Justice Department sues Deutsche Bank for tax evasion scheme

The U.S. government is accusing Deutsche Bank of engaging in a fraudulent scheme to avoid paying over $190 million in taxes.

The Justice Department claimed Monday that the bank worked to create a series of shell companies designed to be saddled with a tax bill it could never pay, which in turn allowed the bank to buy a company and avoid paying millions in owed taxes on the deal.

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“Through fraudulent conveyances involving shell companies, Deutsche Bank tried to make its potential tax liabilities disappear,” said U.S. Attorney Preet Bharara. “This was nothing more than a shell game.”

The lawsuit charges that in 1999, Deutsche Bank entered into a deal to acquire a corporation that held low-cost stock that would have led to over $100 million in taxable gains when the stock appreciated.

To avoid paying taxes on those gains, the government claims Deutsche Bank worked with a firm to create three shell companies and deliberately underfunded them.

Specifically, the government says Deutsche sold the corporation and stock to the shell company at an unjustifiably low price, and the shell paid for the acquisition with a short-term loan. Immediately after buying the stock, it was sold off to another Deutsche Bank entity, but the shell company was stuck with the tax liability on the stock’s gains. After paying back the loan that made the deal possible in the first place, the shell company was left with insufficient funds to pay on the taxes owed. Including penalties and interest, the Internal Revenue Service determined it is now owed over $190 million.

In response to the suit, a company spokeswoman said the bank planned to defend itself against the charges, arguing that it had once already addressed the matter with the government.

“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," the spokeswoman said.

The tax evasion lawsuit comes several months after the federal government successfully obtained a guilty plea against the Swiss bank Credit Suisse, which agreed to pay roughly $2.6 billion in penalties for helping U.S. citizens dodge their taxes.

This post updated at 3:49 pm.