A surprising twist has come to light two years after an informant stole data foreign account holders from a bank in Liechtenstein and sold it to the authorities in Germany who used it to trace tax
A surprising twist has come to light two years after an informant stole data foreign account holders from a bank in Liechtenstein and sold it to the authorities in Germany who used it to trace tax evaders. It could open the floodgates for claims on banks that are victim to whistle-blowers and ensure that from now on every account holder will be informed if their details are taken in another ?stolen data? episode.
Fiduco Treuhand AG, formerly known as LGT Treuhand AG, the trust arm of LGT bank, and the bank at the centre of the scandal, has been ordered to pay ?7.3 million to one of its clients as compensation for being fined for tax evasion by the German judiciary in 2008.
The client, named as Elmar Schulte, a wealthy property developer from the city of Bad Homburg in western Germany, was found guilty of six counts of tax evasion after depositing several million Euros in Liechtenstein LGT and not declaring the interest and paying tax on it.
The German foreign intelligent agency the BND paid ?4.2 million for the computer disk containing around 1,000 names of account holders and the tax authority proceeded to prosecute all Germans on the disk who had not declared their Liechtenstein accounts in Germany. Schulte confessed and was given a suspended two year prison sentence and paid ?6.5 million in back taxes and ?1 million in charity.
Then Schulte sued the bank claiming that it should have warned him immediately that his account had been compromised, so that he could disclose it to the German tax authorities and escape prosecution. The Vaduz High Court in Liechtenstein supported Schulte?s claim and ordered the bank to compensate Schulte for the amount of the fine but not the back taxes. Fiduco Treuhand has said that it would appeal against the decision. LGT said it would pay the fine for Fiduco Treuhand if the appeal was not successful.
The Liechtenstein?s court ruling paves the way for more compensation claims around the stolen data debacle and possibly for other similar incidents, such as the more recent ?2.5 million paid by Germany for stolen data involving the names of 1,500 suspected tax evaders from an unnamed Swiss bank, and France?s receipt of 3,000 names stolen from a branch of private bank HSBC Holdings in Geneva.
The Liechtenstein informant was Heinrich Kieber, a former employee of LGT bank who sold similar data to the UK and many other countries including France, the US, Canada, Australia and Italy. It is possible that tax evaders who were caught in these countries will now also pursue LGT for compensation.
According to an interview with The Wall Street Journal, Prince Max, a member of the reigning royal family of Liechtenstein and chief executive of the LGT Group, is ?eager to promote LGT's virtues as a family business at a time when the dangers of excessive risk in the financial-services sector has been burned into the global consciousness?.
Liechtenstein, formerly a popular jurisdiction for people seeking to hide money offshore bowed to international pressure and complied with the Organisation for Economic Co-Operation and Development?s (OECD) internationally agreed tax standard last year. Following the G20 summit in London last April when sanctions were threatened against non conforming tax havens, Liechtenstein decided that the way forward was to shake off the tax haven label and demonstrate its willingness to co-operate fully in the drive against tax evasion.
Indeed, Liechtenstein has progressed from being one of the last three countries ? the other two were Andorra and Monaco ? to be blacklisted by the OECD as an unco-operative tax haven to being on the OECD?s white list of jurisdictions that have ?substantially implemented the internationally agreed tax standard? by signing at least 12 Tax Information Exchange Agreements (TIEA) with other countries.
Germany and Liechtenstein signed a TIEA in September 2009. Liechtenstein has offered to negotiate an agreement with Germany similar to the historic tax accord with the UK last year, known as the Liechtenstein Disclosure Facility, under which UK taxpayers have until 2015 to declare any undisclosed accounts held in Liechtenstein to the UK tax authority with the penalty for unpaid tax capped at 10%. This could be the second of other similar ?amnesty? tax deals between Liechtenstein and various countries.
Although Liechtenstein?s prime minister, Klaus Tsch?tscher is keen to conclude such an agreement with Germany, he has also proposed the idea of levying a withholding tax as an alternative with the taxes then being returned to Germany.
Switzerland has also succumbed to international pressure and has relaxed its strict rules on banking secrecy. It has placed itself on the OECD?s white list of jurisdictions to having substantially implemented the OECD?s international tax standard. The Swiss Federal Council is keen to regularise assets and does not want to attract undeclared funds from overseas. Switzerland no longer distinguishes between tax evasion and tax fraud for foreign investors ? previously it would only help other countries with information where there was suspicion of tax fraud, which is a crime in Switzerland, but not tax evasion, which is a minor offence under Swiss law.
When renowned financial centres like Liechtenstein and Switzerland are seen to be radically changing their attitude towards tax evasion it is a clear sign that the world of offshore banking is evolving from places to hide assets from taxation to financial centres of worldwide reputability.
Legitimate and effective tax planning is the best way to avoid your wealth being diminished by taxation. An international and authorised wealth manager like Blevins Franks Financial Management Ltd can help you protect your assets, leaving more of your money for you and your heirs to enjoy.
By David Franks, Chief Executive, Blevins Franks
5th March 2010