Germany wages war on tax shelters

By Bertrand Benoit

Published: April 30 2005 03:00 | Last updated: April 30 2005 03:00

The blonde woman's expression tells it all. Motionless as if struck by lightning, she is hunched in her brown plastic chair, eyes locked on her feet contemplating the end of her short smuggling career.

The discomfited woman, who cannot be identified for legal reasons, is one of thousands of Germans at the receiving end of the law as the country's perennially cash-strapped government steps up its war on tax dodgers.

Having left Basel for her home near Frankfurt last Wednesday, the 65-year-old pensioner had barely made it to Weil-am-Rhein, on the Swiss-German border, when Tobias Bühler, an armed German customs official, waved her car to the side.

Fishing in the woman's handbag, he pulled five envelopes, each containing €10,000 ($13,000) in €200 bills, as well as documents showing she had opened a deposit account at a Basel branch of Credit Suisse that day.

Further investigation will determine the origin of the money, but for Markus Ückert, from the general customs office in neighbouring Lörrach, there is little doubt: "We are not dealing with money laundering but banal tax evasion."

Long considered a legitimate pursuit, tax evasion has grown increasingly difficult - and increasingly perilous - as Hans Eichel, finance minister, has tightened the noose around reluctant payers.

Estimates put the amount stashed away by Germans, among the highest and most heavily taxed earners in Europe, at €300bn to €500bn, the bulk of which sits in accounts in Switzerland, Austria, Liechtenstein, Belgium and Luxembourg.

For Friedrich Schneider, professor of economics at the Johannes Kepler university in Linz, Germany's Schattenwirtschaft, or shadow economy, the sum of mercantile activities that elude taxation and social security levies totals €370bn a year, about 17 per cent of gross domestic product.

In 1999, spiriting away ill-gotten gains was made harder with the abolition of anonymous money transfers, forcing tax-dodgers to ferry cash and other liquid assets across the border.

Then, earlier this month, a law came into force giving investigators access to a nationwide database of private bank accounts, allowing them to determine how many accounts an individual holds at the touch of a button and without having to first establish a suspicion of tax evasion.

Last week, the Düsseldorf tax authorities disclosed that they were investigating 25,000 holders of life insurance policies suspected of being used to launder untaxed assets.

The bar rises again on July 1, with a European Union directive forcing EU member states and associated countries to share information on accounts held by non-residents.

The crackdown has had a deterring effect. Each year, repenting tax dodgers voluntarily register about €500m in untaxed income. Some 15,000 individuals have taken advantage of a 15-month amnesty that expired on April 1 to repatriate €1.26bn from foreign bank accounts.

Yet the amnesty brought far less than the €5bn Mr Eichel had hoped for and the bulk of Germany's mountain of Schwarzgeld, or "black money", remains undetected.

"For each euro we put our hands on, I do not want to know how much goes through," says Mario Wappner, one of Mr Bühler's three-man team, as he waves through some of the 30,000 cars that pass the Weil-am-Rhein crossing every day.

Once the team picks a traveller for closer examination, however, escaping detection becomes unlikely: if pointed interrogation, full body searches, and the dismantling of their cars yield nothing, then chances are Branco, a German Shepherd trained to find euro notes, will sniff out the hidden stash.

The lady in the plastic chair is one of the small but growing number of those who get caught. At Weil-am-Rhein, there were 290 last year, up from 152 in 2001 and a mere 26 in 1999.

Once the officers let her go - taking her €50,000 with her - the slow gears of German justice will creak into motion. She faces a fine of up to 10 per cent of the total for failing to declare liquidities in excess of €15,000. An investigation by her local tax office will almost certainly follow and if found to have evaded tax, she will face criminal proceedings, tax arrears, and more fines.

"She could have made her life easier by telling us about the money straight away," says Mr Ückert, shaking his head. "But they never do. They are far too afraid and so was she."

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