Analyst on Illicit Fund Transfers: Euro Crisis 'Perfect Opportunity to Launder Money'

In a SPIEGEL interview, Raymond Baker, the head of the NGO Global Financial Integrity, says the Greek government doesn't have illicit financial flows in and out of the country under control and that the crisis is aiding money laundering in ailing countries.

Luxury yachts docked at the Flisvos Marina, southern Athens, in 2010. Zoom
AP

Luxury yachts docked at the Flisvos Marina, southern Athens, in 2010.

SPIEGEL: Mr. Baker, wealthy indidivuals in the crisis-stricken countries of the euro zone have moved billions of euros abroad. Would the money have been enough to pay off these countries' debts?

Baker: Certainly not, but many countries would be doing somewhat better today if the money had remained in the country -- and not just because of lost tax revenues. If they had used that money to buy cars, clothes and washing machines, then the sales tax and part of the value chain would have stayed in the respective countries. Hence every euro that leaves the country illegally weakens the national economy in several ways.

SPIEGEL: In Greece in particular, the rich hardly pay any taxes.

Baker: Instead, the money ends up in accounts in the world's tax havens. According to our calculations, in the period from 2003 to 2011 alone, $261 billion (€208 billion) in illegal money from criminal activities, corruption and tax evasion flowed out of Greece. It's an enormous loss for such a small economy.

SPIEGEL: What else do your figures reveal about Greece?

Baker: We observed that already in 2010 there were illegal financial flows into Greece totalling $90 billion. In 2011, it was even $109 billion.

SPIEGEL: Why should dirty money flow into a country in crisis?

Baker: In a recession, it becomes more difficult for individuals and businesses to obtain loans. This attracts illegal funds which are used to close the gap. And such a crisis is, of course, the perfect opportunity to launder money. People buy cheap properties and hope that they will be worth more in 10 or 15 years time. In this respect, criminal investors have much longer time horizons than traditional investors.

SPIEGEL: Would you say that Greece is the most corrupt country in Europe?

Baker: The figures show in any case that the government in Athens does not have the illicit financial flows under control. The domestic financial system has structural deficiencies that make it enormously prone to corruption. Before the crisis, Greece had the second largest underground economy of the 25 participating OECD countries. Only Mexico was worse. As well as the illegal flow of money out of the country, this shadow economy also includes tax evasion, the payment of bribes and the system of paying tradesmen cash in hand.

SPIEGEL: Is this also symptomatic of the other EU countries in crisis?

Baker: Yes. It is hardly surprising that Italy, Portugal and Spain had the second, third and fourth largest underground economies in Europe.

SPIEGEL: How can these countries tackle the problem?

Baker: They will never be able to stop it completely, but they can contain it. Basically, one would have to abolish the global shadow financial system. In the 1960s, there were four or five tax havens around the world. Today, there are many times that figure. There are anonymous accounts, anonymous foundations and shell companies whose real owners nobody knows. And these things aren't only used by money launderers, arms dealers and drug dealers, but also by ordinary people who don't want to pay tax on their money. It would already be a big step if every country would instruct their banks that no account can be opened so long as the owner is not known.

SPIEGEL: Do the existing banking secrecy laws in Switzerland, Luxembourg and Liechtenstein aggravate the euro crisis, when billions can flow there illegally?

Baker: Sure, but in that respect a strong economic power like Germany must take the lead and put pressure on these countries. The banks there have to know with whom they are doing business and who the accounts really belong to. For example, Switzerland has weakened its banking secrecy partly in response to pressure from the United States. It's true that a lot of money is now flowing to Singapore or Hong Kong. But we will tackle these countries next.

Interview conducted by Jörg Schmitt

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Raymond Baker
  • Raymond Baker, 76, is an economist who heads Global Financial Integrity, a Washington-based organization that monitors the cross-border flow of illegal money and seeks to curtail it. It estimates that $1 trillion in funds illegally earned, transferred or utilized are moved out of developing countries per year.
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