an inquiry into whether the agency had acted solely as a messenger. "We must look into whether it [the BND] only played a passive role," said Hans-Christian Ströbele, a Greens MP and civil rights activist, as quoted by the Financial Times. Officials said the BND became involved because Kieber turned to the agency while seeking to avoid contact with the tax authorities. In a Deutsche Welle article, Steinbrück defended the payment, saying Kieber contacted the BND, and not the opposite. "I would like to see the outcry through the nation if we had not done anything about it," he said.
According to an FT.com article, an intelligence official said the BND was offered the documents while conducting normal activities. It acquired the documents after receiving backing and financing from the chancellery and the Ministry of Finance. "A big part of our job is to track financial transactions that underpin terrorism, money laundering, organized crime, and nuclear proliferation. We therefore keep a close eye on financial and trade centers," the official said.
"The BND did everything correctly," said senior Social Democratic Party politician Thomas Oppermann, chair of the Bundestag supervisory committee, in the February 25 Der Spiegel article. "Not only did it have the right to act, but it was in fact obligated to act on the information." Still, there is a sense that a line was crossed when the BND acted on the issue of tax evasion, an area in which it shouldn't be involved. Had the BND simply set up contact between Kieber and the tax investigators and then withdrawn, its involvement would have been less problematic. Ironically, €4.6 million (US $6.8 million) of the fee paid to Kieber constituted an informant's fee, which was then taxed at a flat 10 percent rate. After paying various fees and costs, the final figure reached the €5 million (US $7.4 million) mark. The money was paid by the BND with approval from the Finance Ministry. Tax authorities reportedly have now reimbursed the BND for the payment.
Other German Banks
Ripples from the scandal have now reached many German banks. Prosecutors have begun searching any banks where suspects have accounts or where employees helped customers set up Liechtenstein trusts to avoid taxes. Bankhaus Metzler, Dresdner Bank AG, the banking units of Allianz SE, private bank Hauck & Aufhäuser, UBS AG, and Hamburg-based Berenberg Bank have all confirmed that their offices have been searched. Bayerische Landesbank, Germany's second-biggest state bank, on February 26 said it may retreat from Liechtenstein by selling its stake in a unit located in the principality. The Munich-based bank bought a majority stake in Austria's Hypo Alpe Adria Bank International AG last year, and through it, an indirect holding in Hypo Alpe Adria Liechtenstein AG.
The U.S. Response
The scandal has also spread to many other countries eager to smoke out tax cheats and recover what can, in some cases, amount to hundreds of millions of dollars. U.S. officials are among those launching investigations into Liechtenstein-based activity. On February 21 Senator Levin announced that he would initiate an investigation by the Senate Permanent Subcommittee on Investigations to look into dealings with Liechtenstein. (For Levin's February 21 press release, see Doc 2008-3790or 2008 WTD 37-15).
"Recent events involving a bank in Liechtenstein once again demonstrate the problems presented by secrecy jurisdictions and tax havens that enable individuals to hide assets and evade taxes," Levin said in the February 21 statement. "It is my understanding that many U.S. citizens have also hidden assets at this bank [LGT], which is a real injustice to the millions of working families in this country who honestly pay their taxes every year."
The statement went on to say that "I intend to investigate this matter further, and urge the Senate to enact the Stop Tax Haven Abuse Act, which I introduced last year. The legislation contains innovative provisions to combat offshore secrecy and end the use of tax havens such as Liechtenstein by U.S. citizens who are dodging their tax obligation, and ripping off America and honest American taxpayers in the process."
The Senate Permanent Subcommittee on Investigations "has been investigating the use of offshore jurisdictions and institutions to perpetrate tax abuse," Levin spokeswoman Kathleen Long said. "The case involving LGT Bank is proof that the problem has not gone away. The Subcommittee is beginning its investigation and will continue to explore all different angles to this problem." Long said, "It would not be appropriate to identify a particular individual or institution that might be part of that review." She added that no hearings have been scheduled.
