While much money lies outside the country, Greece's financial crisis means there remains a high risk of illicit money flows and there are major challenges ahead over compliance. Wealth managers must take note, an expert in the field says.

A few days ago I was asked about writing an article on the dangers of money laundering in light of the Greek debt crisis. My first, perhaps cynical, journalist’s response was to wonder whether there is any money left in that country to launder.

It turns out, however, that the risks of money laundering and other illicit transfers have in some ways intensified because of the crisis, particularly if Greece seeks to curb a further outflow of euros from the embattled nation. Government spending cuts could paradoxically hit law enforcement efforts, making anti-money laundering and tax evasion worse. Greek policymakers will nevertheless be determined to hunt for any undeclared funds sitting overseas to place in national coffers. 

These are the views of Chrisol Correia, global head of anti-money laundering at LexisNexis Risk Solutions, a firm that, among other things, generates the kind of data to help wealth managers and other professionals avoid falling foul of the law. Another firm that works in a related space is smartKYC, an advanced multilingual semantic search tool that "sits on top" of other KYC tools, databases and the web, to fully automate the search and filtering part of the process. (For more about smartKYC, see here.)

In fact, the ability of the Greek government to combat financial crime could be hit because of the €86 billion ($94.8 billion) package of austerity measures the country has agreed with the rest of the eurozone, says Correia.

“Instability is a great opportunity for criminals to exploit. And as even stricter austerity programmes come into place, people wonder if Greece’s government agencies will have enough funds to operate. This includes the agencies in charge of anti-money laundering efforts,” he told this publication in a recent phone call. 

“There will be more scrutiny of significant activity among Greek customers. We could see that as a result of pressures on Spain, Portugal and Italy, there could also be more capital flight and mass transfers of money,” Correia said.

“The strains on Greek banks will lead to pressures on banks inside and outside Greece,” he said. The prospect of capital controls raises the issue of potential cash smuggling. “Institutions will try and put assets into more stable investments and places,” Correia continued.

“In the longer term, there is going to be greater scrutiny of Greeks’ holdings oversees as the Greek revenue authorities become more aggressive,” he said.

Escaping money

There is no doubt that there have been big outflows of money from Greece already from frightened citizens, although knowing exactly how large the flows are is difficult. The Wall Street Journal (29 April 2015) conducted an analysis to find that €26.6 billion had left the country in the first quarter of this year.

Responsibility for stopping money laundering falls to the Bank of Greece, the country’s central bank. There has been some progress in squeezing illicit transfers, official sources say. For the Financial Action Task Force group of agencies working to stamp out illicit flows, Greece is not, as is the case with North Korea, Iran or Mynamar, on its “high-risk” list of countries for the purposes of financial crime; Greece has been a member of the FATF since 1991. In October 2011, the FATF said Greece had made “significant progress” in addressing the deficiencies identified in the 2007 Mutual Evaluation Report on issues around AML. Other official bodies are less sanguine: the country was dubbed a “jurisdiction of primary concern” by the US State Department in 2014 in its International Narcotics Control Strategy Report (INCSR). 

That report pulled no punches: “Greece is a regional financial centre for the Balkans, as well as a bridge between Europe and the Middle East. Official corruption, the presence of organised crime, and a large informal economy make the country vulnerable to money laundering and terrorist financing.

“Greek law enforcement proceedings show that Greece is vulnerable to narcotics trafficking, trafficking in persons and illegal immigration, prostitution, smuggling of cigarettes and other contraband, serious fraud or theft, illicit gaming activities, and large scale tax evasion. Evidence suggests financial crimes have increased in recent years and criminal organisations, some with links to terrorist groups, are increasingly trying to use the Greek banking system to launder illicit proceeds,” it said.  

Transparency International, an organisation tracking issues such as governance, respect for the rule of law and corruption, says on its website: “A poor system of tax inspections, aided by an opaque tax code, allows individuals and companies to bribe inspectors and evade taxes. According to a 2011 survey, the cost of bribing tax inspectors to 'arrange' tax audit activities is reported to range from €100 ($109.8) to €20,000. And estimates show that €120 billion may have been lost to illicit money from bribes and tax evasion in the first decade of 2000.”

Greece has a long way to go before preventing illicit money flows, in light of such analysis. And the country, in its desperation to get in more revenue to repay global creditors, is likely to want to go after anyone it thinks has stashed undeclared money overseas, although funding pressures on enforcement agencies might prove a problem. 
 
“Greek citizens living overseas will find access to financial services becomes more difficult,” Correia said. “The commercial risk of providing financial services to Greeks will increase.”

He added: “We are seeing our bank customers doing a lot more in the way of proactive screening for tax compliance red flags – such as overly complex tax structures that aren’t related to a clear commercial benefit or cases of adverse media where there are different reports on what a person is worth."

The impact of the Common Reporting Standard – a global standard on dealing with potential tax evasion - is also a part of this heightened scrutiny, not just on Greeks and Greece, Correia said.

He also argued that tax evasion needs to be treated within the context of AML offences.

“More and more regulators around the world consider tax evasion as a money laundering offence and are expecting banks, especially private banks, asset managers and custodians to understand the tax legitimacy of their customers’ assets. A recently issued INCSR report noted that Greece is vulnerable to large-scale tax evasion,” he continued. 

Use or misuse of channels such as digital currencies (Bitcoin, P2P etc) will also be a flag regulators are looking out for, he said, adding that he expects banks to continue investing in risk management and systems controls, as they have even during the worst part of the global financial crisis. 

Greece’s financial travails, in other words, have done nothing to lessen risks around money laundering, and may well even aggravate them. Wealth managers need to be on their guard.