German court backs jail term for Deutsche banker's role in carbon tax fraud

KARLSRUHE, Germany (Reuters) - Germany's federal supreme court on Tuesday sentenced a former Deutsche Bank (DBKGn.DE) employee to three years in prison for his role in a carbon emission permit trading scheme designed to curb global warming but used to fraudulently collect tens of millions of euros of sales tax.

The ruling by the Federal Court of Justice affirmed the 2016 lower-court conviction of Helmut Hohnholz, formerly a regional sales manager with Deutsche's global markets division.

The court also backed the judgements against three other former Deutsche bankers, who two years ago received suspended jail sentences. The case of one former employee of Deutsche's tax accounting division was referred back to lower court as his active role in the crime could not be fully proven.

The case stems from an investigation into so-called carousel trades in the European Union's carbon market in 2009 and 2010, in which some buyers imported emissions permits into one EU country without paying value-added tax (VAT).

The buyers sold the permits designed to put a price on pollution to each other, adding VAT to the price and generating tax refunds when no tax had been paid.

European police agency Europol has estimated the cost to taxpayers at more than 5 billion euros (4.4 billion pounds) since 2008.

Hohnholz had been accused of ignoring all question marks over the scheme.

According to the judge presiding the 2016 trial, he had coordinated the trading of carbon emissions in Germany for Deutsche and was "the culprit, not the helper" in collecting 145 million euros of taxes.

The scheme had been run purely to trick tax authorities out of a total of 220 million euros and had revealed a "failure of all security mechanisms" at Deutsche Bank, the judge had said at the time.

The trial followed a years-long probe that involved trawling millions of emails and thousands of recorded telephone conversations.

Of the seven former Deutsche Bank employees originally on trial in Frankfurt, two had accepted the court ruling, while five had appealed it. The prosecutors had also appealed the ruling, criticising that four of the defendants had not been sentenced as culprits, but only as accessories to the tax fraud.

Deutsche Bank had repaid the tax, changed its internal processes and parted with the staff involved. It declined to comment on Tuesday.

Germany's flagship lender is in the throes of a major restructuring, hamstrung by having to pay out billions of euros of fines to end a slew of legal rows.

(Reporting by Ursula Knapp; Writing by Arno Schuetze; Editing by Louise Heavens)