I'm a Profiteer in Cold War Germany

Chapter 285: Chapter 68: Timber Business Loophole

Reynard quickly arranged a meeting with Hausen.

They met in Hamburg, and on the surface, the talks went very smoothly.

Hausen said he was willing to increase the quantity of timber imported from East Germany, and Werner, in turn, promised him a better price.

The negotiations concluded without a hitch.

But as he was leaving, Werner deliberately and "casually" brought up a detail.

"By the way, Mr. Hausen," Werner asked as if offhandedly, "when your company imports timber, how do you typically handle the customs declaration? Do you use the actual transaction price or the market reference price?"

Hausen was taken aback for a moment but quickly regained his composure. "Of course, we use the actual transaction price. We always follow the rules."

"That’s good." Werner smiled. "Koko is tightening up its procedures these days; we require truthful declarations for all exports. We had a West German client ask us to fudge the invoice recently, and we turned them down."

A flicker of unease crossed Hausen’s face, but he maintained his smile. "That’s as it should be. The inspections are getting stricter."

Werner nodded, shook Hausen’s hand, and left.

On the train back to West Berlin, Reynard asked, "Why did you bring up customs declarations earlier?"

"It was nothing," Werner said, watching the fields flash by the window. "I just wanted to remind him that times have changed. He can’t keep pulling those shady deals."

Reynard nodded thoughtfully.

*************

Of course, Werner’s real goal wasn’t to warn Hausen.

He was setting a trap.

Upon returning to Berlin, Werner immediately began to lay his trap.

He knew Hausen had been under-declaring the value of his goods to evade taxes.

So, Werner designed a reverse trap—one that would make Hausen unwittingly over-declare the value of his goods.

Werner meticulously planned a transaction.

Through Koko, he arranged for a shipment of "high-value" East German oak to be exported to Hausen’s company.

The contract specified "Grade A Select Hardwood," with a market price of three hundred West German Marks per cubic meter. Werner gave Hausen a discounted price of two hundred and fifty Marks.

The price was attractive—a solid discount, but not so deep as to seem suspicious.

Hausen was pleased with the contract.

As was his usual practice, he fudged the numbers again on the customs declaration, lowering the goods’ value from two hundred and fifty Marks to one hundred and eighty Marks and dodging a hefty tariff.

But what Hausen didn’t know was that the shipment of oak was not "Grade A Select Hardwood" at all.

Werner had deliberately instructed the East German supplier to mix a large quantity of inferior product into the shipment—Grade B or even Grade C lumber full of knots, with uneven color and low density.

The true market value of this shipment was one hundred and fifty Marks per cubic meter, at most.

**************

Two weeks later, the oak shipment arrived in Hamburg from East Germany.

When one of Hausen’s men went to the port to collect the cargo, customs performed a routine inspection. An officer opened the container and spot-checked a few pieces of lumber.

"What’s the declared value?" the customs officer asked.

"One hundred and eighty Marks per cubic meter." Hausen’s man handed over the declaration form.

The customs officer glanced at the lumber, then at the form, and nodded. "All right, you’re cleared."

After the cargo was collected, Hausen’s workers transported the lumber to the warehouse.

The lumber merchant was an old partner of Hausen’s. The moment he saw the shipment, his face fell.

"What is this junk?" The merchant picked up a piece of lumber and examined it closely. "Hausen, there’s something wrong with this shipment."

"What’s wrong with it?" Hausen walked over.

"Look at this grain," his old partner, Zhang, said, pointing to the wood’s surface. "The color is uneven, and it’s full of knots. This isn’t Grade A. It’s Grade B at best, and some of it is even Grade C."

Hausen froze. He immediately had his workers inspect all the lumber.

It turned out that of the one hundred cubic meters of lumber, at least sixty percent was substandard, falling far short of the Grade A standard specified in the contract.

Hausen’s face was livid.

He immediately called Reynard to demand an explanation.

Reynard sounded just as surprised. "That’s impossible. Werner said this shipment was hand-picked. Let me ask him for you."

Reynard contacted Werner.

Over the phone, Werner feigned complete shock. "What? Inferior goods? How is that possible? I checked the samples myself."

"Maybe they got mixed up during shipping," Reynard said. "What should we do? Hausen is furious."

Werner was silent for a few seconds, then said, "Alright, tell Hausen we’re willing to compensate him. But the shipment has already been imported, so it can’t be returned. Have him sell it off, and I’ll give him an extra discount next time."

