– How suspicion of money laundering arises in the case of asset transfers with foreign countries –
For decades, German tax evaders have had the problem of not being able to simply transfer black money from abroad to Germany. Any good IRS auditor would do a cash flow calculation, and then try to track down the source of the surprising increase in wealth. Journalists and news magazines make at least as much effort to uncover the background if a public figure has come under suspicion.
Who once came on the radar, missed in all rule the timely penalty-exempt tax self-disclosure. This is by the way in such cases so far the only legal way back to the tax honesty, even if some bank(st)er desperately tried to show your customers unfortunately completely illegal alternatives. From an evasion amount of 1 million, according to the latest BGH ruling of 07.02.2012 (Case No. 1 StR 525/11), imprisonment without probation is the rule.
Not until 2013 will a tax treaty come into force, initially only with Switzerland, which will legalise all tax evasion through anonymous retroactive tax withholding while preserving bank client confidentiality. However, even then, for a larger proportion of those concerned, the genuine voluntary declaration could turn out to be considerably more favourable from an economic point of view.
The Federal Court of Justice puts its foot down: Local court must allow the press to inspect the land register
In December 2010, the District Court – Land Registry – Burgwedel refused to allow the inspection of the land register and the associated files concerning a property “which is owned by a well-known politician and his wife”. The Federal Court of Justice (BGH) confirmed the right to information for the press in its judgement of 17.08.2011 (Ref. V ZB 47/11) “It is necessary that the request for inspection – which is based on the contents of the land registry – is not published by the land registry. nicht Furthermore, in the event that the suspicion proves to be correct, it must be expected that the information will be used in a manner suitable for publication”. The right to “informational self-determination” and privacy of the owners takes a back seat to the informational interest of the media and the interested general public – this applies all the more the more a person is in the public eye through his office. In this respect, celebrities are particularly at risk of being exposed by the press – it doesn’t even have to be stolen data, as in the case of an ex-Postbank boss.
The too favorable credit from Switzerland – still completely without usual loan collateral
Numerous medium-sized companies, some industrialists, but also celebrities have bank accounts, for example in Switzerland or other financial centres, which waive the tax deduction on investment income for Germans. The money comes not only from businesses with direct payments to Switzerland, but also from inheritances – tax evasion has been a tradition in some families for generations. In order to regain access to the hidden assets, a popular trick is to make use of a “good friend” or a compliant foreign trustee.
The trustee, for example, receives the (black money) securities deposit as collateral, and then lends the entrepreneur’s (actually his own) money to him across the border in the form of a fairly low-interest loan. The “tax trick” is that loans do not initially trigger income taxes. A gift of black money could also be disguised in this way.
However, the heirs of such entrepreneurs are then faced with an even greater problem, because the clean-up is somewhat more costly – especially if the three-naïve trustee then ends up considering or implementing a suicide while under pressure.
Life insurance policies on several family members that only mature when the last one turns 100 or dies are also popular here. The desired capital together with accrued interest is then received at any time – which would not be possible in the case of surrender – tax-free as a usual so-called policy loan up to the amount of the surrender value, but only for almost exactly the interest that also flows annually to the life insurance capital.
Why have a costly trustee or detour into life insurance when you can have good friends? The one good friend just needs some cash for some time. Then one can give the money to this as a “low-interest or interest-free” loan, but with the difficulty that the origin of the money must be concealed. Later, when the good friend pays the money back, it might be “laundered,” the naive tax evader thinks to himself. He has no idea that this process has not improved anything in terms of criminal law, and that the house and later the repayment of the loan are likely to continue to be “assets affected by money laundering”.
Typical ways to disguise the transfer of assets across borders
Employees of foreign banks still transport money from home or back to home, for example via “green borders” – others use a train connection that customs and other insiders call the “black money express”. It seems even safer if the foreign bank is known for its good contacts to the mafia and maintains an “external cash box with cash reserves” in the middle of Germany. Of course, this also requires reputably dressed bank advisors who pose as money couriers. The risk of detection is high, because such movements of money also lead to the creation of receipts or settlements.
A more convenient model is to use the collective account “Conto pro Diverse” (CpD) of a domestic bank, for example, if you do not have your own bank account there or only have a safe deposit box. Such domestic banks are then partners of a bank abroad, for example in Switzerland – the flow of money across the border is only settled internally between the two banks. This flow of funds also works between parent and subsidiary banks, and of course in both directions. For smaller amounts, a simple withdrawal from the CpD is the best option. In the case of larger amounts, the customer then prefers to buy a cheque confirmed by the LZB (branch of the Deutsche Bundesbank) and procured via the domestic bank, because initially no one can see which credit institutions were involved in the money transactions with which bank customers. Such bank-certified checks are also used, for example, for deposit before bidding at real estate auctions.
Alternatively, you can buy travellers cheques from your bank at home or abroad, or use Western Union’s “cash transfer service”. In any case, this is much more discreet than charging your own credit cards in one country and emptying them in another. In the past, it was popular to use a postal savings account to withdraw cash from a foreign post office for smaller amounts. Today, the collection or COD service of some carriers is more significant when it comes to what appears to be discreet money transfers without directly identifiable remittances.
Furthermore you can use the “Hawala-System”, which exists (almost) all around the globe besides the normal banking. These are regularly reputable financial agents who receive cash in one country and disburse it to the recipient through a partner in another country. The Internet has added special payment systems, such as PayPal, precious metal clearing accounts, Second Life with the Linden Dollar, and online casinos. None of this can be implemented without a trace, and really discreet.
Detection risk and celebrity bonus
Germany has federal taxes and state enforcement for them. The tax competition among the federal states is said to be the reason why the few tax investigators always seem to be overworked. Thus it is not surprising that probably over 90% of the cases on the table of the examiners “by Anschwärzen” lands, because partners separated or in divorce live, because the annoying competition or coworkers unpack, or because a foreign bank indicates the own formerly wrongly advised and since then extremely annoying customer with the tax authorities.
In some federal states, it is customary for celebrities to contact a political party they trust when a tax audit begins, whereupon the tax auditor is instructed “from the very top” to also investigate in the taxpayer’s favor. The result then often shows that good friends can certainly provide for true miracles – not only for cheap construction money.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
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About the author
PhD, MBA, MM
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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