Shortly after sunrise last Wednesday, several vehicles pulled up to a house in a Tel Aviv suburb. German tax investigators and Israeli officials got out, on a mission that for decades would have been unthinkable. German officials were pursuing a tax evader all the way to Israel.
Handelsblatt has learned from German officials that the person whose home was searched is a former customer of the Swiss branch of Israel-based Leumi Bank. In late 2013, the German state of North Rhine-Westphalia had acquired a data storage device with information about offshore accounts with the bank. The current case alone reportedly involves untaxed assets of up to €100 million ($114 million).
For four years, the investigations against Leumi customers was kept under wraps. The subject is too sensitive, and officials are too concerned about the potential for political collateral damage. Through the purchase of CDs with tax information, the German fiscal authorities had stumbled upon the offshore accounts of people who had suffered tremendously at the hands of Nazi Germany. Almost all the cases were quietly resolved.
One such meeting late 2013 in Zurich showed just how sensitive these investigations can be. Harald Garms, an accountant with a well-known firm, began a gentle conversation with a frail old man. Did the guest from Germany have a pleasant journey? Would he like something to drink? Then he asked the question he has to ask. The guest had said on the phone that he has millions in assets in Switzerland, money that had not been disclosed to German tax authorities. “How did this happen? What is your history?”
“What German judge would want to convict an Auschwitz survivor for hiding his family's secret wealth from the German tax authorities?”
The man looked at the accountant without saying a word. Then he opened his left cuff link, rolled up his white sleeve and stretches his arm across the gable. “This is my history,” he said, showing a tattooed number on his forearm. His visitor was a prisoner at the Auschwitz concentration camp.
When he became an accountant 20 years ago, Mr. Garms* never believed his work would take such a dark turn. But times changed when the German fiscal authorities started buying tax CDs. Swiss banks, in particular, have come under sustained pressure to deal with tax evasion. When efforts to achieve a comprehensive tax agreement between Germany and Switzerland failed in early 2013, officials began applying a “clean money strategy.” Swiss banks pressured their German customers to report their assets in Germany, or else their bank would do it for them.
“In the past few years, there has been a flood of Nazi victims with Swiss bank accounts,” said accountant Mr. Garms. “Those were delicate conversations, and tears were shed. These people have a historic sense of mistrust toward the German state.”
It was a tricky situation. The roles were believed to be clearly assigned in the political discussion about offshore accounts. Those who were hiding their money were the perpetrators. The fact that taxes were not being paid on the money made German society the victim. Peer Steinbrück, the then Social Democratic candidate for the chancellorship, even proposed “bringing out the cavalry” against Swiss banks and their offshore customers.
This sort of talk made German tax investigators sit back and take a deep breath. Would politicians use the same choice of words when it came to the money of people who had been the victims of inhuman crimes committed by Nazi Germany?
“Of course it’s correct to say that all are equal before the law,” said Ina Roman, an attorney who has handled these types of cases. “But what German judge would want to convict an Auschwitz survivor for hiding his family’s secret wealth from the German tax authorities?” An official with the German tax authorities added: “Of course, for years we looked away in such cases. I don’t know anyone who wanted to develop a reputation as a hunter of rich Jews. That would only have backfired.”
“More than half of these tax evaders are ordinary workers, not part of some elite.”
This explains why the mood was extremely tense when a number of tax CDs turned up. Suddenly a lot more information was available about offshore accounts than had ever seemed possible. “What will happen if people suddenly start discussing Jewish people hiding their millions?” said Manfred Kern, a German tax attorney who lives in Switzerland. He has many Jewish clients and was concerned about stereotypes. “More than half of these tax evaders are ordinary workers, not part of some elite.” Some of his clients have been transferring their Christmas bonuses to Swiss accounts since the 1950s.
At the same time, with the truly wealthy it was usually the case that the amounts in the offshore accounts constituted only a small part of the total assets. “For the victims, the sums of money that have accumulated in these accounts are emergency funds for the next disaster,” said a bank official who handles such customers. “Based on their collective memory, these people feel that they cannot trust the German state,” a lawyer added. “This has been burned into their consciousness, even among later generations. The sense of security that comes with having assets abroad, unbeknownst to the German state, is immeasurable.”
These people are now also required to report their status as tax evaders. According to some accountants, some of the secondary effects are oppressive. “Self-reporting only works if everything is actually reported,” said one account. “This is full disclosure. I have a 95-year-old customer who has been afraid to even walk past a police station since then. There is no rational explanation for this. It’s just the way it is. The man feels naked and helpless.”
Many Holocaust survivors felt the need to settle their estates in such a way that the heirs had to promise to keep the secret.
The accounts, which have been known since 2013, were often created 60 years ago and more, and the balances have steadily increased. The account holders included some very prominent individuals in the Jewish community. In addition to having to pay back taxes, people also feared the loss of face – and the social debate their cases could unleash.
Now, the secrecy is spilling over into the next generation. Many Holocaust survivors felt the need to settle their estates in such a way that the heirs had to promise to keep the secret. “This is a kind of generational contract,” said one attorney. “A pact, so that the family is prepared for the worst. This is not rationally justifiable, nor is it an excuse. But it is part of German history.”
It’s a history that is being dealt with as quietly as possible. When the state of North Rhine-Westphalia bought the tax CD from Leumi Bank in 2013, officials soon found that the information on the CD had a “special quality.” Leumi customers were almost always very wealthy, and in contrast to other banks, there were no small investors. More than 100 names were reportedly stored on the CD.
The authorities have searched homes and business premises, primarily in Frankfurt, Berlin and Munich. Bank Leumi is Israel’s second-largest bank. The lender has already been fined $400 million (€352 million) in the United States for its tax offences.
I had always thought that we would never live to see the day when German tax investigators stepped on Israeli soil.
The authorities have already reached agreements with most of Leumi Bank’s customers, but not all. One is the man who was visited by tax investigators from Wuppertal and prosecutors from Frankfurt last Wednesday. For years, he has refused to come to a compromise.
The investigators avoided a confrontation in Tel Aviv; officially, they had come from Germany as experts. In legal terms, the search was conducted by Israeli officials in the context of mutual judicial assistance. They also have an interest in resolving the case as the man concerned has been living in Israel for some time, so the Israeli tax authorities would also benefit from a successful conclusion to the investigations. A sum of up to €10 million is at stake.
The Frankfurt public prosecutor’s office was unwilling to discuss the details. “The investigation continues. No additional information can be provided at this time, partly out of concern for tax secrecy,” said an official spokesman. When Handelsblatt contacted criminal tax law experts about the case, they described it as a political sensation. “It’s hard to believe,” said a prominent representative. “I had always thought that we would never live to see the day when German tax investigators stepped on Israeli soil.”
*all names changed
Sönke Iwersen leads Handelsblatt team of investigative reporters. Volker Votsmeier is an editor with Handelsblatt’s investigative reporting team. Jan Keuchel is a Handelsblatt correspondent covering investigations and the German legal system. firstname.lastname@example.org, email@example.com, firstname.lastname@example.org