Pierre Mirabaud

The head of the Swiss Bankers' Association on Wednesday night compared the German government's investigation into alleged tax fraud in the Alpine tax haven of  Liechtenstein, to techniques used by the Nazi-era secret police but on Thursday apologised.

Nevertheless, when defending an issue that is tied to self-interest, people can lose the run of themselves. The intemperate outburst also revives memories of the role of the Swiss banks in secretly keeping the funds of Holocaust victims for decades until threatened with exclusion from the US market by the American Congress.

Pierre Mirabaud told Switzerland's French-language broadcasting service that the methods used by the Germans"unfortunately call to mind methods worthy of the Gestapo".

 “He only meant to express his uneasiness about such methods being used by intelligence services against friendly states,”the banking association said on Thursday.

The tax investigation on Thursday focused on three employees of Metzler, a Frankfurt-based private bank, who are suspected of helping clients evade tax. Other German banks have been raided as part of the search for tax evaders; most have insisted that their employees are not under investigation.

The Financial Times says Germany’s BND foreign intelligence agency paid €4.2m for information about more than 700 German clients of Liechtenstein’s LGT bank in early 2006 and passed the data to the tax authorities, according to German government officials. People close to LGT think an employee stole the data in 2002.

Liechtenstein's Crown Prince Alois von Liechtenstein on Thursday said that the German government was undermining Liechtenstein's sovereignty by paying an informer.

Liechtenstein has a population of 35,000 people and became a sovereign state in 1806 with the overthrow of the last Holy Roman Emperor by Napoleon Bonaparte.

Germany has threatened to ``tighten the thumb screws more'' on Liechtenstein if the two countries can't reach a voluntary agreement that would change the current system of bank secrecy that encourages tax-evasion by wealthy Germans.

Germany is considering requiring banks to report transfers to Liechtenstein or automatically tax the transactions at their source, German Finance Minister Peer Steinbrücktold ZDF television in an interview last night.

US Senator Carl Levin announced yesterday that he was opening an investigation into whether American citizens are hiding assets Liechtenstein banks to evade taxes. 

The Wall Street Journal reports today that dozens of Americans had accounts at the Liechtenstein bank at the center of the tax-evasion scandal, according to a person involved in international inquiries into the bank.

The Internal Revenue Service is in possession of the principality's biggest bank LGT's account records, and tax authorities in at least four other countries are investigating, the person added, naming the United Kingdom, Australia, France and Canada.