German Bank Falls Foul of US Tax Shelter Crackdown

Stephen Harris

15 February 2006

Germany’s HVB bank has been forced to pay $29.6 million to the US federal government as part of a deferred prosecution agreement relating to the bank’s involvement in fraudulent tax shelters. Prosecutors alleged that from 1996 to 2003 HVB engaged in a scheme to help high net worth individuals in the US avoid income taxes. This including acting as a purported lender for transactions that did little more than create a tax loss for those individuals. According to the US government, $500 million was lost in income taxes as a result of the creation of about $1.8 billion in constructed tax losses. The payment to the authorities includes $16.2 million in disgorgement and forfeiture, and $6.9 million in restitution. The bank had been charged with conspiracy to defraud the IRS, conspiracy to commit tax evasion, and conspiracy to make and subscribe false and fraudulent tax returns and aid and assist in the preparations of those returns. Under the terms of the agreement, the bank will avoid criminal prosecution if it does not violate it for 18 months. HVB also has agreed to restrictions on some of its businesses and will implement an ethics and compliance programme across its US business. "HVB has cooperated fully with the government's investigation and will continue to do so. We have already begun to implement the actions mandated by the We are pleased to have reached this settlement and can now focus more fully on our core businesses," said Chris Wrenn, HVB's chief operations officer in the US in a statement. HVB also said it had begun steps to exit the tax-shelter business, improve its management controls and enhance oversight in its tax department prior to the government's investigation.