German government has European tax havens in its sights

BERLIN, Germany – German Finance Minister Peer Steinbrueck has never been one to mince his words. "We aim to declare war on tax havens in Europe," he says.

Chancellor Angela Merkel’s government knows it has the population squarely behind it in tackling tax evasion.

The downfall of one of the country’s most prominent businessmen and the exposure of the foundations he and other wealthy Germans are using in Liechtenstein to hide their income has raised a furore.

The angry defence of its banking practices mounted by Prince Alois, the Alpine principality’s regent, has elicited universal scorn in the German media.

And Steinbrueck was equally derisive of the reforms Liechtenstein is planning to its anonymous foundations.

"These are not foundations at all," Steinbrueck told the Sunday edition of the mass-circulation Bild newspaper.

"Liechtenstein must change the whole framework it uses to encourage tax evasion in Germany and elsewhere," he said.

"It’s not just about Liechtenstein. We are also talking about Switzerland, about Luxembourg and about Austria."

The list is longer. Chancellor Angela Merkel’s spokesman made clear tax evasion would be high on the agenda when Monaco’s Prince Albert II visits this coming week.

German officials repeatedly cite the Organization for Economic Cooperation and Development (OECD), which characterizes Andorra, Liechtenstein and Monaco as "uncooperative" when it comes to financial transparency and unfair tax competition.

Germany is keen on a European approach to the problem, but there were indications from the Finance Ministry the country was prepared to go it alone in tackling the tax havens if other members of the European Union were not interested.

Meanwhile the scandal rumbled on, with weekend press reports suggesting the names of members of parliament were on a disk containing information on hundreds of tax evaders using Liechtenstein’s LGT bank.

Prosecutors in the city of Bochum, who are leading the probe, said no active Bundestag members were named, leaving open the possibility that former parliamentarians might be involved.

However, legal experts queried whether the information on the disk would stand up in court.

Germany’s BND intelligence service bought it for 4.2 million euros (6 million dollars), apparently from a convicted criminal, and passed it on to the Finance Ministry.

Other reports spoke of a shadowy underworld figure being held in prison in the northern port of Rostock who was prepared to do a deal with the authorities in exchange for providing them with a list of 700 account holders with another bank in Liechtenstein.

The Sueddeutsche Zeitung said half a dozen German banking officials were under investigation for assisting wealthy clients with "paperless" transfers to Liechtenstein. The trail also led to Switzerland, the newspaper said.

Separating fact from unsubstantiated rumour became impossible.

Some discerned carefully targeted leaks from German authorities aiming to press wealthy tax evaders to come clean without the wearisome business of taking them to court.

German law provides a loophole for tax evaders who believe the authorities may be closing in on them through a device known as "self-reporting."

This allows offenders to submit an amended return detailing their previous evasions in exchange for lighter penalties.

Steinbrueck’s spokesman, Torsten Albig, this week explicitly invited tax evaders to take this route.

Meanwhile Steinbrueck continued to play hard cop, threatening specific measures against Liechtenstein, such as compelling German banks to report all transfers to the principality and to tax them at source.

"One has to consider whether one should not apply the thumbscrews more vigorously," he said on national public television.

Merkel, in her routine Saturday podcast, took the moral high road.

She shared the disgust at tax evasion felt by ordinary Germans, the chancellor said. Tax law had to be upheld without exception.

But the chancellor also cautioned against attacking successful wealth creators, including company owners and managers, calling them an essential part of the German economy.

"We should not lose sight of this in the wider discussion," she said.

Most Germans accepted their responsibility as individuals to society in general, Merkel said.

But she added: "A few still have to learn this, and the state will resort to its powers in these cases."