The damage could be at an incredible 850 million Euros. Fraudsters have ripped off the German government with the help of fraudulent emission allowances. In the middle: Deutsche Bank.
Prosecutors and tax investigators can be quite imaginative. They like to find imaginative names for special operations.
In Frankfurt, a special commission, named after the Germanic god Odin, is investigating suspects in one of the largest economic fraud cases in Germany. International gangs may have damaged the German state by exorbitant amounts in the trade with emissions rights (carbon allowances). There are more than 150 suspects, mostly CEOs and other businessmen. Four of them are in detention, some for almost a year.
Much evidence, including a file called "Polar Bear", is kept in a building named "Tango ". Polar Bear, Odin and Tango - an unusual combination. Then again it is also an unusual case with unusual events. The focus is on a financial institution that shapes the German financial landscape and that is internationally renowned: Deutsche Bank.
Immense damage
The dimensions of the fraud are immense. In recent weeks, tax offices throughout Germany have begun to calculate the damage to the state. The results: 15 companies are said to have evaded more than 300 million Euros in taxes in total. And this is only a first interim result. A total of 50 companies are said to have cheated the tax authorities. The total damage amounts to 850 million Euros according to the general prosecutor in Frankfurt.
A few weeks ago, a power failure in the “Tango” building caused the computers to crash and important data of the Special Commission “Odin” were lost, including many details that had the investigators on the trail of the Deutsche Bank. The bank is said to be involved in the criminal case. The investigation of the case, as a result, will last longer than planned. The Frankfurt-based general prosecutor informed the lawyers of the Deutsche Bank that the preparation of the evidence would be delayed considerably due to the power failure. Apparently, the file “Polar Bear” has to be reconstructed too.
This, however, won’t change much of the mess Deutsche Bank finds itself in. Investigators have gained extensive knowledge about an alleged VAT fraud on a grand scale after a nationwide crackdown nearly a year ago. The trail leads to Dubai, Hong Kong and the Seychelles in the Indian Ocean. In the middle: Deutsche Bank. It appears to be involved - either due to naiveté or by going beyond the limits of legality - in the VAT fraud. Seven employees of the bank are investigated, including a regional manager. The bankers are said to have been involved in fraud against the state. Deutsche Bank denies this.
The Odin investigators have meticulously recorded the rapid pace in which the bank has started and expanded transactions with questionable companies. For a Frankfurt-based energy company, the daily transfer limit was increased from two million to ten million Euros within a week, shortly after the company opened an account. A month later, it was raised to 15 million Euros. In total, this company alone made carbon deals exceeding €100 million. Deutsche Bank should have become suspicious at the very latest when a cash card (debit card), which had been sent to a representative of the company, was returned by post because the recipient could not be located at the specified address. The businessman told the bank that his "letter box" was just being repaired. Pretty weird.
The special arrangement which the energy company in question maintained with Deutsche Bank could not be explained by "verifiable references," ‘Odin’ noted. The bank staff did probably not get suspicious either when two colleagues received an invitation to a Formula 1 race in Dubai from their new business partners. Such kind of courtesy gifts are beyond normal business contacts, says the Odin notice. Rather than create suspicion, the two bank employees replied to their new trading partner that the invitation to a Formula 1 race was an honour but due to internal regulations they could not accept it. Instead they could meet in cold and rainy Frankfurt for dinner.
Fictitious trades, fictitious companies, bogus addresses
There were strange occurrences with other business partners too and the bank staff handled them in a pretty careless manner - and that in a market, which had already attracted suspicion. Emissions trading is supposed to promote environmental protection. Factories and power plants, which produce cleanly, can sell unused pollution rights to companies that emit high levels of carbon dioxide (CO2) and who are supposed to emit fewer pollutants into the atmosphere through the expensive purchase of CO2 allowances. A nice idea, but one which attracted pretty shady characters.
For years, there has been a crime scene specialising on defraud the government by billions of Euros - with sham transactions by bogus companies that appear under bogus addresses as quickly as they disappear.
The system works like this: A bogus company buys goods from abroad and sells them including VAT right away. However, these transactions only take place on paper, not in reality. The VAT or sales tax is not being paid to the Treasury, but rather, the Treasury is put on hold with excuses until the company no longer exists. The products meanwhile, after being bought and sold a few times, have ended up with another company, which re-exports the mobile phones and cars (and whatever else is traded) to other countries. This company, the last link in the chain, gets the VAT refunded by the Treasury - exactly the VAT which the first link in the chain should have paid, but never did. This way, the state is being plundered. This is what according to “Odin”, has also happened in the case of the emissions trading fraud, with the help of Deutsche Bank. A terrible accusation.
The bank has been investigating the case itself, via the law firm Clifford Chance. The firm has found "no evidence," so far, that supports the suspicion of the public prosecutor, Deutsche Bank says. Because of a lack of insight into the files of the investigation, the bank is not commenting on individual questions.
Carbon trading is very well suited for VAT fraud since its inception. Within minutes, transactions worth millions can be done on paper without any need for goods to be transported. This has attracted fraudsters who have installed scams from abroad with help from the criminal milieu in Germany, tax investigators in Dusseldorf determined.
The investigators, who cooperate closely with their colleagues in Frankfurt, found three “main delivery strings" which had been handled via Deutsche Bank. The bank was in each case the last link in the chain and claimed tax refunds from the Treasury of more than 100 million Euros. The Düsseldorf tax investigators discovered even more. In these chains, the CO2 certificates changed hands five times in less than a quarter of an hour. The identical CO2 allowances were traded up to 18 times in those chains. This recycling did not serve the environment at all - the winners were shady businessmen.
The interim result of the Attorney General is dramatic. On top of the evaded tax revenues of 850 million Euros, the tax offices have also disbursed € 220 million in tax refunds to the supposed fraudster. When tax offices wanted to recuperate this money, most of it had already gone. The Deutsche Bank accounts of most of the involved companies, not much money was found. One seizure order by the Munich tax office procured against an alleged eco-enterprise amounted to more than 4.8 million Euros. Deutsche Bank told the fiscal authorities that only €61.45 were left in the company’s account.
Emissions trading fraud has now been largely shut down by the government, as a result of many investigations and a change in legislation. However, some of the companies that diligently bought and sold CO2 allowances, have again come to the attention of tax inspectors. Now these companies are dealing in electricity, metal and gold.
Copyright 2011, Süddeutsche Zeitung, 5 March 2011
Translation Philipp Mueller
