Greek Tax Evasion Is Money Laundering?

Yanis Varoufakis, Finance Minister of Greece
Yanis Varoufakis, Finance Minister of Greece

Tax evasion in Greece reached 49% in 2005. Has come down since but still above 40%.

Fakelaki means “little envelope”, the term being used as the bribes made to public servants to expedite certain services or look the other way on certain infractions.

Forokarta means “tax card”, the term being used as the failed proposal to give everyone in Greece a spending card to track how much each person is spending. If the spending be beyond the income, wealth and other financial resources available, then that person is a likely tax evader.

Tax evasion is a predicate crime to money laundering. Tax evasion is, in essence, skimping out on one’s debt to society. Many wealthy tax evaders hide their funds in tax havens with lax AML programs and loose incorporation standards. These are the same jurisdictions that tend to allow shell banks – banks that do not have a physical presence anywhere, just a bank on paper. If only half of Greece’s taxable income earners are paying taxes, that means the nation is half populated by money launderers. The reason Greece doesn’t consider them money launderers is because they are voters. Plus, Greece isn’t the only country with high tax evasion rates. It has been reported that about 20% of taxable income is never reported in Italy.

Tax collection is important for two main reasons:

  1. the need to pay government employees, and
  2. the need to show creditors that they have the ability to pay back its loan.

This second reason is often overlooked by people who are not involved in sovereign debt markets. Simply put, if the borrower shows that it should be able to bring in a certain amount of money each year but its history shows that it always brings in less, then the stated projection is not to be trusted. Once trust is gone, it is very difficult to get it back. While Italy might be able to win trust back quickly if it gets its act in order because it is such a large economy, Greece is not in such a recoverable state at the moment. Not only does it have among the lowest tax collection rates in the Eurozone, but it is also a very small economy in it as well. Greece makes up about 2% of the Eurozone GDP. The only importance Greece has is a symbolic one: the Euro currency stand to lose trust in the world markets if Euro economies can leave the currency zone.

This is a long way of saying that Greece’s economic problem might start to get solve simply by reclassifying tax evasion, a minor offense, to money laundering, a major offense. This reclassification does not take any change in laws because Greece already has laws that state that tax evasion is money laundering. It had to write such laws to join the Financial Action Task Force, the world’s leader in the promotion of anti-money laundering.

Note: While all of the figures are correct, they might be a little outdated. The difference with updated data should not material change the issues.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is the author of the forthcoming book History of Money Laundering: How Criminals Got Paid and Got Away.


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Hybrid Securities are debt securities with traits borrowed from equities

Hybrid securities are securities that have features of both debt and equity.

Wall Street 1929
Wall Street 1929

The classic example of a hybrid instrument is a convertible bond. This is, generally, a corporate bond with a condition attached to it. This condition states that if the equity shares of the corporation issuing the bond hits a certain valuation in the market, the bondholder will be allowed to exchange the bond for a certain number of shares. The number of shares is determined by the bond’s principal value, which is almost always $1000, and how many shares that principal could buy. For a buyer of bonds, this reduces the risk of losing out on exposure to equity if the issuing corporation does very well, without losing the status of a bond, which, as a debt, will be paid back before assets are distributed to non-debt liability holders. For the issuing corporation, usually the bonds hold a slightly lower interest rate than it would otherwise.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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Subordinated Debt Means Last To Get Paid

Gulliver Seeks Extreme Solutions as HSBC Breakup Option Seen – Bloomberg

Subordinated debt is like any other debt, borrowed capital, except with one crucial difference. It is debt that gets paid off last if the debtor goes into bankruptcy. For this reason, usually there is a slightly higher interest rate for this type of debt.

Subordinated debt can be issued to avoid bank failure. A bank issues debt, an IOU, that is at least 10 years, and then with the borrowed funds, it pays off debts due in the near future. This is not a ideal situation, but the interest rates tend to be quite attractive. The terms of the loan may also include a clause that allows the bank to pay off the loan in the future after a certain number of months or years, allowing the bank to seek out lower interest rate subordinated debt or other ways of building capital reserves.