Internal Report From The Tax Office Of The German Property Group

There are also silent heroes in the story of the German property group scam. Officers who did their job with a clear conscience and pointed out complaints. Officials who tried in vain as companies transferred files containing their findings while continuing their dubious business.

The German property group has raised funds from private investors with the promise of investing in listed properties in Germany. With attractive interest rates of up to 25 per cent, the secure real estate position has convinced thousands of investors from Germany, Great Britain, Ireland, France, Singapore and South Korea. After the first media reports in 2019 about distressed investors, it became clear that GPG could not keep its promise. At the end of 2019, investors from several countries laid criminal charges against founder Charles Smetherstin and several others close to him.

Since then, the Hanover Public Prosecutor’s Office has been investigating Smetherst and five others on suspicion of investment fraud and bankruptcy. An internal note from the Hanover Tax Office, available exclusively to Business Insider, clarifies that serious complaints were reported to the authorities. However, it took the Hanover Public Prosecutor three more years to begin the investigation. To date, no action has been taken to secure the assets of the company and its shareholders, despite the loss of $ 1 billion.

As part of a large-scale company audit, officials at the Hanover Tax Office have been scrutinizing GPG group companies from Langenhagen for months, still known as the Dolphin Trust. They looked through the spider web of GPG companies and pointed out the dubious business practices in the memo since May 2017.

In the case of a tax audit, the audited company must allow access to the accounting and all other relevant documents. Therefore, it is about a comprehensive review by the tax office to assess whether the company is keeping bookkeeping properly and on what basis the tax is paid.

In the internal paper, the auditor summarized his results and identified the suspicion of several criminal offenses: according to the note, the GPG suspected money laundering, tax evasion, fraud, breach of trust and violation of banking law – which the judicial authorities immediately noticed. But the Public Prosecutor’s Office did not find enough suspicion at the time, and closed the investigation six months later.

The auditors of the tax office proceeded comprehensively. They received a review of the GPG companies’ confused network. The group of companies includes 180 companies, some of which were headquartered abroad. Accurate review of business operations and payment flows was facilitated not only by different companies with different legal forms, but also by the “intervention of different brokerage firms and payment stations”.

At the time of writing, the tax officer in charge came to the following conclusion: “In my opinion, this system is used to conceal payments, so it is sometimes very difficult to clearly identify the actual contract partner.”

The fact that the GPG universe revolves primarily around its founder and partner, Charles Smetherst, shows that Smetherst had a prominent position in 174 companies – as a partner or managing director. The file states that he and his son changed positions as managing director at several companies.

Examining the transactions, it became clear to the officials that the funds from private investors were not being used primarily for real estate projects, contrary to what was promised. Investor money was used to pay up to 24 percent commission and up to 25 percent interest, but also to repay liabilities.

Tax official’s conclusion: “This is basically a classic pyramid scheme.” A pyramid scheme is a fake business model in which the first hour investor’s income is paid from the subsequent investor’s investment. It crashes when a large number of investors demand their funds at once for attracting more and more partners and for ads that earn higher than average for the system.

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The tax auditors from the tax office had more doubts. They found that 4 1.4 million of GPG funds had flowed into the founder’s wife’s teleshopping company, which later went bankrupt. In addition, officials had already recorded payments from the Cayman Islands tax base: in 2012, a company received more than 13 13 million based on GPG accounts.

Investigators have recommended tax auditors to investigate fraud, fraud and money laundering.

The auditors also recognized that a company has a special place in the group of companies. It was about the DC80, which received foreign funds from foreign private investors for distribution within the group of companies. “She uses it to make banking transactions without proper security equipment,” the chief tax officer said in a statement. Bundesbank had previously tested GPG for licensed banking transactions in 2014 and 2015, but after a deal with the company’s lawyers, it concluded that this was not the case.

The tax officer said in 2017 that the aim here was to check whether the GPG was a violation of banking law.

The tax office for large-scale auditing in Hanover submitted a note to the Hanover Public Prosecutor’s Office in May 2017, but further action should disappoint officials. As the Public Prosecutor’s Office in Hanover announced in response to our request, the investigation began there, six months later, in January 2018, and was terminated “in the absence of sufficient suspicion.” The decision was based on a statement by the then managing director of the GPG Group, who denied the allegations.

This allowed GPG to continue raising funds from investors who are still waiting for their payback.