Liechtenstein whistle blower case opens floodgates to litigation

The Liechtenstein bank LGT Treuhand (now known as Fiduco Treuhand) has been ordered to pay €7.3m to one of its customers, to compensate him for being prosecuted for tax evasion in Germany.

Heinrich Kieber, an employee of the bank, stole a disk containing a list of 1,400 of the bank’s foreign account holders which he sold to the German tax authorities for €4.2m. The German authorities promptly prosecuted all Germans named on the disk who had not disclosed their LGT accounts on their tax returns, including one Elmar Schulte, a property developer from Bad Homburg in Germany. He was given a suspended two-year jail sentence for tax evasion and ordered to pay €6.5m to the tax authorities and €1m to charity.

Schulte claimed that the bank should have warned him immediately that his account had been compromised, so that he could disclose it to the German authorities and so escape prosecution. The court agreed, and found LGT liable to compensate Schulte for the amount he had been fined in Germany, although not the amount he had to pay the German authorities in back taxes.

This case is interesting in several respects. First, copies of the disk have also been sold to the British, French, American, Australian and Italian governments, so anyone who is likely to be on those disks should think about owning up before they are approached directly. The case also raises interetesting questions of principle about the responsibilities that banks have towards their customers. Given the changes in the law over the last few years enabling revenue authorities to get information from banks, and the current scuffle between Germany and Switzerland (see here), banks are going to increasingly find themselves in an uncomfortable position as middleman between customers and tax authorities.