Monday, July 9, 2012

What to do with "black" money?

The myths about black money in Greece and of Greeks seem to have no limits. Offshore bank deposits are said to be in the 3-digit billion EUR figures. Homes and palaces in Greece were allegedly bought with black money. Other luxury goods as well.

In countries like Austria or Germany, the owners of "black money" have one big problem: they cannot spend it, at least not in their own countries and not in larger amounts. It may be difficult to convert "white" money into "black" money but it is virtually impossible to do the reverse in a larger way.

The solution is simple in the world of IT: cross-checking official records. If someone buys an apartment, a copy of the purchase contract goes to the tax office. The tax office makes a cross-check to the latest income tax statement. If that does not show any income justifying the purchase, the tax office will start asking questions.

A few years ago, Germany even went so far as to allow tax authorities access to private bank accounts without the account holder even knowing about it. When the law was implemented, it created enormous discussion but in the meantime everyone seems to have gotten used to.

No Austrian or German will ever transfer money to, say, Switzerland, via official bank accounts knowing that tax authorities might look into it. If they want to have money offshore (and a lot of them do), then they have to transport it in cash. In contrast, the Bank of Greece has reported that between 2010-11, about 25 BEUR were transferred from private Greek bank accounts to private accounts offshore. Apparently, there is no cross-checking with tax authorities.

No bank should open an account for an offshore company without being informed who the beneficial owner is. That is not Austrian or German law; it is EU law. So if rules are adhered to, there is no way for a former defense minister to live in a house paid for by an offshore company without someone knowing who the beneficial owner of that offshore company is. No bank would accept a larger money transfer from abroad to a private account without questioning the recipient about the source of that money (or perhaps even reporting it to authorities).

About 2 years ago, in the beginning of the crisis, I had a conversation with a Mercedes dealer in Thessaloniki. I said that with the recession and the new tax controls, his sales would probably go down. He said no. I said that tax authorities would now check out every buyer of a Mercedes to see if he could afford one based on official records. He said yes. So, I asked, what is he going to tell them? The dealer said: he will ask the tax inspector what his monthly salary is. And then he will give him a sum of cash which will discourage the tax inspector to ask further questions.

Well, you can't beat any such informal system!


  1. Mr. Kastner, as i have written somewhere on my long replies, the "Unit for Persecuting Financial Fraud", which is the only really working unit in Greece, has about 1200 people only, which have to do all kind of controls. They do have the power to access bank accounts too, without warning, but being so few, they can't do much. That is why they should employ more stuff. A unit only to control bank accounts and lesser pubblic servants to hunt the "street" tax evasion.

    The Mercedes dealer in Thessaloniki could be bust now. Many car dealers in Greece have gone bankrupt. Many Greece try to sell their car for a lower cc car, because this way they pay less taxes.

    The trend for black money in the past year, is purchase of real estate abroads. Britain (London very popular, british real estate dealers can't believe their eyes, Greeks are their best customers), France, even Turkey.

    Also, the greek tax system needs more networking and minimizing of human contact, to avoid bribes.


  2. Αh, you need to know also something else. To this day, if you have a land property outside the limits of an inhabited area (be it a piece of land or an agricultural area), this area is not included in the "real estate tax". You will be taxated for INCOME that you may be getting out of it (for example you sell olive oil), but not for the fact you have that land. You may as well buy half of Greece's land and this doesn't constitute an indication that you are rich and thus pay for real estate tax.


    Hint: The biggest concentration of Porsche Cayenne in Greece, was in Larissa, capital of Thessaly and one of the most fertile areas in greek agriculture.

    1. I understand that the reason for that was that a Porsche Cayenne counted as a transport vehicle to be subsidized by EU grants. Correct?

    2. Yes, probably, it was EU approved vehicle for nocturnal transportations to and from the buzukia :)

      Not all farmers are rich or cheat (a friend of mine has olive trees but never got subsidies and keeps them as a hobby because they don't earn him much), but large farm owners since 1980 have made a LOT of money (PASOK used to be called "the party of the farmers"). They also took advantage of illegal immigration in the 90s to further fatten their wallet.

      And as in all crisis before, there is one thing that never changes: "If you are a farmer, you will not suffer hunger". And if you are a large farm owner, you won't suffer at all. Having a piece of fertile land, historically has been proven in Greece to be the best antidote to any crisis. From war to economic collapse, land never fails you. And in fact, in areas of Greece with big farm owners you can see that the crisis is much less evident than in Athens for example.


  3. I guess this only brings home the point that associates offshore accounts with illegal activities. If I’m not mistaken, I believe that people are required, under the penalty of perjury, to declare all of their bank accounts, including offshore accounts, for the purpose of transparency. Cross-checking the information would’ve been a good way to sniff out those who’re using offshore accounts for illicit activities, but apparently, it has been proven that there are gaps within the system.

    Cameron Scott