Oct 28, 2015 · 5 min read

Problems in the Pursuit of Tax Evasion in Greece: The Need for Due Process, Fairness and Inclusive Efforts

By Nikos Passas, Northeastern University, Boston

Everyone has heard that tax evasion and illicit flows have contributed substantially to the crisis in Greece. The country has suffered from decades of corruption, bureaucratic incompetence, widespread tax evasion, bad advice from outside and administrative mismanagement. Declarations have been made repeatedly that addressing these problems is a top policy priority. Less known is that attempts at reform so far have been discontinuous, clumsy, even spiteful in ways that threaten to undermine efforts to improve governance, attract investments and repair the economy and national reputation.

Witness, for example, the on-going controversy about the removal of the general secretary for state revenues, that is the top revenue collection official, by the government for two reasons: for ordering a review of a €78 million fine imposed on a company accused of usury and for breach of duty charges filed by a prosecutor relative to an extension she granted to TV stations for tax payments. She has argued quite publicly that she had advised in advance the government on both decisions and received no objections to these acts that were consistent with earlier practices. Regardless of what arguments each side advances and who ends up being correct about the facts of this case, it is an illustration of how tax collection, investigative, prosecutorial and government institutions still have a hard time coordinating their approaches, priorities and actions. This is more than a domestic issue because the creditor institutions consider the independence of the revenue collection body as essential for addressing chronic tax evasion problems. The Wall Street Journal quoted an EU officials as saying that “This may strengthen concerns that a depoliticization of the administration may not happen, and that the judiciary remains a willing instrument in the hands of politicians”.

Looking beyond headline news, problems keep surfacing, as some of the officials who participate in efforts to implement changes are incompetent or act in bad faith. By using blunt and ineffective instruments, they are harming both the ‘Greek patient’ collectively and individuals who are wrongly targeted by an administration that has gone from laxity to over-zealousness without improving governance or professional standards.

The way out of the crisis requires ethics, thoughtful planning, due process and careful review of the evidence before aggressive action is taken.

Only a strategic approach can yield lasting results in the context of a humanitarian crisis and corruption that impacts every aspect of life from football match-fixing and bribery of public officials by foreign and Greek companies to illegal political finance, lawful but awful practices by foreign financial institutions, clientelism, nepotism as well as tax evasion. Systemic problems are compounded by collusion between tax inspectors and taxpayers, corruption — such as harassment and extortion — and systematic distortion of computerized revenue data reported to tax authorities.

Crises, scandals and demands from inside and outside a country are often opportunities for beneficial reforms. Sadly, there are indications that the chance to lay sound foundations with thoughtful and long-term strategies may be squandered.

Under pressure to raise revenue, hasty laws and executive decisions have led to malpractices that many are unaware of. Authorities have switched from inertia and neglect to rushed and occasionally baseless actions in violation of rule of law and due process principles. For instance, non-resident Greeks have been targeted as tax evaders, lest they provide in short order documentation about overseas bank deposits going back many years, some well beyond the expiry of statutes of limitation. And woe betide anyone who appeared on the “Lagarde list”, the leaked document passed by the IMF’s Managing Director Christine Lagarde to the authorities in Athens, so that they could investigate possible evasions.

The Lagarde list was made public, naming and shaming Greeks with deposits in Swiss accounts, without examining first which of them were held legitimately. Greece has been exporting labor and intellectual capital for decades. It is incumbent on the investigators to establish whether these accounts represent income made overseas by expatriates who have duly paid their taxes in their country of residence.

Under the Syriza Government’s policy framework for Greece’s fiscal consolidation, recovery and growth, efforts to improve tax collection have intensified. To be effective, the policies must be clear, simple, fair and transparent. Unfortunately these efforts may be undermined by wrongful pursuits of people, including expatriates. Having a Greek name, relatives in Greece, and an overseas bank account does not make you automatically a tax cheat. Apparently, some Greek tax officials do not think so.

Take the case of Angelos Metaxas, a financier and scion of the famous Greek drinks company. Mr Metaxas is on the Lagarde list because he had a bank account in Switzerland, where he has lived with his foreign wife and children for 14 years. Mr Metaxas’ lawyers argue that he has paid his taxes in Switzerland and has no taxable business interests in Greece. The Swiss authorities have officially intervened — based on the double taxation treaty with Greece — and confirmed that he has complied with all tax obligations there since 2002. Yet, before the matter of tax residence has been formally resolved, he has found himself facing serious criminal charges, arrest warrants and hostile media coverage.

Regardless of whether the Metaxas case illustrates professional over-enthusiasm by Greek officials targeting high-profile people, unethical efforts to mislead prosecutors or abuse of power, such cases amount to de facto persecution of individuals. This may further handicap revenue collection by alienating investors and business leaders, undermining confidence in the Greek economy and the goal of better international relations through bilateral tax treaties.

The best way forward is for the Greek government to engage all stakeholders including political opposition, business, civil society, media and academia. These actors can assist with implementation, monitoring and policy adjustments conducive to better revenue collection and a culture of integrity in public administration. Indiscriminately going after wealthy and prominent individuals without due process is a step in the wrong direction that may torpedo good work in other areas. It is not too late to review such cases, take corrective action and ensure that officials target real corruption and financial crime.

Only then can Greece look forward to credibility, entrepreneurship, investment and economic growth.

Dr Passas has been working for decades on the control of illicit cross-border flows, economic crime and corruption. He is a Professor in the School of Criminology and Criminal Justice at Northeastern University and Co-Director of the Institute for Security and Public Policy.