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EU states complicit in money laundering

Rob Mudge
October 19, 2017

For years European governments have allegedly been complicit in money laundering and tax evasion schemes. So what can be done to crack down on dirty money offenders?

a letterbox stuffed with money against island backdrop
Image: Imago/M. Bäuml

In its final report into money laundering, tax avoidance and tax evasion, the European Parliament's Panama Papers Committee of Inquiry accused European governments of failure to act. The report finds that some EU member states have made tax dumping a business model for companies and wealthy individuals, thus causing massive damage to other EU countries.

DW talked to Sven Giegold, spokesperson for economic and financial policy for the Greens/EFA Group and the Green's Coordinator in the Committee of Inquiry, about the report and its likely impact.

DW: Who are the main culprits?

Sven Giegold: The main culprits are those member states who have been blocking any progress against financial crime for the last 20 years. There's the Netherlands when it comes to corporate tax avoidance of multinational companies. There are countries such as Luxembourg and the United Kingdom and Malta which have allowed a whole system of shell companies to be developed.

There are of course all the large member states such as France, Spain, Italy and Germany which were the victims of financial crime but were idle in fighting it and accepted that others blocked progress.

Could you highlight a couple of the most egregious examples in Germany?

Germany is a very attractive market for dirty money. It is invested, for instance, in the German property market. It is very attractive in order to launder dirty money through investment in more or less all of the booming cities, and there's no proper control of dirty money pouring into the German market. This is driving up property prices to the detriment of tenants as well as others who want to buy property in Germany.

Beyond that, you can see that for decades many Germans used letterbox companies and bank accounts abroad to avoid taxes and we've only recently introduced more transparency through an automatic exchange of information in that regard.

Why is it so difficult to fight these problems effectively?

Europe is weak when it comes to tax rules because of the unanimity principle. We need to end this when it comes to taxation. When it comes to dirty money, the European Parliament has decision-making rights and has been active in driving forward change. But we are blocked by member states. Again, Germany at the moment is blocking a publicly accessible register of all companies where authorities — as well as the wider public — can get information.

man holding a bundle of money and a finger to his lips
The report says that the European Commission has very often failed to crack down on the culpritsImage: Imago/blickwinkel

And that is a result of these companies lobbying the German government?

Exactly. The point is that avoiding taxes is attractive for multinational corporations and dirty money is well accepted in many parts of the market, everywhere in Europe. If you act against dirty money, you help those who play by the rules. But you also stop certain dirty businesses and business always has a firm lobby.

Are you confident that the plenary session of the European Parliament will rubber stamp your report?

Well, it will be controversial. They can only say yes or no to the report. In terms of the recommendation we make, that can be amended, and I'm sure there will be many controversial votes because these are strong recommendations when it comes to money laundering and taxation.

Are you concerned it will be watered down?

Of course I'm concerned and there are signals that in particular the Christian Democratic group is not happy about the outcome.

What happens next if it is toned down?

A lot of progressive recommendations will remain and then the Parliament has to make its voice heard toward the member states and the Commission to push them to take their respective action.

The key issue is that the current law is often violated by member states. For example money laundering legislation was not implemented properly in Malta, but the Commission didn't take any action and therefore we demanded that treaty violation procedures be launched against those member states, so that European law against financial crime is effectively implemented.

Would you agree with the perception that many people regard European institutions and mechanisms as ineffective?

We are not ineffective because Europe doesn't work, but we are not effective because the rules don't allow Europe to act. It's the weakness of Europe which makes Europe ineffective. If you have to agree with 28 member states in consensus then the rules will be weak. If we have majority rule it works much better. But on tax issues where we have unanimity voting, Europe has not been active enough. And it is exactly the absence of Europe which makes the system inefficient.

What are the chances that this principle of unanimity on taxation will change?

It's not likely to change very quickly, but there are two alternatives which we can use. First, the member states which want to act can act in the so-called enhanced cooperation. That means we should do what is needed with those who are ready to act and not wait any longer for other countries which are profiting from tax evasion.

Secondly, there is the possibility when the market in Europe is distorted to take tax decisions by majority rule and this provision has never been used and we are calling on the Commission in our report to use this possibility, in order to agree to at least a minimum level of tax rules by majority vote. For instance, when it comes to companies like Amazon who don't pay taxes on their profits. This is unfair competition and they are distorting the market.