Roger Boyes in Vaduz
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The day that Toytown went to war, the traffic stopped. For more than a week Liechtenstein (population 35,000) and Germany (population 82 million) have been locked in an extraordinary row involving spies, bankers, a whistle-blower with a shady past, a furious prince – and tens of thousands of well-heeled but anonymous tax evaders. From Britain, from the United States, but, above all, from Germany.
This strange international flare-up is having its effects on the cramped streets of Vaduz, the capital of Liechtenstein. The Mercedes Sclass limos that usually convey wealthy Germans and their earnings to one of the safest tax havens in Europe have disappeared from public view. The German taxpayer is running scared.
“If you listen to people at home, in the office, in the pubs, it is clear that Liechtenstein is bubbling with rage, boiling over,” says Günther Fritz, editor of theLiechtensteiner Vaterland. “We can’t be treated like this.”
Germany provoked this angry response by using its secret service to buy four DVDs bursting with information about tax evaders or simply tax-saving investors who had put their money in Liechtenstein. According to the LGT banking group, out of the 1,400 individual names on the stolen list, 600 are resident in Germany. German tax authorities said yesterday that they had traced €200 million (£150 million) deposited by 100 wealthy tax-dodgers.
British tax authorities are studying details of accounts held at the Liechtenstein LGT bank. America, Australia, France, Spain, Italy and Sweden are also trawling for information about their tax exiles.
The Germans paid €4.2 million for the DVDs and are using the information to spearhead a campaign against tax havens across Europe. Next in line is Prince Albert of Monaco, who is due in Berlin this week. Angela Merkel, the German Chancellor, is set to read him the riot act. Soon, German officials say, the Chancellor will be on her way to Switzerland to make her case there. German secret agents have information from a second bank, the Vaduz subsidiary of the Swiss private bank Vontobel, according to the Süd-deutsche Zeitungnewspaper yesterday.
Germany threatens to impose sanctions against Liechtenstein if it does not seal up its tax loopholes. The Liechtensteiners are stubborn. However, if Germany is going to continue to use espionage to end anonymous bank accounts in fellow European states, then it is going to threaten the very existence of the principality.
Liechtenstein, perched on a barren mountainside between Austria and Switzerland, used to be dirt poor, living off the vineyards that still tumble down through the middle of the capital. Big, colourful postage stamps were also part of its financial strategy.
That was about it until the father of the current ruler, Prince Hans-Adam, started to invite banks on to his mountain and construct a small, rocky, tax-free paradise. Drain away the customers from these banks and Liechtenstein becomes a failed state.
“We don’t have an intelligence service,” Gerlinde Manz-Christ, a senior official in the Liechtenstein Government, says. “In fact, we haven’t had an army since 1868. So we were taken completely by surprise by the action of the German agents. And you know what hurts Liechtenstein most is that we are actually changing fast – we sign the Schengen agreement on Thursday, which will have tax implications, we are negotiating the terms of a money-laundering agreement and, by the summer, we will have a new law on financial foundations.”
She emphasises that banking anonymity will stay: there is no alternative for Liechtenstein, however loudly the Germans complain.
The timing of the German move and its harsh tone baffle the locals. Germany seems to be shifting to the left and the grand coalition Government appears to believe that it can mobilise votes by playing on the German sense of envy. For the Liechtensteiners – and the neigh-bouring Swiss – it is plain that the German tax system is to blame.
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One point that seems lost here is that Germany didn't have to act as they did. Even if this information "fell" into their hands, they could have leaned on Leichtenstein in a confidential way and allowed them two or three year to introduce reforms to their banking system.
German tax cheats might even have repatriated some of their money during these reforms, and then those who chose not to do so could be prosecuted in the knowledge that they were given fair warning.
But no, this is Germany. They just had to take on Leichtenstein in public. They trade with Iran, ignored Kurt Waldheim's crimes, cooperate with Putin, and tried to keep insurance money that was due to Jewish victims. But when they had a chance to grand-stand over Leichtenstein, they jumped at it.
I wonder what kind of precedent they imagine they have created. Do they now raid banks all over Europe? Anyone still not think the EU is Greater Germany?
jon livesey, Sunnyvale, CA/USA
Whats the difference between tax evasion and benefit fraud - none ! - It simply means the rest of us have to pay more tax to make up the balance.
IF, Lancs, England
Now, if only the Germans were this serious about stoping Iran from getting the Bomb...
nir, Jerusalem, Israel
It's a power station. You (Israel) on the other hand do have the bomb and were the first to introduce it to the middle east.
Cyber_Cohen, UK,
The taxes in Germany are ludicrous. And furthermore laws to encourage investing are pitiful. As of 2009 Germany will have a flat capital gains tax of %25 with no allowance whatsoever. The UK and US has far better investment products and information to consumers. There are reasons why people want to take their money out of a country but ultimately the government should do more to encourage people to invest here like the UK does via ISA, SIPPs or the US with 401k plans etc.
matthew, Frankfurt, Germany
The City of London - is the World largest money laundry machine! That is a fact and nobody talks about it, but may be until somebody steals data and sells it to a desperate state.
