German bankers in fraud inquiry

Two board members of Commerzbank, Germany's fourth-largest private bank, are under investigation for tax fraud concerning money placed in Switzerland and Luxembourg, bank and prosecution officials said yesterday.

The investigation began two years ago, but it is the first time the bank's top officials - in this case, Mr Dietrich-Kurt Frowein, president of Commerzbank's monitoring committee, and Mr Erich Conen, a member of the bank's board - have come under formal suspicion.

Two senior managers are also being investigated.

Mr Job Tilmann, a spokesman for the Frankfurt prosecutor's office, said evidence indicated the four knew of a channel that placed certain clients' funds in Switzerland and Luxembourg in order to escape German withholding tax. Several other Commerzbank employees had turned themselves in to the investigating authorities to avoid prosecution, he added.

A Commerzbank spokesman, Mr Peter Pietsch, denied the bank had systematically practised tax evasion.

"At no point did the bank put in place a system designed to encourage tax fraud," he said.

Mr Frowein and Mr Conen are being investigated in their capacity as former heads of the private banking sector, he added.

An investigator told Der Spiegel magazine that Commerzbank had developed a system to allow clients to place funds anonymously in accounts in Switzerland and Luxembourg. Several serving and former board members of Germany's biggest private bank, Deutsche Bank, are also under investigation for a similar system of transferring funds to Switzerland and Luxembourg.

Deutsche Bank's president, Mr Rolf Breuer, said yesterday the bank would not pay a fine to halt the inquiry into its affairs. "With the information currently available, there is no reason to do this," he said, adding the bank felt it had been wrongly accused.

Dresdner Bank agreed in March to pay a fine of €20.5 million (£26 million) to end its involvement in a similar investigation.