NEW YORK — Deutsche Bank AG agreed Tuesday to pay $553.6 million and admit criminal wrongdoing in a long-running probe over tax shelters that prosecutors claim generated billions in false tax losses.
Under a nonprosecution agreement with the U.S. Attorney's office in Manhattan and the Internal Revenue Service, the German bank won't be prosecuted for its sale of about 15 different tax shelters involving more than 2,100 customers between 1996 and 2002, including shelters marketed by accounting firm KPMG LLP.
"Customers used the transactions to generate more than $29 billion in bogus tax benefits, mainly losses," according to the agreement.
The $553.6 million payment represents the total fees that the bank collected during the period, the taxes and the interest the IRS was unable to collect during the period and a civil penalty of more than $149 million.
"Deutsche Bank is pleased that this investigation, which concerned transactions that ceased more than eight years ago, has come to a resolution," the bank said in a statement.
The agreement resolves a long-running probe that stemmed from aggressive, prepackaged tax shelters that the government believes were fraudulent.
More than a dozen people were charged criminally in the matter. However, a federal judge threw out charges against 13 former KPMG executives in 2007 after finding prosecutors violated their rights to counsel by putting undue pressure on the accounting firm not to advance them defense costs.
A former KPMG LLP tax partner, a one-time KPMG senior tax manager and a lawyer in a case were convicted of criminal charges in 2009 in a case once billed as the largest tax-shelter fraud prosecution in U.S. history.
KPMG itself signed a deferred prosecution agreement in which it admitted to the fraudulent sale and marketing of bogus tax shelters and agreed to pay a $456 million penalty. A conspiracy charge was dropped against KPMG itself in December 2006.
The shelters at issue included Blips, or bond linked issue premium structure; Flips, or foreign leveraged investment program; OPIS, or offshore portfolio investment strategy; and SOS, or short option strategies.
Law firm Jenkens & Gilchrist issued opinion letters touting the legitimacy of the transactions underlying some of the shelters. The firm closed its doors in 2007 after entering into its own agreement avoiding prosecution and agreed to pay a $76 million IRS penalty.
As part of its agreement Tuesday, Deutsche Bank agreed not to be involved with any type of prepackaged tax products and to adopt an ethics and compliance program. The bank also agreed to cooperate with prosecutors.
Under the agreement, Deutsche Bank admitted it knew or should have known that the transactions underlying the shelters were "intended to create the appearance of investment activity, but taxpayers were entering into these transactions for the primary purpose of avoiding taxes, as opposed to making profits on the transactions."
Deutsche Bank said Tuesday that it previously had taken "appropriate provisions" for the full amount of the fine and it won't have an impact on current net income.
