Barclays offshoot in German tax evasion inquiry: Customer, not stockbroker, is subject of investigation, says British company

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The Independent Online
MERCK FINCK, the Frankfurt- based stockbroking subsidiary of Barclays Bank, has been drawn into one of Germany's biggest insider dealing investigations over allegations that one of Merck's customers has engaged in tax evasion.

Barclays insisted yesterday that the customer, not Merck Finck, was the subject of the probe. The inquiries follow a raid earlier this month on the Frankfurt offices of Merck Finck, which Barclays bought in 1990. The company said its office was the 'scene but not the reason' for the visit by tax inspectors.

Merck is one of five brokers being examined by regulators. Yesterday, the German stock exchange said it had instructed its Insider Commission to investigate what newspaper reports say may be Germany's most serious stock exchange trading scandal. At least 24 individuals being investigated are thought to have made more than DM100m ( pounds 41.07m) from a 'front-running' ring.

Front-running is a practice whereby traders buy or sell stocks for themselves before placing big orders for customers that may move the share price. The practice is covered in a new German law banning insider trading, which takes effect later this year.

Merck said there had been speculation that the customer had used insider information for share dealings processed by Merck Finck as well as other banks.

'As far as Merck Finck is concerned, we have no grounds to believe (there was) violation of insider dealing rules. As can be read in the press, the board of the Deutsche Borse will instruct that the alleged insider transactions on the Frankfurt exchange are examined.'

The broker has also instructed KPMG, the accounting firm, to examine the customer's business.

Hildegard Becker-Toussaint, spokeswoman for the Frankfurt prosecutor's office, told Reuters news agency that five bourse traders were suspected of transferring abroad profits made by insider trading, and thus avoiding tax. She said the cash had apparently been moved abroad with the help of two firms based in Geneva. The investigation began in 1992, while the incidents themselves date back to as early as 1987.

Ms Becker-Toussaint said the prosecution searched offices at Merck Finck in Frankfurt and Munich for documents that might provide information on the flow of untaxed funds abroad. She said the prosecutor's office was not investigating the bank itself, but that there were witnesses. She added that one of the five brokers was formerly an employee of the bank.

Ms Becker-Toussaint said the main suspect, a Swiss citizen , fell outside the Frankfurt public prosecutor's jurisdiction.

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