Deutsche Bank Sued by U.S. for Tax Evasion; Seeks $190M - Analyst Blog

On Monday, German lender – Deutsche Bank AG (DB) and other entities were sued by Federal prosecutors in the U.S. District Court in Manhattan over tax fraud with the United States government, which claimed $190 million as unpaid taxes, penalties and interest from the bank. According to the complaint, tax evasion by Deutsche Bank commensurate from a transaction entered 14 years ago.

As per the transaction, Deutsche Bank acquired Bristol-Myers Squibb with three million shares in 1999. The lawsuit claims the shares appreciated in value and to avoid paying several million dollars in capital gain taxes on the shares, the bank set up a scheme to evade tax liability.

Preet Bharara, the U.S. Attorney alleged in the lawsuit that Deutsche Bank used three underfunded shell companies to dodge major tax liabilities in the U.S. in 2000. Further, he accused these companies' involvement in fraudulent transfers, which helped Deutsche Bank evade taxes and leave the U.S. Treasury with a "significant, uncollectable tax bill".

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

However, Deutsche Bank having huge operations in the U.S., claims the tax dispute over the same issue was resolved with the Internal Revenue Service in 2009 and again the revocation of the same issue is unclear. The bank said it intended to “vigorously” fight the lawsuit.

We believe that ongoing investigations on banks will be a step forward toward reducing the huge losses incurred due to malpractices. Regulatory authorities are investigating scandals and are determined to put forward a landmark judgment to terminate such shrewd practices in the future, bring justice to the sufferers and punish the wrongdoers.

Deutsche Bank currently holds a Zacks Rank #4 (Sell). Some better-ranked foreign banks include Itau Unibanco Holding S.A. (ITUB), Credicorp Ltd. (BAP) and Banco Latinoamericano de Comercio Exterior, S.A (BLX). All three carry a Zacks Rank #2 (Buy).