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 saabira.chaudhuri@wsj.com
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