Why Germany Is Paying Ransom for Stolen Data

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Michael Gottschalk / AFP / Getty

German Chancellor Angela Merkel attends a parliament session in Berlin

The announcement may have caused some superrich Germans to tremble in their designer shoes. On Tuesday, German Finance Minister Wolfgang Schaüble said the government had agreed to buy a CD from an anonymous informant that contains the stolen bank details of up to 1,500 people who are suspected of evading German taxes by stashing their money in Swiss bank accounts. The decision wasn't made easily: the deal prompted a weeklong bout of soul-searching in Germany, with critics accusing the government of playing into the hands of a common criminal. It also caused a spat with Switzerland, which has stood firmly behind its banking-secrecy laws and is keen to protect its shining image in the financial world.

According to media reports, the informant first approached tax authorities in the German state of North Rhine-Westphalia with the deal last month. The individual provided a sample of the data, which authorities are now checking to determine its legitimacy. Details of the proposed deal were then leaked to the media, plunging Chancellor Angela Merkel's government into a public moral dilemma. Should it pay the $3.5 million the informant was reported to have demanded — which the media said could help the country recoup some $140 million in lost tax revenue — or turn down the offer because it amounted to rewarding criminal behavior?

The head of the parliamentary legal affairs committee, Siegfried Kauder, a member of Merkel's Christian Democratic Union Party, urged her to do the latter, saying the data may not even be admissible in court because of the manner in which it was obtained. Other officials and experts warned that the government would be sending the wrong message by striking such a shady deal. "The German rule of law obliges the state to tax people equally, but the state should also not deal with criminals," Moris Lehner, a professor of international law at Munich's Ludwig Maximilian University, tells TIME. "The informant acquired the data through a criminal act, and the government has to weigh up its obligations very carefully." Peter Schaar, the German data-protection commissioner, added that a deal could "encourage other people to sell data, and this would lead to a black market for personal information."

Switzerland was vehemently opposed to the deal. "Here we have a new form of bank robbery," Swiss lawmaker Pirmin Bischof said in an interview with Germany's Deutschlandfunk radio on Tuesday. "Before, you had to go to the bank and get hold of the money with a weapon. Today you can do it electronically by stealing data." Swiss Finance Minister Hans-Rudolf Merz went a step further, saying his country would refuse to help the German authorities on tax issues involving the stolen data. Lehner however, says this may just be bluster on Merz's part. "Under the double taxation agreement between Germany and Switzerland, the Swiss authorities are obliged to help their German counterparts to investigate tax fraud if there is a suspicion of a criminal act," he says.

Despite the arguments of opponents, the deal did have plenty of support in Germany. Tax evasion is a major problem in the country, costing the government about $40 billion a year, according to Lehner. German opposition parties supported buying the CD if it would help uncover the identities of suspected tax dodgers. "It's a scandal that [the authorities] pursue every parking offender but not those people who evade paying up to $300 million in taxes," Sigmar Gabriel, chairman of the Social Democratic Party, told the paper Hamburger Abendblatt. The German police union was equally adamant that moral concerns should be pushed aside. "The police work with criminals on a daily basis — we have paid informers who help us uncover drug trafficking or other crimes," Konrad Freiberg, head of the union, tells TIME. "Particularly with tax fraud, you'd never be able to get at these people otherwise."

It wouldn't be the first time the German government struck such a deal. Two years ago, Germany paid an informant $6.3 million to obtain stolen bank details for several hundred members of the LGT banking group who were suspected of evading taxes by putting their money in bank accounts in Liechtenstein. That deal reportedly helped the government recover $250 million in lost revenue by the end of last year. One of the suspects, Klaus Zumwinkel, the former head of Deutsche Post, was convicted of tax evasion and received a two-year suspended prison sentence and a fine of $1.4 million. "We can't do the opposite now of what we did two years ago," Schaüble said in an interview with ZDF public television on Monday night.

Merkel agreed. However distasteful Germany's leader may have found the deal, she said on Monday that the end, in this case, may justify the means. "Just like any reasonable person, I am in favor of punishing tax evasion," she told reporters in Berlin. "In order to do this, everything should be done to get hold of this data."