Last November, Christian H., the manager of a medium-sized Swiss private bank, received a letter headlined: “Investigation in Germany.” It was not sent by an investigating authority but by a German tax lawyer working in Switzerland.
“At the end of last week I was approached by a high-ranking representative of the North Rhine-Westphalia finance authority,” the lawyer wrote to the bank manager. The official had told him that Christian H.’s bank was being probed for allegedly abetting tax evasion.
“The finance official then confronted me with a special request,” the lawyer wrote. Christian H. couldn’t believe his eyes when he read the next sentence: “He asked me to get in touch with you and to have myself retained.”
This is not an isolated case. According to financial sources, the tax administration in North Rhine-Westphalia, the most populous of Germany’s 16 federal states with some 17 million people, has asked numerous lawyers to make Swiss banks aware of investigations in order to push them into agreeing to speedy settlements.
Since 2010, North Rhine-Westphalia has collected fines of some €600 million, or $663 million, from Swiss banks found to have aided tax evasion.
Investigators have based their probes on information gleaned from CDs containing tax data stolen from Swiss banks. Increasingly, they’re also using data from the flood of so-called “voluntary disclosures” by tax evaders, a provision of German law whereby evaders can avoid trial by detailing taxes they have skipped.
Handelsblatt has learned that investigators are working their way down a list of 50 Swiss banks.
But the apparent use of tax lawyers as go-betweens to ramp up pressure on banks adds a new dimension to Germany’s efforts to reclaim tax and punish offenders.
Christian H. said he sees this as a breach of rules on legal aid between Germany and Switzerland, not least because the lawyer offered to provide him with further information he had received concerning his bank.
“The tax authority informs me via a lawyer that there are a proceedings against my bank and suggests that that same lawyer should handle the case for us,” said Christian H.
The North Rhine-Westphalian finance ministry distanced itself from the lawyer’s actions. A spokeswoman said: “The NRW finance ministry doesn’t have the letter. There is no indication whatsoever of the apparent claim made in it by a lawyer that he had concrete information from the finance authority.”
Nevertheless, the tactic is seen as a sign of the expanded push to settle with smaller banks that have not yet come clean.
“The first wave of investigations affected banks from Geneva, Basel and Zurich, and now the sights have been set on banks in the border region,” said one source.
The banks Pictet, Lombard Odier, Deutsche Bank Switzerland, Vontobel and Basler Kantonalbank were on that first list. Basler has already settled with authorities and paid a €38.4 million fine. Vontobel has started settlement talks.
The second wave of cases has hit banks including Zürcher Kantonalbank and Sankt Galler Kantonalbank. The banks declined to comment.
“The aim is to get 50 to 60 banks to agree to settlements,” said one insider.
At present, only around two dozen cases are being worked on because North Rhine-Westphalia doesn’t have enough staff to tackle more. That still makes it the most aggressive of Germany’s states, and allows it to enjoy the fruits of settlements before other states can get in on the act.
“It’s making the banks increasingly nervous,” said a Swiss financial source. The letter sent by the German lawyer added to the jitters. The Swiss Bankers Association has even complained to Swiss Justice Minister Simonetta Sommaruga, but she saw no reason to take action.
The German tax lawyer, meanwhile, doesn’t understand what all the fuss is about, though he declined to be named to this story. The approach was unusual, but not illegal, he said. Besides, it was in the banks’ interest to resolve the accusations “with less pain.” He said he had contacted “a handful of banks.”
He added that he had not formally been mandated by the tax authorities, so he didn’t see any conflict of interest.
But the procedure is controversial even among German lawyers. “An authority can’t just ring up an external lawyer and provide him with such information about investigations,” said one prominent German tax lawyer who represents two Swiss banks in the case. Confidentiality rules may have been breached, he added.
Swiss banks are up in arms and worried about fines. After the letter from the lawyer they got more mail in January. This time it was from the North Rhine-Westphalian investigators directly, seeking precise information on the assets of their customers, the share of those assets that presumably had not been taxed and the size of their gross margin. They use that information to calculate the fine.
“Vontobel is also affected by the investigation,” the bank’s chief executive, Georg Schubiger, recently wrote in a letter to staff. He couldn’t resist a swipe at the investigators. “The approach taken by the German authorities seems vexing at the very least to many of us. Regardless of the subjective understanding of fairness, we have to acknowledge that a resolution is in the interest of the bank, the staff and the customers.”
The methods are a reminder of the targeted purchase of stolen bank data, which still plays an important role in identifying tax evaders and which has put a severe strain on relations between Switzerland and Germany.
A Swiss-German tax deal, negotiated to resolve the issue, was scuppered by Germany’s upper house of parliament in 2012 on the grounds that it was too lenient as it would have allowed German tax evaders to remain anonymous.
Many politicians in Germany still oppose purchases of stolen data on legal grounds. The German states of Bavarian and Baden-Württemberg, for example, haven’t acquired a single CD to this day. But North Rhine-Westphalia has no such qualms and has turned itself into the scourge of the Swiss banking sector.
It’s evident that the state’s authorities are hitting capacity limits. With the large number of banks involved, the lawsuits could take years. Prosecutors reached settlements in the big cases involving Credit Suisse, Julius Bär und UBS in 2011, 2012 and 2014 respectively.
Those who have aided the states have paid a price. The man who first stole Julius Bär’s banking data, Lutz Otte, served an 18-month jail sentence in Switzerland and has since become an author. But the Swiss investigators haven’t dropped that case, either, and are investigating Mr. Otte’s go-between, a former tax investigator.
Holger Alich is Handelblatt’s Switzerland correspondent, covering the financial industry. Volker Votsmeier is an editor with Handelsblatt’s investigative reporting team. To contact the authors: firstname.lastname@example.org; email@example.com