Thursday, October 4, 2012

Much ado about a list?

After weeks and months of Troika-negotiations having been nearly the only issue in public debate, we finally have again an issue which fires up emotions --- the "list"! How should it be dealt with?

Well, first a comment on how it should not have been dealt with so far: it should not have been dealt with the way it was dealt with! It seems like individuals passed a USB-stick around amongst themselves to document alibi actions while at the same time hoping that one recipient would have the courage to take the stick out of circulation. Mr. Venizelos apparently had that courage but immediately got scared by his own courage when the issue resurfaced in the public. It couldn't have played out much worse.

Now the emotions are in full swing and everybody wants to see names just like the Romans wanted to see blood when they watched gladiators fight. Would it not be only fair and just to publish the list immediately?

Well, I am not so sure. After all, it is not illegal to have money in a Swiss bank account. The source of that money may be illegal and not having paid taxes on it is illegal. But if the source was legal and if taxes have been paid, the individual concerned would be a perfectly honorable citizen and should under no circumstances be treated by the public like another Akis Tzochatsopoulos.

When the German state of North-Rhine-Westphalia initiated the practice of paying for stolen data several years ago, I wasn't so sure that this was a good idea. In a State of Law, the (illegal) means should never be justified by an end. Not too long before then, a German police officer had been convicted of a crime because he had tortured a suspected kidnapper to find out the location of the kidnapped boy (as it later turned out, the boy had already been dead by then). There was a public uproar against the conviction but the State of Law argued that the State of Law was of supreme value in the republic.

Obviously, the State of Law was no longer such supreme a value when it concerned data of tax cheaters on whose discovery the state could make a lot of money. Sadly, one would have to derive from that that when it concerns collecting money, violating the State of Law is not as critical as when it concerns saving life.

What does that mean for Greece? Well, as a matter of principle I would say that the State of Law should be as supreme a value in Greece as anywhere else. In case of doubt, that would mean not to use data which were illegally obtained.

On the other hand, one doesn't do any State of Law any service if one acts completely naively and one-sidedly. From what I understand, it is virtually a tradition in Greece to violate the State of Law from all sides (165.000 pending tax cases are just one case in point). If no one respects the State of Law, why should the state itself be the only one to do so, particularly when the state could right some wrong's in the process?

Thus, I take off my theoretical hat and replace it with a practical and pragmatic hat. Yes, Greece should use the information which was given to it. BUT: it should be used responsibly and discreetly. Absolute confidentiality must be maintained until such a point where legal action against an individual can be supported.

Incidentally, where Germany really made money on the tax data was not through indictments and penalties. Instead, it was through the self-indictments which occured in masses. The law says that if people self-indict themselves before there is an official inquiry into their situation, they only have to pay up unpaid taxes and nothing else. On the other hand, if they get caught, they not only have to pay up unpaid taxes but also a penalty; and they may have to go to jail. Since nobody knew who was on the list, very many people who could have been on the list got scared that they might be on the list and chose to self-indict themselves (and come clean with the tax authorities) instead of taking chances.

If Greece really wanted to get serious about going after black money, it could do a number of things which would not involve buying stolen data (and violating laws in Switzerland). 

Cross checks between deposit withdrawals and income tax statements 
Almost 100 BEUR were withdrawn from Greek banks since the beginning of the crisis. A very significant portion thereof was transferred abroad; the rest was withdrawn in cash. Data about all transactions are on hand within the Greek banking system (and, with regard to foreign transfers, within the Bank of Greece). Obviously, all such data are subject to banking secrecy.

There is probably no greater national economic emergency than when a country loses a deposit base equivalent to almost half its GDP.  National emergencies justify emergency laws. It should be simply a matter of a new law to allow cross-checks of data between deposit withdrawals and income statements to test plausibility. 

Cross checks between major asset purchases and income tax statements 
As with deposit withdrawals, major asset purchases (real estate, upper-bracket cars, etc.) could be cross-checked with income statements for plausibility. This might not even require a new law because if taxes have to be paid on major asset purchases, the Tax Office would already have all necessary documentation.

Inquiries into transactions with anonymous offshore companies
Typically, these would be transfers from anonymous offshore companies in the form of investments, grants or loans. Recipients should be required to reveal the beneficial owner of the offshore company.

These are just three examples. Brutal interference with privacy rights unheard of elsewhere in the EU? Not really. Several years ago, Germany implemented the so-called "account screening". It not only allows a tax official to screen personal bank accounts but the account holder doesn't even know that his account has been screened. To cross-check major asset purchases with income statements is a standard in Germany. And, finally, the EU Money Laundering Guideline does not allow banks to open/hold corporate accounts without knowing the beneficial owner behind the corporation (or foundation).


  1. Does your definition of "not paying for stolen data" include "not rewarding whistleblowers".

    A Whistleblower (WB) almost always loses his/her job, usually get drummed out of the industry in which they were employed and they are ostracised by their profession and quite often by so-called friends.

    I understand that the US Internal Revenue program can reward a WB with 10-30% of the proceeds.

    And that under Dodd-Frank the US Securities Exchange Rewards program can reward a WB with up to 20% of the penalties imposed.

    The findings against UBS resulted in a $104M payout to the WB, the SEC recently made its first WB reward of $50K under Dodd-Frank.

    Many cartels are broken up when one of the participants discloses the details to the authorities - the reward - immunity from prosecution.

    If the EU were serious about Money Laundering etc, it would outlaw the €500 note. Those who have them could exchange them at the national central bank, providing they provide proof of their identity and the source of the funds.


    1. I am sure you noticed that I was quite wishy-washy on the questions you raise. I find it literally impossible to come up with a specific opinion on the subject of whistleblowers and related. I think it's quite right to give a Pakistani 25 MUSD if he reveals bin Laden's location. On the other hand, when I read that a crook was given 104 MUSD and free journey for having spilled the beans on other crooks, I must admit that that didn't sound right to me.

  2. Among the many 'brilliant' ideas that have come out of the Ministry of Finance is to have everybody's tax return form on the internet. It is a great idea if you are a criminal, so that you know whom to target. And it is a prime example of the idiocy and the Simitis logic 'whoever has evidence[of corruption], take that evidence to the prosecutor'. I.e. the state and its employees, who are authorized, paid and legally covered to go after corruption can continue not doing their job and it is up to the citizen, at his own time, money and risk to go after corruption