Deutsche pays massive $553 million fine after admitting criminal wrongdoing in tax shelter scam

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Deutsche Bank AG agreed Tuesday to pay $553 million and admitting its role in a scheme that allowed wealthy U.S taxpayers to use fraudulent tax shelters to avoid paying billions of dollars in income taxes. The bank, Germany’s largest, admitted that it acted in a criminal manner and paid the fine to avoid further prosecution.

The bank entered into a non-prosecution agreement the Internal Revenue Service and the U.S Department of Justice resulting from 15 tax shelters it promoted with accounting firm KPMG and law firm Jenkins & Gilchrist PC. Over 2,100 bank customers were sold the shelters between 1996 and 2002.

The shelters help rich taxpayers avoid paying $5.9 billion in income taxes using $29.3 billion of bogus losses. The DOJ sued executives of KPMG for cooking up the shelter, but charges were dropped after the firm admitted wrongdoing and paid a fine of $456 million. Two of their executives were sent to prison.

The law firm, Jenkins & Gilchrist, issued “opinion” letters on the shelters stating that the underlying transaction were legitimate. The firm disbanded after entering into a non-prosecution agreement in 2007 and paying a $76 million penalty.

Deutsche bank also agreed to hire an “overseer” who would review potential bank transaction3 to make sure they didn’t violate U.S. income tax regulations.

Earlier this year, the DOJ settled with Swiss Bank UBS, who was also charged with abusive tax shelters that helped wealthy Americans evade paying taxes from 2000 to 2007. UBS paid fines totaling $780 million and turned over the names of 4,500 U.S. citizen depositors that were potentially hiding money from the IRS.

The IRS and DOJ have been looking closely at tax shelters used by the super-wealthy to avoid paying taxes. In many instances, the government agencies have been offering amnesty to those who pay the tax and help them prosecute the promoters.

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