[ by Melanie Gretchen and Howard Haykin ]

Deutsche Bank’s co-CEO Juergen Fitschen and CFO Stefan Krause are under close scrutiny in an investigation by German prosecutors' into the evasion of value-added tax in carbon-emission certificate trades.  Others are being investigated, as well - including the head of tax for continental Europe and a tax-compliance manager - to determine whether the handling of the certificates was the proximate cause of such tax evasion.- before and during the investigation.

Federal Findings and Allegations.   In 2009, prosecutors began investigating what they referred to as a value-added tax evasion scheme, which exploited the European carbon-emission certificate trading system.  Seven Deutsche Bank employees were named as suspects in emissions-allowance trading and that led to a search of the bank in April 2010.  This resulted in the conviction of six managers at small emissions-trading companies, who reportedly had sold the securities to Deutsche Bank.  Prosecutors claimed that the German bank should have known the trades were illegal.

Status Update.  This past December, several Deutsche Bank employees were arrested in a raid of the bank’s headquarters in Frankfurt.  All were released within a week. 

This year, the tax executive who testified in that case defending his role in the so-called illegal trades.  He claims that bank discussed the certificate business with German tax authorities in December 2009 and January 2010 and received no indication those trades were tied to fraud.  However, one factor working against the tax executive is that Deutsche Bank did not share with authorities its findings from an internal probe - that was conducted after the 2010 raid.

[C-I Note: Apparently, under U.K. law, the findings are protected by attorney-client privilege, but unfortunately, federal sympathy isn't.]

Although neither the tax head nor the tax manager has been identified, Mr. Fitschen and Mr. Krause are under investigation because they signed value-added tax statements for 2009 that prosecutors now claim were wrong.  In the bank's defense, the lender, its executives, and employees have denied the allegations.  All told, prosecutors have investigated some 190 suspects in the case, including 25 from Deutsche Bank.

For further details, go to [Bloomberg, 3/12/13].