Fat 'n Happy the Rooster Blah, Blah, Blah

Just Another Jim

Just Another Essay



Those Crazy Gags of the Silly German Secret Police

Essay Posted March 4, 2008 by James E. Nelson

Back in mid-February German officials announced that they had uncovered what they believed might be a potentially huge case of tax fraud involving Liechtenstein based LGT Bank. I suspect you have read a bit about the case in the newspaper or heard it on the news. The BND (the new and improved German Stasi, for those unfamiliar with the BND) has further announced that this is probably the tip of the iceberg and that they want to look into other cases using any means necessary. In the end they think it might involve billions of euros.

Let me first make clear that I am opposed to tax fraud because it is a crime. But the big story here is not the potential tax fraud (and let me emphasize potential—very little evidence of fraud has been uncovered). It is rather the willingness of Germany to completely forgo law and order, using illegal means to undermine the basic national principals of another sovereign state that Germany is supposedly friends with. Let me explain.

The principality of Liechtenstein is a very traditional country with a very long history of neutrality. They also have some of the strongest bank secrecy laws in the world. Those bank secrecy laws grew out of historical unrest in Europe. As far back as the Middle Ages, unscrupulous kings and governments would seize the wealth of various citizens for no particularly good reason. The Catholic countries would seize the Protestants’ wealth; the Protestant countries would seize the Catholics’ wealth. At times (Napoleon, Mussolini, and Hitler come immediately to mind), countries would come up with some real cockamamie reasons to steal everything from money to fine art to gold from its wealthiest citizens in order to pay for some war effort.

And let’s be clear about our terminology. What has historically gone on is theft. I’m not talking about taxation (which is legal), even ridiculously high taxation. In these historical situation, citizens would be ordered to turn over vast holdings simply because the government needed it. If the citizens were disliked, such as the Jews, they were ordered to leave within a limited time frame (sometimes within 24 hours). The time frames were typically so short that the suddenly citizenship-less citizen would not even be able to liquidate his assets and would have to leave poor and empty handed. This afforded the various governments involved the opportunity to simply show up and seize the assets. It was a lucrative business.

This is where countries like Liechtenstein, Switzerland, and Andorra entered the picture. All three carefully maintained their neutrality in European disputes and wars. They also created very strict bank secrecy laws so that people persecuted by their own governments could achieve some basic level of justice and human dignity after they fled the persecution. In times of unrest, these small countries became havens of safety for individuals around Europe (and eventually around the globe) who were being unjustly targeted by their governments.

Of course those very strict secrecy rules allowed for abuse. In some cases terrorists, drug dealers, CIA and MI5 agents, and other low-lifes would use these countries to illegally hide money. But this is not nearly as common as we are generally led to believe. For instance, there are no secret accounts, and there haven’t been for decades (which is why the unscrupulous German government was able to get the names and account numbers of German account holders). The bankers have to know who they are dealing with; they deal with no one anonymously. If the bank has reason to suspect that a customer is involved in illegal activity, the bank, by national law in each of these three countries, is required to inform the authorities and cooperate with the investigation. As the information age has matured, these countries have strengthened laws cracking down on would-be criminals of any type.

How do they do this? First, they seek to know their customer. Anyone who wants to open up a bank account in these three countries (or most anywhere else in the world, for that matter) is required to have a letter of referral from their bank and attorney in their home country, as well as proof of residency (and a history of residency if they have moved recently). To take this illustration one step further, the fact that most Americans do not have a personal attorney makes it very difficult for them to open up a foreign bank account while it remains easy to open up an American account. Why? Since there is no privacy left in the United States, American banks can root around and get the intimate details of a potential customer’s life. In most other parts of the world (other than the U.S. and Western Europe) a person’s privacy and liberty is still respected. As a result European and pan-American banks that deal internationally go to great lengths to verify the identity of their customers.

This doesn’t mean fraud doesn’t occur. A criminal would have no problem finding like-minded attorneys, bankers, and notaries public to fudge a little bit on the information. But increasingly, privacy is disappearing in the modern world, and as a result, the instances of fraud, when it relates to banking identity, are lower now than they ever have been in modern history.

But taxing authorities have become increasingly powerful over the last several decades. Before the World Trade Center attacks, for instance, the IRS was the only American enforcement authority which could get away with assuming we were guilty until we proved ourselves innocent (turning our constitutional rights on their head). The IRS and their fellow taxing authorities around the world are the most feared enforcement agencies because of their history of bullying and living above the law. In short, there’s a long history of abuse, and the level of abuse continually gets worse (albeit at a creeping rate, so we all put up with it).

So this is the context of what happened in Germany a few weeks ago. The specifics are as follows: German authorities announced that they had bribed an employee of LGT Bank. They gave the man (a citizen of Liechtenstein) €5 million. In turn he gave them a disk containing the names and account numbers of German citizens with bank accounts in Liechtenstein. (That act alone, the passing of the disk to German authorities, is a felony in Liechtenstein, and if he ever returns to the country will likely spend the rest of his life in jail for breaking the bank secrecy laws. Any punishment related to the bribery would be above and beyond the highly criminal act of passing on the information.)

So what happened? Let’s describe it in terms of international law, bi-lateral treaty relationships, and internally within Germany:

  1. The German government completely ignored the international standards of the rule of law and used illegal means to get information.
  2. The German government trampled on the sovereignty of an ally in order to get this information.
  3. The German government acted illegally against its own citizens to steal information that it had no right to get.
  4. Governments around the world (including the American government) applauded Germany’s trampling of the rule of law.

If this were a war-time situation, or if Liechtenstein and Germany were not allies it might be possible to defend the decision of Germany to do something like this. There is long precedent for it, after all. But even when the CIA was doing illegal things in the Soviet Union and the KGB was doing illegal things in Europe and North America, when they caught and accused of the deed, they acted appropriately outraged at the affront. In short, in the past when countries did such things they still pretended to be governed by the rule of law. There was at least a polite fiction that law meant something.

But this German incursion into the sovereignty of Liechtenstein is a rather different matter. After they did the illegal deed, they stuck out their chest and crowed about it, and the other supposedly civilized countries patted them on their back for the effort.

Black is white, war is peace . . .

You know the mantra. It seems to me that this latest step from the side of the rule of law to the side of anarchy cannot be good at any level for people who care about liberty.