Deutsche Bank AG (DBK) co-Chief Executive Officer Juergen Fitschen and Stefan Krause, the firm’s chief financial officer, are subjects of a tax probe involving the sale of carbon-emission certificates that led to five arrests and police raids on the lender’s Frankfurt offices.
Fitschen and Krause’s approval of value-added tax statements for 2009 is being reviewed by prosecutors, Deutsche Bank said today in an e-mailed statement. Any errors in the document were corrected in a timely manner, the bank said. Prosecutors say the correction was too late, the lender said.
The bank’s headquarters were searched and prosecutors are investigating 25 employees, Guenter Wittig, a spokesman for the Frankfurt General Prosecutor, said in a statement. Five workers were arrested over obstruction of justice and money laundering allegations, he said. He declined to identify any suspects.
“There’s suspicion the bank employees withheld evidence from the authorities and failed to report potential money laundering,” Wittig said, in reference to the obstruction of justice portion of the case. The bank was previously raided in 2010 as part of the case.
Global investment banks are the subject of probes from Japan to Canada as regulators intensify their scrutiny of the industry. At Deutsche Bank, the CO2 probe adds to subpoenas and litigation stretching from alleged rigging of interbank lending rates to claims the bank misrepresented products tied to U.S. mortgages.
Tax inspectors carrying computer equipment and files were seen entering elevators at the bank’s headquarters in downtown Frankfurt today. About 20 police vehicles, including two large buses, were parked outside. About 10 police cars were in front of Deutsche Bank’s premises hosting the trading floor in the financial district.
The search is part of a probe against individuals, bank spokesman Armin Niedermeier said. “Deutsche Bank continues to fully cooperate with the authorities.”
Deutsche Bank reversed earlier gains after issuing the statement to fall 0.1 percent to 34.275 euros at the close of trading in Frankfurt. The shares have gained 16 percent this year.
“While crimes like this could happen at any company, the world’s banks are facing ever more litigation,” said Christian Hamann, an analyst with Hamburger Sparkasse who recommends investors sell Deutsche Bank shares. “In hindsight, one could always say that the bank’s control systems could have been better.”
Fitschen, 64, the longest-serving employee on the management board, became head of Deutsche Bank’s operations in Germany in 2005 and retained that role when he took over as co- CEO with Anshu Jain, 49, in June. Krause, 50, joined the management board in April 2008 and was named CFO in October of that year, according to the bank’s website.
Naming Fitschen as a suspect is a part of a strategy by prosecutors to “increase the degree of suffering” at Deutsche Bank, said Peter Haas, a tax attorney from Bochum, Germany, who isn’t involved in the case.
“The legal issue is terribly simple -- you have to declare taxes correctly,” Haas said. “Fitschen isn’t filling out the forms himself, of course, he has an army of people handling the details.”
Deutsche Bank has set aside cash reserves to pay for any financial damages associated with the London interbank offered rate legal probes, Deutsche Bank’s chief of compliance Stephan Leithner said Nov. 28 at a Libor hearing of the Finance Committee of the German Parliament. An internal investigation established misconduct by individual employees, though no wrongdoing by current or former members of the board in the Libor case, he said, repeating a statement the bank made in July.
Six men linked to small trading companies were convicted of tax evasion by a Frankfurt court a year ago in a case tied to the sale of carbon-emission certificates to Deutsche Bank. The lender, which bought the securities, should have known they were designed to illegally evade value-added tax, Presiding Judge Martin Bach said at the time.
The lender decided not to claim back about 310 million euros ($406 million) of VAT refunds as the case evolved. Earlier last year, Deutsche Bank made a provision in that amount as a “precautionary measure on legal advice” and reserved the right to reclaim the tax at a later date, a position the bank subsequently gave up.
Raids were also conducted in Berlin and Dusseldorf, Wittig said today. About 500 federal police and tax investigators were involved. The authorities also raided private homes.
The prosecutors said last year they’re investigating as many as 170 people, seven of whom work at Deutsche Bank. The scheme deprived the government of 300 million euros of income, the court said in a December 2011 ruling.
The case is part of the biggest crackdown on emissions- related tax crimes since Europe opened the cap-and-trade system in 2005. German authorities enlisted assistance from 10 countries in 2010 and froze 100 million euros in funds as part of the probe.
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