Deutsche Bank Agrees to Pay $95 Million Under Latest Tax Fraud Settlement

This past month, Deutsche Bank has agreed to pay out $95 million dollars to resolve a lawsuit brought against the bank by the US Government. The suit, which was filed back in December of 2014, alleges that Deutsche Bank, in 2000, had been using an insolvent shell company within the United States to hide significant tax liability from the Internal Revenue Service. The lawsuit initially sought to recover more than $190 million in taxes, penalties, and interest.

Back in 2000, Deutsche Bank acquired a corporation that held stock at a very low-cost basis. The stock would eventually be sold and at a very high value. As a result of the stock being sold, Deutsche Bank would incur substantial taxable income (in the form of taxable gain) as a consequence of the transaction. Deutsche Bank, however, thought of a way to get around this before the stock was ever sold. The bank would first create a shell company called “BMY.” In broad terms, before the stock was ever sold, Deutsche Bank would transfer their acquired shares to BMY and then have BMY transfer the shares back to Deutsche Bank. This process would allow for Deutsche Bank to maintain the acquired shares of stock without ever having to pay taxes on the sale of the stock. BMY, on the other hand, would get the bill for the taxable gain.

It did not take long before the Internal Revenue Service (IRS) found out about the wrongdoing. Initially, BMY was left with a tax liability of more than $52 million dollars as a result of the sale of the stock. BMY, however, was insolvent and would continue to rack up penalties as a consequence of non-payment of its taxes. After substantial non-compliance and full blown investigation by the US Department of Justice, the Department decided to file suit against Deutsche Bank. As mentioned prior, the suit initially sought to recover than $190 million dollars from Deutsche Bank for their wrongdoing. The case settled, however, for $95 million dollars. Deusche Bank has admitted to their misconduct back in 2000 and is now focused amending relationships with its customer base.

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Reinhard von Hennigs