Wednesday 27 March 2013

Germany and Money Laundering

As is by now well-known, German politicians and journalists have been slandering Cyprus about its “money laundering” practise quite intensively these past two weeks.

Money laundering is, however, a fundamentally simple concept. It is the process by which proceeds from a criminal activity are disguised to conceal their illicit origins. Basically, money laundering involves the proceeds of criminally derived property rather than the property itself.

The large majority of depositors and “round-trippers” in Cyprus are legitimate companies that include some of the biggest names in business: Gazprom, Itera, Columbia Ship Management, FXPro, and many others (whom I will not name here), who use the entirely legal transfer-pricing and holding company structures in Cyprus for their activities.

There are similar legal tax structures in place in “onshore” jurisdictions such as the UK, Ireland, The Netherlands, Switzerland, Austria, Luxembourg, Malta, Bulgaria, Latvia, Delaware, Hong Kong, Singapore, and others, not to mention “offshore” jurisdictions within the EU, such as Jersey, Guernsey, Isle of Man, Monaco and British Virgin Islands (BVI).

Until now, there have been several Euroval audits of Cyprus: there has been no evidence of money laundering discovered, although this is not to say that it does not exist.

Give the German “sensitivity” to this issue, it’s interesting to read how Deutsche Welle reports on Germany's own record on money laundering:

"Many trading transactions and commodity deals are becoming more and more intransparent," said BKA President Jörg Ziercke. That's why controls need to be tightened further.

According to experts of the Organization for Economic Cooperation and Development (OECD) and the European Commission in Brussels, it's more than necessary to step up the game. Both institutions have repeatedly accused Germany of not doing enough to counter money laundering.

Annually, about 50 to 60 billion euros ($65 billion to $78 billion) that stem from illegal activities such as blackmailing, drug or arms trading are whitewashed through legal businesses, estimates the trade union representing German police investigators. Worse still: not even one percent of these sums can be recovered by the authorities, the union adds.

They say they are  able to manage criminal prosecution in the banking sector, but state surveillance and control should be extended into other parts of the industry. But so far this idea hasn't received the necessary political backing, said criminalist Sebastian Fiedler.

The European Commission has already launched an infringement procedure because of Germany's hesitant behavior; its main argument being that non- pursuit of money laundering would enable the funding of terroristic activities. According to figures issued by the OECD's Financial Action Task Force (FATF), other countries do investigate more thoroughly and detect crimes four to 20 times more frequently than German authorities do.

It remains to be seen whether German, Finnish and Dutch politicians will raise the issue in the next Eurogroup meeting with precisely the same energy and vehemence they used doing their level best to destroy Cyprus

© Philip Ammerman, 2013 

Philip is Managing Partner of Navigator Consulting Group. The opinions expressed here are his own. 

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