Frankel, who is American, entered a guilty plea Friday in a German court, admitting to evading taxes on $5.35 million of smuggled diamonds.
Court action on that charge has delayed Frankel's extradition to the United States.
The 45-year-old fled his mansion in Greenwich, Connecticut, last year as authorities there began zeroing in on his activities.
He now hopes to serve his time in a German prison, where he says he could be rehabilitated, rather than in the U.S.
Frankel says U.S. prisons are "inhumane."
"The German constitution has laws that let someone rehabilitate himself, and I'm being tried under German law," he told reporters.
Frankel could be sentenced to as long as 10 years in prison on the German charges. He faces potentially far more jail time and huge civil lawsuits in the United States, where insurance regulators say he funneled millions stolen from insurers into an unlicensed brokerage run from his Connecticut mansion.
Asked by a judge in court in Hamburg Friday whether he admitted his guilt on the charges, Frankel replied: "Yes."
He made the admission two days after he had said at the trial's opening he wanted to call four witnesses to testify in his defense.
One of his attorneys also read a statement in which Frankel admitted knowing he had broken the law by not paying duty on the diamonds, which prosecutors have said were worth $5.35 million.
Prosecutors in Germany allege he evaded paying $1.2 million in customs duties on the diamonds found with him when he was arrested in a Hamburg hotel on Sept. 4.
At the start of his trial Wednesday, Frankel surprised the court by asking to call four witnesses: Mona Kim, his former business manager who accompanied him to Rome; Cynthia Allison, who was with him in Hamburg; Thomas Corbally, a New York business consultant; and Alfredo Fausti, the son of an Italian businessman.
Matthias Thiel, a defense lawyer for Frankel, said it could have taken two to three months before the witnesses could come to Germany to testify.
That would mesh with Frankel's hopes to remain in Germany rather than be extradited to the United States, where he has likened prison life to the death sentence.
German authorities initially indicated Frankel would be extradited swiftly. They said they did not plan to pursue the relatively minor charges stemming from the two false British and seven Greek passports found in his hotel room after his arrest on a U.S. warrant.
But they apparently changed their minds after uncovering evidence of the more serious charge of tax evasion.
Frankel's odyssey from financier to fugitive started more than a year ago. On May 5, 1999, authorities called to investigate a fire at his Greenwich, Conn., mansion discovered a fireplace and file cabinet full of burning documents. Frankel had left he country a day earlier.
Insurance commissioners in five U.S. states - Arkansas, Mississippi, Missouri, Oklahoma and Tennessee - have filed a federal lawsuit asking for more than $600 million in damages from Frankel, who is accused of bilking more than $200 million from insurers.
Frankel also faces numerous state charges, and he was indicted in October on federal charges in Connecticut. At least three of his associates have pleaded guilty to charges related to his alleged money laundering.
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