Seven Ex-Deutsche Bank Managers Guilty in C02 Tax-Fraud Case

Seven former Deutsche Bank AG managers were found guilty by a German court of participating in a conspiracy to cheat on value-added tax refunds for carbon-emissions trading.

The bankers participated in a “criminal business model" that sidestepped 145 million euros ($163 million) in taxes, Presiding Judge Martin Bach said at a court hearing Monday in Frankfurt. One of the men, a 55-year-old who was the "principal actor" according to the judges, was sentenced to three years in prison while the other six escaped prison with suspended jail terms or conditional fines.

The case is part of the biggest crackdown on emissions-related tax crimes since the European Union began its cap-and-trade system in 2005 and saw police raid Deutsche Bank twice over three years. The lender, Germany’s biggest bank, stopped trading emission certificates in 2010 and repaid 220 million euros of illicit tax refunds uncovered during the investigation.

"Deutsche Bank was the principal player in these deals at the time," said Bach. "Most other banks had retreated from this business."

Prosecutors had asked for terms of as much as four years for three of the defendants and suspended terms the rest. Lead prosecutor Thomas Gonder said he will review whether to file an appeal in two of the cases where he had sought custodial sentences.

Personal Guilt

"The verdicts show that you can efficiently prosecute white-collar crimes even if bankers’ actions are involved," Gonder told reporters after the hearing. "I’m content the court agreed with our view that personal guilt of the mangers wasn’t excluded by the fact that there were organizational defects at the bank."

Frank Hartmann, a spokesman for Deutsche Bank, said the lender has “fundamentally” changed its processes. All of the men in today’s case have left the lender, he said.

Law-enforcement officials are still investigating 15 people who worked or are still working for the bank. In addition, three bankers have reached settlements with prosecutors.

Juergen Fitschen, who stepped down as co-chief executive officer last month, and former management board member Stefan Krause have also been investigated as part of the carbon probe. Both have denied wrongdoing.

Monday’s verdicts are the latest in a probe that dates back at least seven years. Six men who ran sham companies that traded emission certificates with Deutsche Bank were found guilty in 2011 of evading 260 million euros in taxes. Another half dozen people involved in the scheme have been convicted and prosecutors still have more indictments pending in the overall probe.

Sham Companies

The men convicted Monday processed trades from the sham companies. They either turned a blind eye to the "clear indications" that the transactions were set up to defraud tax authorities or failed to do enough to stop them, according to the court.

A 55-year old man, who can be identified only as Helmut H., was the focal point of the illegal activities at Deutsche Bank, Judge Bach said. He received the three-year term prison term because he didn’t show remorse and the fact that he was the boss of some of the younger men in the scam.

"He’s responsible for their careers being destroyed," Bach said.

The others admitted to their roles and assumed some responsibility, Bach said. The men, between 34- and 65-years-old, can’t be identified under German media law.

Wolf Schiller, the defense lawyer for the 55-year-old, said he will appeal.

"There is no rule in German law that you must get a higher sentence simply because you don’t admit" an allegation, Schiller said. "The court constructed an ambitious theory of what constitutes a criminal actor, so the Federal Court of Justice needs to scrutinize that."

The scheme took advantage of the fact that, at the time, German sales of emission certificates included a 19 percent value-added tax. The men convicted in 2011 set up a chain of companies selling certificates within Germany and across borders. Some of the companies didn’t transfer the VAT they received on the sales while the buyers used the invoices to seek tax refunds.

The court on Monday found that the bankers knew they were buying from a chain of companies that ran such a scheme. Under German law, a person is guilty of tax evasion under those facts even if he didn’t receive any of the money.

To contact the reporter on this story: Karin Matussek in Berlin at kmatussek@bloomberg.net. To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Peter Chapman