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Illicit Financial Flows Jörg Alt SJ Germany VII: Illicit Financial Flows Compiled and ordered notes from interviews including cross-checks with publicly accessible material, prepared for future use. Language check and German quotes translated into English thanks to Dr. Sue Berning. alt 30.09.2016 2 Table of Content Table of Content ............................................................................................................. 2 List of graphics ............................................................................................................... 7 List of tables ................................................................................................................... 8 1 Context ..................................................................................................................... 8 1.1 Cross-flows, direct and indirect damage .......................................................... 8 1.2 A broad picture, a broad solution ................................................................... 10 1.3 The link to core tax issues .............................................................................. 11 1.4 The link to research areas ............................................................................... 12 1.5 Distinguishing the legal, illegal and illicit ...................................................... 14 1.6 Legal options turning illict ............................................................................. 15 1.7 Knowingly bending the law ............................................................................ 16 1.7.1 Cum-Ex and Cum-Cum trade ................................................................... 16 1.7.2 CO 2 Certificates ........................................................................................ 20 1.7.3 Further examples ....................................................................................... 20 1.7.4 Conclusion ................................................................................................ 21 2 Agents enabling IFFs ............................................................................................. 21 2.1 Owner, shareholder and CEOs of TNCs ........................................................ 21 2.2 Tax advisors & tax lawyers ............................................................................ 22 2.3 “The Big 4” and other auditing companies .................................................... 22 2.4 The Offshore Industry .................................................................................... 23 2.4.1 Exploiting legally grey areas for criminal purposes ................................. 23 2.4.2 Common excuses, e.g. by Mossack & Fonseca ........................................ 24 2.4.3 Legal-legitimate reasons for offshore companies? ................................... 25 2.4.4 Defeating state-regulation and democratic control ................................... 26 2.4.5 The Sharman Study ................................................................................... 27 2.4.6 Conclusion ................................................................................................ 28 2.5 States ............................................................................................................... 29 2.5.1 International competition .......................................................................... 29 2.5.2 National responses .................................................................................... 29 2.5.3 Germany’s competitive offers .................................................................. 30 2.5.4 Competition instead of cooperation .......................................................... 30 2.6 Financial institutions and other service provider ............................................ 31 3 International and German banking ......................................................................... 31 3.1 The context ..................................................................................................... 31 3.2 Profit shifting revealed by CBCR ................................................................... 31 3.3 Tax evading & Money laundering services .................................................... 32 3.4 Criminal highlights of Swiss-Leaks ............................................................... 35 3 3.5 Germany and Swiss Leaks .............................................................................. 35 3.6 Germany and Panama Papers ......................................................................... 37 3.7 Customer, Bank Consultant & Bank Services ................................................ 38 3.8 Contrition and Punishment ............................................................................. 39 3.9 Discussion ....................................................................................................... 41 3.10 Conclusion: The game continues? .............................................................. 41 4 Germany as a secrecy jurisdiction/tax haven ......................................................... 42 4.1 Criteria of a secrecy jurisdiction ..................................................................... 43 4.1.1 OECD criteria ........................................................................................... 43 4.1.2 Financial Secrecy Index by TJN ............................................................... 43 4.2 Germany’s “score” ......................................................................................... 44 4.2.1 TNJs Secrecy Index .................................................................................. 44 4.2.2 FATF ......................................................................................................... 44 4.2.3 Eurodad/Basel Institute of Governance .................................................... 45 4.2.4 Bussmann .................................................................................................. 46 4.3 Practices and instruments facilitating IFFs to Germany ................................. 46 4.3.1 Interbank loans, transitory & corresponding accounts ............................. 47 4.3.2 Shell companies, bearer shares, trust corporations ................................... 48 4.3.3 Secrecy and attractivity for non-resident taxpayers .................................. 49 4.3.4 Preventing transparency ............................................................................ 50 4.4 Conclusion ...................................................................................................... 50 5 Criminal Illicit Financial Flows ............................................................................. 50 5.1 Trade misinvoicing/trade mispricing .............................................................. 50 5.1.1 Conceptual clarification ............................................................................ 50 5.1.2 Another form of corporate profit .............................................................. 51 5.1.3 Trade-Based Money Laundering .............................................................. 52 5.1.4 Trade mispricing, VAT fraud, underground economy ............................. 52 5.1.5 Tax administrations and trade mispricing ................................................. 54 5.1.6 Trade mispricing and Germany ................................................................ 54 5.1.7 Trade mispricing and Africa ..................................................................... 54 5.1.8 Conclusion ................................................................................................ 56 5.2 Money laundering ........................................................................................... 56 5.2.1 Conceptual clarification ............................................................................ 56 5.2.2 Methodological differences resulting in quantitative indicators ............... 57 5.2.3 Suspicious Transaction Reports Germany ................................................ 58 5.2.3.1 Quantitative development in reports and prosecution ....................... 58 5.2.3.2 Suspicious Transaction Reports by financial institutions .................. 60 5.2.3.3 Suspicious Transaction Reports DNFBPs ......................................... 63 4 5.2.3.4 Criminal offences underlying STRs nationally ................................. 64 5.2.3.5 Differences between German states ................................................... 65 5.2.4 Example Cash Transfers ........................................................................... 68 5.2.5 Example PEPs ........................................................................................... 69 5.2.6 Example self-laundering of money ........................................................... 70 5.2.7 Example Real Estate sector ....................................................................... 70 5.2.7.1 Acquiring objects ............................................................................... 71 5.2.7.2 Registering objects - no central ownership register ........................... 72 5.2.7.3 Construction industry, (public) development projects ....................... 73 5.2.7.4 Size of the problems and checks ........................................................ 73 5.2.7.5 Conclusion ......................................................................................... 74 5.2.7.6 Solutions ...........................................................................................
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