The scenes that unfolded in Germany’s banking capital in December 2012 could have been written for a Hollywood script. Together with 500 agents, Frankfurt’s Chief Prosecutor Thomas Gonder turned up at Deutsche Bank’s twin-tower headquarters in Germany’s financial capital to search the premises. Five employees were taken into custody, and preliminary proceedings were launched against a total of 26 Deutsche Bank employees.
Mr. Gonder suspected that they were helping a criminal gang to cheat the government out of €220 million ($247 million) in tax revenues related to the European Union’s greenhouse-gas emissions trading program, which they later tried to cover up. The raid was part of a massive European-wide probe into emissions-trading fraud across the continent that continued until 2010.
Now this episode from the inglorious past of Germany’s largest bank, which remains involved in thousands of legal scandals around the world, is being tried in public. The trial of the first seven Deutsche Bank employees began Monday before the Frankfurt District Court. The bank itself is not on trial.
It was a dramatic start: Lawyers for the defence repeatedly accused the presiding judge, Martin Bach, who has also presided over past cases in the emissions-trading probe, of “prejudging” the outcome and formerly requested that he be removed from the proceedings.
The judge has already scheduled 26 hearings before the end of May. The trial is being watched with great anticipation, because it could bring new details to light that may incriminate some of the bank’s senior executives in the scandal. Although Mr. Gonder has abandoned the investigation against three bankers, the cases against 15 other employees are still pending, said a spokesman for the prosecutor general’s office.
Those still under investigation include current co-Chief Executive Jürgen Fitschen, who retires in May, and the bank’s former chief financial officer, Stefan Krause.
Like many of the global scandals that have implicated Deutsche Bank, it is far from the only firm that has been targeted, but the charges against Deutsche Bank are particularly damning.
Both men signed the bank’s 2009 tax return, which included the fraud in emissions trading. The bank did later submit a corrected return, but only after the first searches in connection with the emissions rights scandal had occurred in 2010. There have also been some media reports that former co-chief executive Anshu Jain may have been alerted to the CO2 trading scandal back in 2009, though it is unclear whether he knew of Deutsche Bank’s involvement.
The trading fraud allegedly involved CO2 emissions rights purchased through German companies abroad, sold through intermediate companies in Germany, without paying sales tax, and then sold abroad again. The perpetrators of the fraud filed for refunds of sales taxes that had never been paid. According to earlier information from the investigators, the total loss was about €800 million.
It is one of thousands of global legal scandals that have cost Deutsche Bank more than €10 billion in fines and legal fees, and which could continue to weigh on the bank’s profits for at least a few more years.
Like many of the global scandals that have implicated Deutsche Bank, it is far from the only firm that has been targeted. The CO2-trading probe is part of a long-running European investigation into the tax fraud ring, a complex network of importing, exporting and swapping carbon-emissions trading certificates that ran across countries in the European Union. It has already seen 14 people jailed and reportedly cost European taxpayers some €5 billion in lost income.
But, also like many other scandals, such as the Libor benchmark rate-rigging, the charges against Deutsche Bank are particularly damning. In their 865-page indictment, the prosecutors accuse some of the bankers of deliberately recruiting customers interested in committing tax fraud. Others are accused of passing on only portions of the suspicious facts to superiors and internal control committees.
“Without the participation of employees from Deutsche Bank, the fraud could never have taken place,” Mr. Gonder said back in 2011.
On Monday afternoon, Mr. Gonder quoted transcripts of telephone conversations from back in September 2009, where some of the accused voiced doubts about the legality of bank’s business dealings but did not pass these suspicions on to superiors. Asked why the bank was still risking these deals, Mr. Gonder quoted one of the accused as responding: “Because we’re that greedy.”
Deutsche Bank has also been conducting its own internal investigation and insists the traders were suspended as soon as the allegations were revealed. The bank itself is not being charged or fined in connection with the trial.
Mr. Bach, the German judge who is trying the case, has already sentenced employees at the companies that profited from the dealings. In preliminary hearings, Mr. Bach concluded that the Deutsche Bank employees bore differing levels of responsibility, and some in the current case could face jail time, said a person involved in the case.
Given those differences, a joint defense now seems unlikely: “The interests in these cases differ widely,” said the defense attorney of one of the accused.
The lawyers were united however on Monday in their efforts to have Mr. Bach unseated. Defence attorneys argued his comments in the pre-trial showed he had already found the employees guilty – that only the height of their sentence was in question.
Mr. Bach rejected the notion and called for a speedy trial, “even in the interests of the accused, who have waited a long time for a decision.”
Laura de la Motte is Handelsblatt’s chief correspondent covering Deutsche Bank in Frankfurt. Volker Votsmeier is part of Handelsblatt’s investigative team. Christopher Cermak of Handelsblatt Global Edition contributed to this story. To contact the authors: firstname.lastname@example.org and email@example.com
This story was updated at 17:00 CET Monday with details from the court room.