1st Top Manager Klaus Zumwinkel – Introduction

1.1. Tax evasion as an object of general consideration

Tax fraud is a crime. Nevertheless, each case has its own facets, such as motivation, which may have led to tax evasion. In this respect, tax evasion as a criminal case also has its own right to investigate it in a more differentiated manner.

In fact, the individual aspects that make tax evasion a whole in its individual parts are very multifaceted. In addition to the motivation, one can also think about the amount of taxes evaded, the previous successes of concealment, the external influences or the element that led to their detection. Surely the person, i.e. the person who evades taxes, with all his peculiarities suddenly stands before us, so that we always have to deal with him if we want to learn how his vabanque game about taxes unfolded.

1.2. About the person Klaus Zumwinkel

In the case we are considering here, it is a person who can be described as particularly successful professionally. Klaus Zumwinkel was a top manager in his career: former CEO of Deutsche Post AG, former Chairman of the Supervisory Board of Deutsche Telekom, former member of the Supervisory Board of Deutsche Lufthansa, Allianz and Morgan-Stanley, former holder of high positions at McKinsey and Quelle. In all of these companies, Klaus Zumwinkel has earned a reputation as a hands-on manager who was able to actively shape companies and lead them into the future. With such a person we do not normally associate criminal acts. And yet Klaus Zumwinkel has committed tax evasion. So we ask: how did tax evasion happen? What happened to the tax investigation? How did Klaus Zumwinkel comment on his tax evasion? And what was the verdict that Klaus Zumwinkel ultimately had to bow to?

2. The tax evasion of Klaus Zumwinkel

Let’s start with the act that brought Klaus Zumwinkel into the field of tax evasion. This was primarily about a tax design model offered by LGT Treuhand AG, a former subsidiary of LGT Bank in Vaduz, Liechtenstein, in particular wealthy Germans. In addition, one must know that Liechtenstein at that time boasted having at least as rigorous a banking secrecy as Switzerland. So anyone who wanted to hide funds anonymously from the local tax authorities was definitely at the right address in Liechtenstein. These framework conditions probably also attracted Klaus Zumwinkel.

The tax design model concerned foundations in Liechtenstein, where the founders continued to retain control over the foundation. But for such cases, German tax law stipulates that the foundation’s assets are attributable to the founder. The decoupling of assets from the founder, which is crucial for the advantageous and exclusive taxation of the profits of a foundation in Liechtenstein, is thus eliminated. But as long as nobody knows that the foundation is under the control of the founders, the German Treasury has no reason to recognize tax evasion.

But this is exactly what happened in the case of tax evasion with Klaus Zumwinkel. Like many other LGT bank clients, he also retained control of his family foundation Devotion. And so the top manager evaded taxes on the income of his foundation for decades. This is said to have involved several million euros. However, only incidents from the assessment periods 2002 to 2007 resulted in a complaint against Klaus Zumwinkel for tax evasion. From today’s perspective, it is important to know that the limitation period for tax evasion was five years. It was not until 2009 that the legislature raised it to ten years.

Klaus Zumwinkel: how his tax evasion flew up

One of the many interesting aspects of considering tax evasion cases is the question of what circumstances led to their detection. So also in the case of the tax evasion of Klaus Zumwinkel.

3.1. Data theft in Liechtenstein

A former employee of LGT Treuhand AG, Heinrich Kieber, had copied and brought into his possession data about German and other customers of the bank before his departure. He is said to have used this to blackmail the then Prince of Liechtenstein, Hans-Adam II. Kieber wanted to get support in a private legal dispute.

3.2. Sale of the tax CD to the BND

But when he said that the agreement with the prince was ineffective, he contacted foreign authorities to sell his tax data. With regard to German customers, the BND was his contact. In fact, Kieber succeeded in selling the data to the Federal Intelligence Service (BND). He received an amount of about EUR 4,600,000, which may have been added to other funds from other countries. In addition, the BND Kieber is said to have helped in the acquisition of a new identity. Finally, it was clear that this action had made Kieber the number one enemy of the state in Liechtenstein.

Liechtenstein has been searching for Kieber by international arrest warrant since 2008. He is said to have left for Australia. At least Liechtenstein made a request for legal assistance there in 2011. So far, however, these efforts have been unsuccessful.

3.3 Use of Control CD Data

In any case, on the data carrier that the BND received and which became famous as a tax CD, the data were also noted that proved the tax evasion of Klaus Zumwinkel and many hundreds of other Germans. But it was also remarkable that there was a heated debate in politics and the public whether the acquisition of the data was legal or otherwise acceptable. Finally, the deliberate acquisition of stolen objects constitutes concealment. Ultimately, however, the then Finance Minister, Peer Steinbrück, decided to use the data. In this way, they finally arrived at the public prosecutor's office in Bochum, where they were processed by the central prosecutor's office for tax criminal matters. And so the case of the tax evasion of Klaus Zumwinkel came to light.

4. tax evasion Klaus Zumwinkel: tax investigation and trial

Due to internal disputes, however, another public prosecutor had to represent Margrit Lichtinghagen at the trial in court. At that time it had obtained the transfer to another judicial authority.

In addition, there was one circumstance in the entire Klaus Zumwinkel trial: An investigating judge allowed the limitation period for 2001 to elapse. Curious: it was only a few hours. This resulted in only a total tax evasion of EUR 970,000 instead of more than EUR 1.200,000 in court for trial.

Nevertheless, there were hardly any surprises in the process itself. In fact, various media even commented on him as a farce. Klaus Zumwinkel confessed remorsefully that he had committed tax evasion. In return, the judges of the 12th large criminal chamber of the Bochum Regional Court ruled quite mildly on 26 January 2009. Klaus Zumwinkel was sentenced to two years imprisonment on probation. He also had to pay a charge of EUR 1,000,000. Klaus Zumwinkel had already paid his tax liability of about EUR 4,000,000 including tax benefits before the start of the trial. This was also credited to him for reducing punishment.

The verdict corresponded to the request of the public prosecutor. Klaus Zumwinkel and his legal counsel may have expected a lesser penalty, but accepted the verdict immediately. On the other hand, judges of the BGH also commented on the judgment. In their view, a three-year prison sentence without probation would have been appropriate in this case.

Klaus Zumwinkel's tax evasion: setting up the foundation correctly

What is the quintessence that we as tax experts can draw from the tax evasion of Klaus Zumwinkel and the many other similar cases? For example, that in the case of tax evasion you always have to live with the risk of detection? Certainly. But this does not require a strong understanding of tax law and criminal tax law.

Well, rather, it is the fact that in a tax saving model you should always listen to the professional advice of renowned tax consultants. With regard to foundations in Liechtenstein, for example, our Council would have addressed the sore point in Klaus Zumwinkel’s construct. But we would also have remedied the situation. Because we know from many years of experience how to legally set up tax avoiding administrative structures at a foundation in Liechtenstein in order to eliminate the risk of tax evasion in Germany.

That is why we continue to offer tax design models around the Family Foundation in Liechtenstein with great success. Despite the adjustments that Liechtenstein made due to strong political pressure from Germany and other states to effectively lift banking secrecy, it was able to maintain an internationally very competitive foundation law. This is why the Family Foundation in Liechtenstein is still a favorite for many of our clients today with only a few alternatives.