The IRS has also announced action to be taken in light of the Liechtenstein affair. In a February 26 news release the IRS said that it is initiating an enforcement action involving more than 100 U.S. taxpayers to ensure proper income reporting and tax payment in connection with bank accounts in Liechtenstein. "Combating offshore tax avoidance and evasion are high priorities for the IRS," acting Commissioner Linda Stiff said. "We are determined to protect the United States tax system from abuse and ensure that taxpayers pay what they owe. We will use all our authority to fairly and effectively enforce our tax laws." (For the February 26 IRS news release, see Doc 2008-4011or 2008 WTD 39-19).
Referring to recent revelations about the use of Liechtenstein bank accounts to evade taxes, Stiff added, "It should be clear from the recent events that there is no safe hiding place for the proceeds of tax avoidance and evasion. Anyone with hidden income and gains would be well-advised to make a prompt and complete disclosure to the Internal Revenue Service."
As reported in the New York Times of February 27, an informant claiming to have data from the LGT Group contacted the IRS. "We came into possession of the information and it seemed to be interesting," said Barry Shott, deputy commissioner for international affairs. Shott said that while the United States did not pay for the information up front, a person can file a claim to receive a percentage of the money collected if the IRS feels the information is useful.
He was presumably referring to Form 211, "Application for Award for Original Information," which allows an informant to receive an award through the Whistleblower Office of the IRS. The office administers the award program under section 7623 of the Code. Section 7623 authorizes the payment of awards from the proceeds of amounts the government collects by reason of the data provided by the informant. A payment of awards under section 7623(a) is made at the discretion of the IRS.
According to the Web site http://www.taxwhistleblowers.org, rewards range from 1 percent to 15 percent of amounts collected (including taxes, fines, and penalties, but not interest) up to a maximum of US $10 million. The IRS will typically pay claims for a reward based on its assessment of the value of the information furnished voluntarily by the whistleblower on his own initiative for the taxes, fines, and penalties recovered.
Shott said in the New York Times article that the IRS began audit proceedings in the United States and that the Service has received "a range of cooperation." As with any audit, taxpayers who voluntarily come forward will likely be treated more favorably.
The IRS news release also refers to cooperation among members of the OECD's Forum on Tax Administration (FTA). Australia, Canada, France, Italy, New Zealand, Sweden, the United Kingdom, and the United States are working together to address possible tax avoidance and evasion through Liechtenstein banks, it says.
Following the IRS release, on February 26 Levin issued a further press release acknowledging the IRS action and citing efforts in other countries to crack down on tax evasion. "About 50 tax havens operate in the world today," the statement said. "Those tax havens have, in effect, declared war on honest taxpayers, by giving tax dodgers the means to avoid their tax bills and leave them for others to pay. In the United States alone, offshore tax evasion produces an estimated $100 billion in unpaid taxes each year."
"Bank accounts, corporations, trusts, and foundations in tax havens are shrouded in secrecy because they can't stand the light of day. It's long past time to shine the light on tax haven abuses and stop tax dodgers from offloading their tax burden onto the backs of honest Americans." (For Levin's February 26 press release, see Doc 2008-4183 or 2008 WTD 40-29.) According to a Levin spokeswoman, the two investigations will move forward independently.
Liechtenstein and the United States are signatories to a mutual legal assistance treaty that came into force on August 1, 2003. The treaty is designed to combat money laundering and terrorist financing, and grew out of initiatives following the September 11, 2001, terrorist attacks in the United States. The treaty facilitates foreign investigations into tax fraud, money laundering, and other financial crimes. However, simple tax evasion does not fall under the scope of the agreement because of a Liechtenstein law that states that the nonpayment of taxes is an administrative matter that is not open to foreign investigators.
