Not-so hidden agenda behind money-laundering claims

The issue of money laundering in Cyprus has been raised by the finance ministers of Germany, Austria, the Netherlands and Finland in recent weeks. Articles in the German press, meanwhile, have built up into a crescendo, just at the time that Russia implemented an agreement with Cyprus that took the island off their black list of countries that Moscow discouraged investment in.
That some states could derail the Cyprus EU bail out efforts is very important, but research undertaken has shown that money laundering occurs everywhere, with the most eye catching cases being the 2008 spat between Euro giant Germany and ant-sized Liechtenstein, the British HSBC the largest bank in Europe, and the Vatican money-laundering embarrassment. Serious as the problem is, one cannot but laugh when watching Jon Stewart’s Daily Show (January 9) entitled “Disgraced Financial Institution” and referring to HSBC’s acknowledgment of their money-laundering activities.
The minister of finance speaking on the radio this week stated that Monday’s Eurogroup meeting was difficult and the money-laundering issues were brought up, including the idea that there would be an inspection. But he stated that the inspection is the work of the International Monetary Fund, which looked at the issue during a September mission, found that the legal framework was in place, and made recommendations for improvements which were immediately adopted by the government. He added that the memorandum for assistance for Cyprus will include a section on money laundering which will set out measures that Cyprus must examine on the issue and that this will be monitored. He gave no indication that this would derail the Cyprus bailout, and if any issues do arise, the strategy is that it should continue to be the role of IMF.
It is clear to me that Minister Shiarly is showing great responsibility for his actions under difficult circumstances. In effect Shiarly and Central Bank Governor Panicos Demetriades have taken the reins of government in their hands during this period of a lame duck presidency.
Money laundering, however, is a worldwide problem that takes place in all countries, and it is difficult to identify and to control in practice. But before proceeding to show how widespread money laundering is it is important to understand the ulterior motives of Germany and other countries in raising the issue at this time.
The conservative economies of the northern block of eurozone states have a long term agenda.
First, they want taxes in the EU to be brought into line upwards so they are closer to their own levels. This includes VAT, where some harmonisation is in place through the mandatory minimum level, but their real focus is on corporation and personal income tax. They are afraid that lower taxes in Luxembourg, Ireland and Cyprus attract northern companies and act as sources of tax evasion. The British Channel Islands and Gibraltar are not in the EU but are competing centres.
Second they are seeking closer EU co-operation on tax evasion and intend to squeeze those countries requesting financial assistance to realise their objectives and reduce legal loop holes to tax evasion.
The main point here is that they class tax evasion, whether legal or illegal, as money laundering. They illegally use legislation for countering terrorism and the financial resources of terrorist organisations, as well as associated laws on gathering information on terrorism, to get data on tax evasion. It should be noted that the articles on money laundering in Cyprus in the German press were based on German intelligence reports (EuropeanVoice.Com 24.1.13).This poses a challenge to individual freedoms and a free society, fundamental principles of European society.
The aim of the northern block is to force all EU states to come into line with their own policies, something Luxemburg, Ireland, Cyprus and Malta have resisted to date. They are now using the economic crisis in Ireland and the South to push forward their policies, through implicit and explicit blackmail (concede or no bailout), and by pushing money-laundering issues which opens up the spectre of dealings with organised crime, terrorist affiliates , rogue states and other undesirable holders of funds. The result is that tax evasion is now considered a crime irrespective of whether it is actually legal or not.
I believe Cyprus should open up a European wide debate as the problem of money laundering is a worldwide issue and, Caribbean and Pacific tax havens apart, money laundering is mainly focused in the world’s major financial centres.
The following examples illustrate the problem:
The Vatican has been cut off from credit card transactions important for its tourism earnings because of “lingering questions about the Vatican’s involvement in a 2010 money laundering case” that is being investigated by the Italian monetary authorities (Catholic World News January 8).
HSBC, the biggest bank in Europe, conceded that it was involved in money laundering through its New York operations and agreed to $1.9billion to the New York regulators, to settle a probe involving Mexican and Columbian drug barons and prostitution earnings. No criminal actions were pursued against the staff or officials of the bank though $200 trillion were involved in transactions (TrustLaw-Reuters). Since it is a British bank and its worldwide network was used, it seems odd that there are no news reports of investigations by the British or European authorities (The Daily Show is recommended on YouTube).
In December, the German police raided Deutsche Bank and held leading officials as part of a probe involving alleged tax fraud, and money laundering that is considered to have been undertaken through the EU carbon emissions trading system. Deutsche bank was also investigated in a US money-laundering probe (Bloomberg, January 23) and is seeking $557 mln  on a defaulted loan linked to money laundering indirectly associated with the disgraced Chinese communist leader BO Xilia (www.wantchinatimes January 9). Furthermore Standard and Chartered, Barclays, Credit Suisse, Lloyds and ING have been investigated in relation to money laundering from Iran, Cuba and North Korea.
In Malta there is a case fit for a Hollywood thriller where a former diplomat from Kazakhstan has been tried in his homeland for two murders of bankers, and the Austrian authorities are investigating his involvement in money laundering in his new place of residence on the island.
One of the most upsetting cases, however, is that of the 2008 German-Liechtenstein affair, where the German intelligence paid over €4.2 mln to computer technician for the names of Germans avoiding taxes in Liechtenstein (Wikipedia quoting Suddeneutsche Zeitung). The Germans then pressured the small country to cooperate with them. But this raises issues of data protection law, cooperating with a data thief, and the illegal use of intelligence services for investigations for private actions.
With respect to Cyprus it is clear that the country is trying to cope with the frequent changes in money-laundering and taxation law, and the situation is improving all the time. The legal environment here is actually stronger than in Germany and surprisingly Luxemburg. But with thousands of companies registered in Cyprus and the registry of companies in unsuitable buildings, understaffed and still behind in digital records and access to information, we have to invest more in building up the capabilities of the registrar. At the same time the private sector has to wake up and organise itself so as to get more information on applications for company formation before they proceed. They have an obligation to investigate their clients before creating new companies
The lesson from all this is the old proverb “people who live in glasshouses should not throw stones”.
Costas Apostolides is Chairman of EMS Economic management Ltd ([email protected]).