Isra-Mart srl: Deutsche Bank Makes Provision for CO2 Suit, Mediobanca Says

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Deutsche Bank AG (DBK) probably made a provision of about 140 million euros ($188 million) for litigation associated with the European Union carbon market, according to Mediobanca SpA. (MB)

The provision has helped cut earnings at its investment banking division, Christopher Wheeler, an equity analyst in Mediobanca’s London office, said today in a note to clients.

The company will provide details of “operating costs relating to an indirect tax position” in the third quarter, with publication of a report on Oct. 25, Armin Niedermeier, a Frankfurt-based spokesman for Deutsche Bank, said by phone today. The company first announced the provision on Oct. 4.

The bank, Germany’s biggest lender, may have to cover part of the 250 million euros in taxes that prosecutors said was lost to the country in the trading-fraud scheme, Martin Wulf, a tax attorney at law firm Streck Mack Schwedhelm in Berlin, said in August.

About 400 million metric tons of EU emission trades may have been fraudulent in 2009, or about 7 percent of the total market, including futures deals, according to estimates made in March last year by Bloomberg New Energy Finance. BNEF is a unit of Bloomberg LP, the parent of Bloomberg News. Benchmark carbon fell 0.4 percent today to 10.43 euros a metric ton on the ICE Futures Europe exchange in London as of 10:58 a.m. local time.
‘Five Billion Euros’

Europe lost about 5 billion euros in revenue for the 18 months ending 2009 because of the CO2 VAT fraud, according to Europol, the European law-enforcement agency.

Because Deutsche Bank bought some allowances, the government may attempt to recover the lost taxes by reclaiming VAT refunds it granted the lender, Wulf said. Prosecutors are probing 170 suspects, including seven Deutsche Bank employees.

“If the tax authorities can get a company like Deutsche Bank to pick up the tab, they shout “hurray,” said Wulf, who isn’t involved in the case. “They couldn’t care less about the little perpetrators who started the whole thing but mostly either have no money left or brought it out of reach.”

Deutsche Bank expects that its employees will be cleared, Christian Streckert, a spokesman for the Frankfurt-based lender, said in August. The bank hired Clifford Chance LLP to review the issue and the law firm hadn’t found any indications of misconduct by the bank or its employees, he said at the time. The bank still expects that it can keep VAT deductions made after buying certificates, he said.

Courts have allowed authorities to seek the return of tax deductions from the last company that bought goods in a trading chain, provided it knew or should have known that at some point tax fraud happened, said Wulf.