The announcement of the U.S. investigations could increase pressure on Liechtenstein to scale back its secrecy provisions. According to a report on Bloomberg.com, Germany has already threatened to "tighten the screws" on Liechtenstein if the two countries are unable to reach a voluntary agreement to halt the illegal flow of cash into the principality. One step Germany is considering is requiring banks to report transfers to Liechtenstein or automatically taxing the transactions at their source, Finance Minister Peer Steinbrück said in a February 21 report on ZDF Television in Germany.
German Chancellor Angela Merkel has reportedly sought a more comprehensive antifraud agreement between the European Union and Liechtenstein and urged the principality to cooperate with the OECD. Liechtenstein is not a member of the European Union or the OECD, but is a member of the European Free Trade Association and the European Economic Area.
Merkel reportedly plans to discuss tax haven concerns with Monaco's Prince Albert II during his visit to Berlin on February 27. Monaco, Liechtenstein, and Andorra are on a list of uncooperative tax havens published by the OECD.
Liechtenstein officials played down the possibility of U.S. citizens using the principality's banks, however. "I would be very surprised if you found a huge amount of U.S. investments in Liechtenstein," Rene Bruehart, head of the principality's financial intelligence unit, was quoted as saying on Bloomberg.com. U.S. citizens are "not among the main clientele," he added.
The United Kingdom has also launched a major effort to reign in tax evaders. (For prior coverage of the U.K. efforts, see Doc 2008-3972 or 2008 WTD 38-1). On February 24 it was revealed that HM Revenue & Customs paid £100,000 (US $197,000) to Kieber to obtain information on U.K. citizens.
Kieber allegedly approached HMRC officials in 2006 and offered to sell them a list containing the names of approximately 100 wealthy Britons, according to a February 24 report in the Financial Times. U.K. authorities declined to pay for the list at that time. It was only after German authorities demonstrated the potential of the information contained in the list that HMRC agreed to pay for it.
HMRC officials believe the list could lead to the recovery of £100 million (US $197 million) in lost tax revenue, and has urged those who believe they will be implicated to come forward to avoid penalties. "It should now be clear to everyone that there is no safe hiding place for the proceeds of tax evasion," acting HMRC Chair David Hartnett said. In a statement reported in a February 27 New York Times article, Hartnett added, "in the light of recent developments involving Liechtenstein bank accounts, there needs to be a significant move toward full implementation of OECD standards on transparency and effective exchange of information in tax matters."
On February 25 Germany announced that it will freely share the Liechtenstein bank information with other countries whose residents have participated in tax evasion in Liechtenstein, since the data it received from Kieber includes information on residents of other countries that sheltered money at LGT. "We are going to respond to requests in this regard," said Thorsten Albig, a spokesman for the German Finance Ministry.
Ireland is one of the latest countries to get involved. According to a February 26 report in the Irish Times, Irish tax authorities plan to contact Germany to ask if any Irish citizens are on the list of account holders at LGT bank. According to a Revenue official, Irish authorities are "following the developments with interest," and "will be in touch with the German authorities." Dutch officials also reportedly have contacted Berlin for information, according to a February 25 Financial Times report. Dutch officials had no further comment other than to note that they have a history of close cooperation with German tax authorities.
Mats Sjostrand, director-general of the Swedish Tax Agency, said there are no safe havens for tax evaders trying to deposit funds in Liechtenstein, according to a February 26 article in the Swedish newspaper Dagens Nyheter. Sweden became the ninth OECD member to announce an investigation into the Liechtenstein bank accounts, and reportedly is looking into the actions of about 100 individuals. Swedish authorities estimate that nearly €3.5 billion (US $5.2 billion) — about 3.5 percent of Sweden's total revenue — is stashed abroad each year. Finland and Norway have also expressed interest in obtaining data, as have France and Italy, according to the February 27 Financial Times.