This should alert all banks not to allow - notebooks and "independent consultants" into their data centers where customer data can be accessed. Moreover there are still banks around the World which use real data as test data in order to test new computer applications.
The funny thing about the Liechtenstein affair is that all politicans who are on the list and there are quite a few remain untouched.
Guenter, Holualoa, USA/HI
When they witter on about tax "evasion" not being the same as tax "fraud", they rely on the power of interdicted narcotics to interfere with your short-term memory and poor levels of literacy. The dictum is actually a little more refined and is the standby of your big legalo-accounting firms - you know, the ones who signed off on those off-the-books Vehicles, known as Monolines since the wheels came off.
Tax minimisation is legal; tax evasion is fraud. This means that you are suppoed to project the numbers and seek out the legal, most tax-efficient use of your funds. You'll get snared in gummint schemes, which gummints routinely abandon half way through because of unforseen consequences. However, those are the breaks, taxwise.
France has a couple of hundred recalcitrants on the list and the good part is that le Fisc got the names for free.
Dion Per Sona, Cardiff, UK,
taxes help inslave the people.
Rose, fla, USA
Angela Merkel's government is guilty of gross inefficiency. People who have a choice are not going to leave their money in high-tax, low-return zones. Wake up Chancellor Merkel - turn Germany into an attractive place to keep money (ie: lower your tax rates), and Germans will not have to try and hide their hard-earned money from you.
Andre, Machias, USA
How ridiculous! Shouldn't the German, British and American governments be focusing on that other little problem called Iraq which is costing the lives of service men and women everyday rather than re-enacting "The Mouse That Roared?"
Everett Alexander, San Francisco, USA
I can see this from the point of view of each side, though I do sway slightly more to Lichtenstein's argument that Germany should butt out. However, if a crime has been committed, Germany is reasonably (though not fully) justified in using such tactics.
What does interest me is what Brown would plan to do with any extra income gained from tracking down these tax-evaders. It does not matter how much money a country has at its disposal if they still insist upon frittering it away.
Brijit, Paris, France
Money goes where it is treated well. Wise up Germany and put your tax code in order!
Jason, Pittsburgh, USA
It isn't up to Liechtenstein ti implement the tax laws of another country. As long as the laws of Liechtenstein are adhered to within Liechtenstein, the onus is on the German Government stopping the money leaving Germany and not on Liechtenstein refusing to accept it. The Germans should stop their bully boy behaviour and put their own house in order.
Richard, Manchester,
Assuming Dr Manz-Christ has not been mistranslated, he is wrong. Tax evasion is tax fraud. How else can you describe deliberate concealment of income that is by law assessable to tax?
If everyone was honest in paying their tax the burden on those who are honest (usually the poorer, who cannot evade tax) would be less.
If you don't like the German package, convince your compatriots that the law needs to be changed, or move somewhere else. Cheating is wrong. Is that so difficult to understand?
James, Hong Kong, China
One way or another, Germany will run (ruin?) europe.
Arthur, Newcastle,
I find it interesting that Germany and others seem to have no problem in paying for what everyone knows is stolen property. Receiving stolen goods is still a crime, no?
Guy, London,
It is the overtaxation to blame, not the countries that have little or no taxation, why should they be penalized because of some inept governments not able to conduct the running of the nation on a more efficient basis? Cut the taxes and then you see that the money will stay in.
anthony, Chelmsford, UK
If this is so worrying, why are the Germans not also campaigning to sort out the EU Commission's failure to get the Accounts properly audited? Or are they too financially involved in the scams to support such action? This EU is becoming more corrupt thn Mugabe's Zimbabwe!
M. Cawdery, Portadown, UK
Perhaps the German government might like to consider annexing Liechtenstein, worked well for them with Poland...
Phil Jones, Oswestry, UK
Dr. Manz-Christ states that; "Tax evasion is not the same as tax fraud." Perhaps. But his moral splitting of hairs reminds me of a hot day in a sardine cannery: it's mighty fishy, and it stinks. Liechtenstein and Monaco are quaint little pretend kingdoms used by the rich to hide their ill gotten gains. Monarch? Of what? A bank? A cliff? They belong back in the world of 1912, not 2008. The problems facing the world are going to take everyone paying their fair share. This global masquerade of "secret bank accounts" must be held accountable.
Wilbur Varela, Los Angeles, california, usa
Now, if only the Germans were this serious about stoping Iran from getting the Bomb...
nir, Jerusalem, Israel
Sounds like an ideal opportunity for Brown and the Germans to get together, just like Bush and Blair did, and flex their muscles and invade. Might distract everyone from crooked MPs fiddling their expenses!!
Paul Downes, Milton Keynes, Bucks