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Scholz under growing pressure over tax fraud bank

During last year’s election campaign the German chancellor denied assisting the bank avoid its ruinous tax bill while simultaneously insisting he could not remember details of meetings

German chancellor Olaf Scholz is to be questioned again about tax fraud at a Hamburg bank after police discovered nearly €215,000 in cash hidden by a political ally linked to the institution.

Two days after Mr Scholz’s election victory last September, Hamburg investigators found the money – origin unknown – in a safety deposit box leased by Johannes Kahrs. A senior Social Democratic Party (SPD) and Bundestag MP for 20 years, Mr Kahrs was head of the party’s centrist-conservative camp where Mr Scholz is politically at home. Both are from Hamburg.

Mr Kahrs resigned from the party last year after failing to secure a senior government position. In recent months he has been accused of lobbying with Scholz aides on behalf of the scandal-tainted MM Warburg bank.

In 2016 the Warburg owners met Mr Scholz, then governing mayor of Germany’s second city, to discuss a €47 million demand from the city-state’s tax authorities. The tax office said the bank owed the money because of its involvement in a worldwide tax scam known as “Cum/Ex”, which defrauded the German state of around €12 billion.

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In the case of Warburg, the bank received credits for taxes that had not been paid on share trading transactions worth an estimated total of €5 billion. When tax audits uncovered the activity, Hamburg’s revenue officials told the bank to repay what it owed or be barred from trading.

After a second meeting Mr Scholz told the Warburg owners to forward their arguments against the demand to the finance ministry. Eight days later Hamburg’s tax office, which is subordinate to the finance ministry, changed its mind and dropped the tax demand.

During last year’s election campaign Mr Scholz denied assisting the bank avoid its ruinous tax bill while simultaneously insisting he couldn’t remember the details of the meetings.

His selective memory will be challenged at his first summer press conference on Thursday in Berlin, and again in two weeks when he appears for a second time before a Hamburg parliamentary inquiry into the fraud.

It is not yet known if the committee members have new information into an affair one opposition politician in Hamburg has called a “ticking time bomb” for Mr Scholz but the revelations about Mr Kahrs have proven a political bombshell.

“It is not at all clear from where Mr Kahrs got the money and to what extent the SPD network in Hamburg benefited from this,” said Christoph Ploss, head of Hamburg’s opposition Christian Democratic Union (CDU). “This is where the SPD at federal level has a duty to finally clear things up.”

During a search of Mr Kahrs’s home investigators found rental documents for the safety deposit box and obtained a court order to open it. It is not illegal in Germany to hold large sums of money in a safety deposit box – once it has been declared to the tax authorities – but reportedly Mr Kahrs has yet to explain the source of the cash.

While no proof has been produced that the money originated with Warburg, Hamburg investigators say they have found indications of criminally-relevant behaviour on the part of the suspect in connection with the “Cum/Ex transactions” of a Hamburg-based bank that are the subject of the proceedings.

So far Hamburg’s parliamentary investigation has already documented significant lobbying by Mr Kahrs on behalf of the bank. Germany’s former banking regulator confirmed he was contacted several times in 2016, inquiring about Warburg’s financial health.

In 2017 Mr Kahrs’s SPD office in Hamburg registered a €38,000 donation from the bank. Weeks before the first Cum/Ex trials in Bonn in April 2019, Mr Kahrs organised a meeting between the bank owners and a senior official in the finance ministry who later moved with Mr Scholz to the chancellery.

A spokesman for Mr Scholz insisted on Monday the chancellor knew nothing of cash held by Mr Kahrs in his safety deposit box.

Investigative journalist Oliver Schröm, who has reported extensively on the Cum/Ex scandal, predicted that “for Scholz it will get very uncomfortable because only now is the parliamentary committee of investigating gathering steam”.

The owners of Warburg bank, furious at extensive leaks relating to their multimillion tax fraud and lobbing, have filed a case against the German federal republic at the European Court of Human Rights.