Australian officials also have obtained the names of citizens with bank accounts in Liechtenstein, according to a February 26 report in The Australian. In a February 26 press release, Michael D'Ascenzo, head of the Australian Tax Office (ATO), said the ATO has already issued notices to produce information and has conducted unannounced visits to Australians who have suspected links to Liechtenstein bank accounts or legal entities. "In Australia, there are 20 audit cases underway relating to funds in Liechtenstein ranging from AUD 200,000 (US $186,000) to millions of dollars," he said. "We are committed to ensuring there is a level playing field for people who do the right thing and have therefore increased our focus on Australian taxpayers who have abusively used offshore bank accounts, offshore financial products, offshore tax arrangements, and/or offshore structures."
D'Ascenzo said taxpayers who come forward voluntarily will face more leniency. "Taxpayers who contact us before they are the subject to an audit and make full and true disclosure may be entitled to substantial reductions in shortfall penalties under our offshore voluntary disclosure initiative. They should do so before it is too late," he said. The ATO has already received 425 submissions disclosing AUD 17.5 million (US $16.2 million) in income from offshore activities, but is encouraging more people to come forward. It was not clear how much of the AUD 17.5 million was specific to Liechtenstein.
Regarding the issue of paying for the stolen bank data, an ATO spokeswoman was quoted as saying that the ATO does not pay for information about tax schemes. "Nonetheless, we have a good flow of information from people concerned about fairness and equity in the tax system," she said. According to the February 26 report in The Australian, Australian lawyers on February 25 said that although the client details were originally stolen, the ATO can still use the information in court to recover unpaid taxes, as long as a judge agrees. One senior lawyer said he thinks the ATO will use the data to issue subpoenas and then see what information is uncovered. If the ATO is able to uncover additional information, it could use that in court instead of the original information, if the fact that the information was originally stolen proves problematic.
Liechtenstein has reacted angrily to the scandal. Prime Minister Otmar Hasler met with German Interior Minister Wolfgang Schaeuble on February 19 before holding separate talks on February 20 with Steinbrück. Hasler's meeting with Merkel had nothing to do with the tax allegations, Prince Stefan von und zu Liechtenstein, the principality's ambassador to Germany, was reported as saying by Bloomberg.com. "Everything that exists in Liechtenstein's legal economic framework is inspired by a liberal system; that the system may be used illegally is primarily not our fault," he said, adding that Germany should "increase willingness to pay taxes as we do in Liechtenstein."
Liechtenstein is on the OECD's list of offshore financial centers in which "significant restrictions on access to bank information for tax purposes remain." However, it has no plans to scrap bank secrecy, according to Prince Stefan. The principality doesn't criminalize tax evasion, relying on fines to punish cheats, he said. "We don't invite anyone to evade tax in Liechtenstein or in any way aid evasion. We have an upstanding bank system. Naturally, the banks tell their customers to report their investments," he added.
Liechtenstein's hereditary prince, Prince Alois, accused Germany of breaking the law and violating Liechtenstein's sovereignty by paying Kieber. "Spying on our clients is unthinkable," he was quoted in Deutsche Welle as saying. "Does a state have the right to obtain information by breaking the law in a friendly state and probably also contravening its own laws? We'll be considering further legal steps to protect our citizens and investors from these sorts of investigatory methods, which do not conform to Liechtenstein law."
"I find it strange, to say the least, that German officials handed over money to a criminal in order to obtain stolen goods in his possession," Liechtenstein state prosecutor Robert Wallner told the Berliner Zeitung newspaper. Wallner added that his office is looking into possible legal action against the person who sold the information.
Liechtenstein is trying to portray the incident as a case of one of Europe's largest countries running roughshod over one of its smallest. "We are a small country and we want good relations with our neighbors, but we are also a sovereign state," said Prince Alois in Deutsche Welle. Michael Lauber, head of Liechtenstein's banking association, said the on-going investigations will have no lasting impact. "The events will have a short-term effect," he told reporters in Vaduz, Liechtenstein's capital, "but there's not talk of a mid- to long-term effect because our banks here are stable and healthy and conditions haven't changed in terms of stability."
In an apparent sign that Liechtenstein is giving way to some extent, a spokesman for the government was quoted in the February 25 Financial Times as saying that a "toughening of controls" on banking, including extra powers for financial regulators, will soon be announced. The spokesman said the crackdown will be an "active move in the direction" of OECD demands for more transparency and more comprehensive financial information exchange. The timing of the German scandal was just "coincidence," he said.
