German Authorities Conduct Searches Across Germany in Expanding Tax-Evasion Investigation

On May 15, the Frankfurt am Mein Public Prosecutor’s Office announced that it, the Bundeskriminalamt (BKA) (Federal Criminal Police), the Frankfurt Landeskriminalamt (LKA) (State Criminal Police), the Frankfurt am Mein Oberfinanzdirecktion (Regional Tax Office), and five municipal tax offices in Germany conducted searches in 29 locations across Germany, as part of a wide-ranging investigation of tax evasion.  The searches included eight individuals’ living quarters in five German cities, towns, and municipalities and on the island of Sylt, the business premises of eleven banks and savings banks in seven cities and towns, the business premises of four tax consultants in four cities and towns, and the business premises of six asset management companies in Hamburg.

The Public Prosecutor’s Office stated that the focus of the investigation was wealthy individuals in Germany suspected of tax evasion.  Each of those individuals, according to that office, intended – with the help of the former subsidiary of a major German bank in the British Virgin Islands – to establish companies in tax havens to hide investment income from the German Treasury and evade taxes.

The Public Prosecutor’s Office reported that the purpose of the search warrants was to obtain evidence regarding the untaxed income, and to clarify the economic conditions of the companies in the tax havens.  It stated that the searches were related to the search of a major German bank in Frankfurt am Main suspected of engaging in money laundering in late November 2018.  It also explained that what prompted the investigation were findings from “Offshore Leaks.”

Note: “Offshore Leaks” is the name of a 2013 investigation by the International Consortium of Investigative Journalists (ICIJ).  The journalistic reporting from Offshore Leaks has already prompted civil and criminal investigations and legislative and policy changes in numerous jurisdictions.  The ICIJ’s Offshore Leaks database, which the public can access, reportedly contains data on “more than 100,000 secret companies, trusts and funds created in offshore locales such as the British Virgin Islands, Cayman Islands, Cook Islands and Singapore.” Those data stemmed from “a massive leak of 2.5 million privately-held business records [that] detailed more than 120,000 offshore companies and trusts.”

The New York Times reported that the German tax-evasion investigation began with Deutsche Bank, “but has widened to involve other lenders.”  According to the ICIJ, the “major German bank” mentioned by the Public Prosecutor’s Office is Deutsche Bank and its “former subsidiary” is Regula Ltd., which the ICIJ described as “a ‘nominee’ shareholder of shell companies.”  Deutsche Bank, whose headquarters and other offices were searched in November 2018 in a major investigation of money laundering through tax havens, publicly stated that its offices were not searched this week.

Financial-crimes compliance teams in financial institutions, particularly in the United States and the United Kingdom, should continue to monitor further developments with this tax-evasion investigation, particularly if it continues to widen to other financial institutions.