UPDATE 3-Deutsche Bank U.S. tax fraud deal opens floodgates
* More overseas banks in crosshairs of U.S. authorities
* Deutsche to pay $554 mln; set aside 250 mln euros in 2006
* Deutsche Bank shares dip 0.35 pct
(Adds comment from former U.S. Justice Department prosecutor)
By Harro Ten Wolde and Jason Rhodes
FRANKFURT/ZURICH, Dec 22 (Reuters) - Deutsche Bank's (DBKGn.DE) U.S. tax fraud settlement has heightened expectations of more deals being struck as American authorities target overseas banks in a crackdown on tax dodgers.
U.S. prosecutors are pushing ahead with more probes, emboldened after top Swiss wealth manager UBS (UBSN.VX) had to hand over the details of 4,450 clients.
Leads from that case have helped investigators look at banks in Asia and the Middle East, while clients from HSBC (HSBA.L) have also been under scrutiny, lawyers have said.[ID:nN09288323]
"This is the end of the matter for Deutsche Bank, but this is just the second front in the same war," former U.S. Justice Department prosecutor Michael Weinstein said.
"The U.S. government is going worldwide to repatriate as much money as possible and they will aggressively go after all money in all corners of the world to do so."
However, there was relief that Deutsche Bank's (DBKGn.DE) $553.6 million settlement would not hit earnings and is unlikely to have a lasting impact, analysts and tax experts said.
Deutsche Bank's shares slipped 0.35 percent.
Germany's flagship lender admitted criminal wrongdoing for taking part in fraudulent tax shelters that allowed clients to hide billions of dollars, U.S. prosecutors said on Tuesday. [ID:nN21145978]
But unlike Swiss rival UBS, which suffered a client backlash after an earlier settlement, Deutsche Bank is seen as less likely to face a longer-term hit to its reputation.
Deutsche is not bound by the same bank secrecy laws as UBS, which means it can hand client data over to U.S. authorities if necessary, a Zurich-based tax lawyer told Reuters.
Deutsche Bank said it had already provisioned for the settlement. It set aside 250 million euros in March 2006 in connection with talks with the U.S. Justice Department to settle an investigation into tax shelters. Its third quarter results released in October said it was close to resolving the issue.
Sarasin analyst Rainer Skierka did not see Deutsche suffering any reputational damage from the settlement that could result in clients withdrawing their money. "The settlement draws a line under the case," Skierka said. "They paid a hefty price."
Philipp Haessler, an analyst at Equinet Bank, agreed, noting the case was known about and goes back many years: "I don't think many clients will leave -- if there was going to be a client exodus, it would already have happened."
OTHER BANKS IN FIRING LINE
The Deutsche Bank settlement is part of a wider U.S. drive to crack down on banks that help wealthy Americans evade taxes and could herald similar settlements with other banks.
"I see first-hand other financial institutions being examined by the IRS as UBS was," Weinstein said.
"They may come into line because they see the heavy price that UBS paid both from a financial perspective and from a reputational perspective for fighting the IRS," he added.
UBS paid $780 million in fines for helping clients with roughly $20 billion in assets hide their accounts from the U.S. Internal Revenue Service.
The U.S. Department of Justice opened an investigation into whether some HSBC clients may have failed to disclose offshore accounts, lawyers familiar with the probe said in July. Some HSBC clients received a letter notifying them they are the subject of a criminal probe. [ID:nTOE665045]
The U.S. Attorney's Office in Manhattan said the Deutsche Bank fine represented fees the bank earned setting up tax shelters, the taxes and interest the IRS could not collect and a civil penalty of $150 million.
Some of the shelters are linked to accounting firm KPMG [KPMG.UL], which reached a $456 million settlement with the government in 2005 to avoid prosecution on charges it helped wealthy clients set up questionable tax shelters. Two former KPMG officials went to prison. [ID:nN27271956]
German lender HVB in early 2006 agreed to pay $30 million to avoid prosecution on charges it had helped KPMG sell tax shelters. Deutsche said at that time the settlement allowed it to estimate potential costs.
The shelters in the Deutsche Bank case were set up between 1996 and 2002 and allowed more than 2,100 customers avoid $5.9 billion in income taxes.
The IRS has also offered an amnesty to wealthy people who declared their assets, and is now using information from some of those taxpayers to build cases against other banks that facilitate tax evasion. (Additional reporting by Steve Slater and Sudip Kar-Gupta in London and Michelle Martin in Germany; Editing by Alexander Smith)
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