However, Jeffrey Owens, director of the OECD's Centre for Tax Policy and Administration, said only changes that indicate that Liechtenstein is ready to sign tax information exchange agreements with Germany and other countries will matter.
The Effect on Switzerland
The fallout has also hit close to home, both literally and figuratively, in Liechtenstein's neighbor Switzerland, long known for its bank secrecy and a well-known destination for money from around the world. Fears that Germany and other countries might mount a sustained effort to curb investments in Switzerland have prompted sharp reactions. A second bank in Liechtenstein, a subsidiary of the Swiss banking group Vontobel, now is a target of German investigators, according to a February 26 report in Süddeutsche Zeitung. Investigators believe Vontobel might have helped German citizens to set up secret accounts via a Liechtenstein subsidiary, according to the February 27 Financial Times. The Zurich-based bank was quoted in the article as saying that "client data were neither stolen nor misappropriated" from Lichtenstein subsidiary Vontobel Treuhand.
However, Swiss bankers insist that their secrecy laws are not up for negotiation. "The security of banks in Switzerland is in good form; we don't see any reason to panic," a Swiss Bankers' Association spokesman was quoted as saying in a February 24 report by Agence France-Presse. A Swiss Finance Ministry spokeswoman confirmed that view, saying in the report that on the basis of what is known right now, Switzerland is not affected by the German investigation.
The scandal has sparked keen interest in Switzerland, however, and is expected to bring renewed scrutiny to the country's banking secrecy laws even if there is little chance of serious reform in the short-term. "There is no short-term risk for Switzerland, but perhaps in the medium term" it will face more pressure, Jan-Egbert Sturm, director of economic research at the University of Zurich, was quoted as saying in the Agence France-Presse story. "Pressure on Switzerland is growing and the country is once again in the sights" of the international community, he added.
The Swiss Bankers Association last year said that Switzerland is the world's third-largest asset manger, with more than CHF 6.9 trillion (US $6.4 trillion) deposited in the country's bank accounts. Leading Swiss bank Credit Suisse said it has taken steps to improve security to prevent the theft of client information.
In Switzerland, Swiss Bankers' Association head Pierre Mirabaud compared the methods of the German authorities to the Gestapo. Mirabaud later apologized, saying he had merely "meant to express his uneasiness about such methods being used by intelligence services against friendly states," according to the February 24 report in Agence France-Presse. Michel Y. Dérobert, head of the Swiss Private Bankers Association said that disclosures that Germany's spy agency was involved in obtaining data on its citizens from abroad sat uneasily with his members as well.
"I think this type of episode will discourage German-speaking banks from hiring Germans," he told the Swiss newspaper Le Matin. "That would be logical, although until now we have had good relations with Germany," he added.
The scandal may serve to push officials to look more closely at the impact of tax havens around the world, something the OECD has been actively pursuing. "Liechtenstein is the tip of the iceberg," said Grace Perez-Navarro, deputy director of the OECD's Centre for Tax Policy and Administration, as reported in the February 27 New York Times. "They are interested in seeing change in other places, too."
The speed with which investigations have been launched around the world shows the important role the sharing of information can play in clamping down on tax evasion. After Germany's February 25 announcement that it would be sharing information with any interested parties, tax officials in many countries moved quickly to act on the data, as did many alleged tax cheats wishing to come clean before they were implicated. The irony is that the key event that served to set everything in motion was itself an illegal act — the theft of the data. Yet the theft appears to have been the only way to get around bank secrecy laws in Liechtenstein that had served aspiring tax evaders for many years. Perhaps in addition to demonstrating the importance of information sharing, the scandal also shows how large an impediment tax havens like Liechtenstein truly are to the successful curbing of tax avoidance and evasion.
Randall Jackson is a legal reporter with Tax Notes International.