U.S. Files Suit Against Deutsche Bank -- Update

By Saabira Chaudhuri 

The Justice Department has sued Deutsche Bank AG over allegations of tax fraud, saying the German lender owes taxes amounting to more than $190 million.

The U.S. Attorney for the Southern District of New York, Preet Bharara, in a civil suit filed Monday in Manhattan federal court alleged that Deutsche Bank struck a deal to create shell companies to help it avoid paying taxes. Deutsche Bank says it plans to contest the allegations.

The taxes in question would have been triggered by selling Bristol-Myers Squibb Co. stock that Deutsche Bank had received as part of a 1999 acquisition.

In the spring of 2000, Deutsche Bank sold the company that held the stock to the shell companies for a price that the Justice Department says didn't represent its fair value given "the tens of millions of dollars of tax liabilities on the built-in gains."

The shell company bought the stock using a short-term loan and then immediately sold it back to Deutsche Bank, Mr. Bharara's office alleged. The sale triggered a tax liability for the shell company, which after paying back the loan and other expenses didn't have the money to pay the tax bill.

Deutsche Bank then sold the stock without paying the tax liability, alleges the DOJ.

Deutsche Bank has been dinged on the matter before. In 2009, the bank paid $6 million as part of a previously undisclosed settlement with the Internal Revenue Service over the matter, according to a person familiar with that settlement. The IRS investigated the matter between 2003 and 2009.

"Through fraudulent conveyances involving shell companies, Deutsche Bank tried to make its potential tax liabilities disappear," said Mr. Bharara in a statement. "This was nothing more than a shell game."

A spokeswoman for Deutsche Bank said: "We fully addressed the government's concerns about this 14-year old transaction in a 2009 agreement with the IRS."

"In connection with that agreement they abandoned their theory that DB was liable for these taxes, and while it is not clear to us why we are being pursued again for the same taxes, we plan to again defend vigorously against these claims," she said.

Deutsche Bank could have to pay more than $190 million. According to the DOJ, the lawsuit is aiming to recover the unpaid taxes, along with penalties and interest.

Write to Saabira Chaudhuri at [e-mail]

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