In Germany, when it comes to fighting financial crime, the small fish are taken care of, but “the big fish are swimming away from us,” said Federal Finance Minister Christian Lindner (FDP) in late summer. At that time he promised a “new approach” in the fight against money laundering and terrorist financing. The “effective enforcement of sanctions in view of the Ukraine war” is also not working, Lindner admitted, because of the structure of the authorities here. He wanted “that the honest taxpayers are not the stupid ones, because those who don’t follow the rules can benefit and you can’t track them down.”
While Lindner is presenting his plans, millions of Germans are struggling through the property tax documents. The property tax reform was initiated at the request of the Federal Constitutional Court. Almost 36 million properties now have to be revalued for the recalculation. Electronic transmission is complicated not only for the elderly. The submission deadline has therefore been extended to the end of January 2023.
According to experts, the real estate tax reform would have been a good opportunity to finally find out, for example, which sanctioned Russian oligarchs own real estate in Germany. Other people also avoid disclosing such ownership structures – with the help of opaque property networks. The tax justice network estimates the value of real estate owned by shell companies in Germany in a study to 300 billion euros. Cities and municipalities have long complained that they don’t know who owns some plots of land and real estate in prime locations.
As part of the property tax reform, all of these real estate companies now also have to fill in the forms for the electronic tax return, or Elster for short. Experts say that while ordinary citizens despair of filling out the required information, the federal government has missed a good opportunity in the fight against financial crime. “International criminals and sanctioned Russian oligarchs often hide their real estate assets behind complex company structures,” complained SPD member of the Bundestag Andreas Schwarz in an interview with the SZ. The business graduate is a member of the Parliamentary Intelligence-Security Forum in the US Congress, whose plenary session develops measures to combat terrorist financing. SPD politician Schwarz says: “If you are already running this expense with the property tax, then the tax authorities, like the citizens, should have asked the companies who the real owners of the property are. That was a missed opportunity.” The Federal Ministry of Finance announced that the general determination of a beneficial owner would lead to a disproportionate verification and administrative effort.
Mafia-like organizations, dictators, autocratic secret services, oligarchs and kleptocrats launder around 100 billion euros a year in Germany – from their criminal dealings with people, drugs, weapons and environmental destruction. The amount corresponds to a quarter of the federal budget. Criminals very often invest their fortunes in the 15 trillion euro German real estate market.
“Partially anti-social evaluation methods”
Tax experts are therefore also speaking of a missed opportunity. “The legislature should have considered whether it could use the property tax reform as part of the fight against money laundering, for example to find out the beneficial owners of real estate through a reformed survey, some of which are hidden through corporation structures,” says JohannesStessel, tax consultant and Lecturer at the University of Bamberg. “Instead of investing the legislative resources in different country models and sometimes anti-social assessment procedures as in Bavaria, this would have been a sensible starting point to use the fundamentally necessary property tax reform.”
Germany has held the door open to dirty money for decades. In 2005 and 2009, the EU Commission initiated infringement proceedings against Germany for inadequate implementation of the Money Laundering Act. But it didn’t get much better. The global anti-money laundering body “Financial Action Task Force” (FATF) complained in its Germany report in 2022 that the responsible authorities were doing too little to investigate and prosecute financial transactions of large crime syndicates. During his time as Federal Minister of Finance, Olaf Scholz (SPD) defended the rule that you can pay for a property in Germany with a suitcase full of cash. This business practice is now to be banned with the Sanctions Enforcement Act II. However: If real estate transactions were to be carried out in cash in the future, the transfer of ownership would remain unaffected.
“Ordinary citizens are being paraded,” criticizes anti-money laundering expert Andreas Frank, who initiated the two EU infringement proceedings against Germany. “They dutifully measure their properties to calculate the exact square footage.” After that, they would have to take courses in order to be able to fill out the Elster form for property tax at all and also pay for it. “And they run the risk of being prosecuted if they provide inaccurate information,” says Frank. “Actually, the tax authorities should get to the big fish. Under threat of punishment, demand that the real owners identify themselves and prove where they got the money for the property and where the taxes were paid,” says Frank. “If the addressee resists, the state should confiscate the property,” he demands. “But our federal government doesn’t want to do that. Only the citizens have to disclose everything.”