Reynard relayed the message to Hausen.

Though furious, Hausen had no other choice. He had to swallow the loss.

But now there was a problem.

Hausen had declared a value of one hundred and eighty Marks per cubic meter at customs.

But the true market value of the shipment was only around one hundred and fifty Marks.

By all rights, Hausen should have been relieved—he had intended to under-declare, but the actual value was even lower, so he hadn’t actually evaded taxes on this specific shipment.

But now Hausen had to sell this batch of substandard lumber.

He offloaded it to several lumber merchants at a low price, driven down to one hundred and twenty Marks per cubic meter—since the quality was so poor, he had to sell it for a song.

This created a serious problem with his bookkeeping.

The declared import value was one hundred eighty, the contract price was two hundred fifty, but the resale price was only one hundred twenty.

This kind of discrepancy on the books was bound to attract the attention of the tax authorities.

*************

A month later, officials from the Hamburg Tax Office paid him a visit.

A tax officer sat in Hausen’s office, flipping through his ledgers.

"Mr. Hausen, we’ve noticed that a recent timber import transaction of yours has some irregularities in the accounting," a bespectacled female tax officer said. "You declared it at one hundred and eighty Marks on import, but your resale price was only one hundred and twenty Marks. Logically, you should have taken a serious loss, yet your company accounts show a profit. How do you explain that?"

Hausen wiped the sweat from his forehead. "That shipment had quality issues, so I had to offload it cheaply. But my other business activities kept the company profitable overall."

The female tax officer nodded and continued flipping through the ledger. "Then let me ask you another question. The contract for this transaction shows a price of two hundred and fifty Marks, but when you filed your declaration, you put down one hundred and eighty Marks. How do you explain this discrepancy?"

Hausen’s heart sank.

"I..." He opened his mouth, but for a moment, he didn’t know what to say.

The tax officer stared at him. "Mr. Hausen, under West German tax law, imported goods must be declared at their actual transaction value. Your contract states two hundred and fifty, but you only declared one hundred and eighty. This means you under-declared the value by seventy Marks, evading customs duties. That is illegal."

"No, that’s not it," Hausen explained hastily. "The two hundred and fifty was the contract price, but the supplier actually gave me a discount..."

"A discount?" The officer produced the contract. "I don’t see any discount clauses here. And even if there were a discount, you would be required to note it on the customs declaration. What you did here is simply under-declaring value to evade taxes."

Hausen’s face turned deathly pale.

The officer continued, "What’s more suspicious is that the true market value of this shipment, based on your own resale records, is somewhere between one hundred and twenty and one hundred and fifty Marks. Yet you declared it at one hundred and eighty and signed a contract for two hundred and fifty. Mr. Hausen, can you explain why the same shipment has three different prices?"

Hausen was speechless.

He really had no explanation.

Because each of the three prices served a different, illicit purpose:

The two-hundred-fifty-Mark contract price was to legitimize his trade relationship with the East German supplier.

The one-hundred-eighty-Mark declared value was his deliberate attempt to evade taxes.

And the one-hundred-twenty-Mark resale price reflected the goods’ actual, dismal market value.

The contradictions among the three prices exposed his entire tax evasion scheme.

The Tax Office’s investigation lasted three weeks.

They brought in an independent timber appraiser, who traced and investigated the lumber that had already been sold.

The final conclusion was that the shipment’s true market value was around one hundred and fifty Marks—not the two hundred and fifty Marks claimed on the contract, nor the one hundred and eighty Marks entered on the customs form.

This meant Hausen’s books were rife with fraudulent reporting.

The Tax Office issued a notice: back taxes plus penalties, totaling eighty thousand West German Marks.

But it didn’t end there.

During the investigation, the Tax Office discovered numerous other suspicious entries in Hausen’s books from the past several years.

They handed the materials over to Customs and the Federal Intelligence Agency (BND).

Upon receiving the file, the BND immediately launched an investigation.

They pulled all of Hausen’s company’s import and export records and placed his bank accounts under surveillance.

And they found some oddities:

Hausen’s accounts contained several large, mysterious deposits ranging from five thousand to ten thousand West German Marks, appearing every two or three months.

He frequently met with individuals who had no apparent business ties to him, and these meetings were furtive.

His phone records showed frequent contact with certain numbers in East Berlin, but these numbers did not belong to any known commercial entities.

The BND placed Hausen under surveillance.

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