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SPAIN: Dirty Money Used for Construction – and Pollution

Alicia Fraerman

MADRID, Nov 7 2006 (IPS) - In Spain, millions of euros of “dirty,” undeclared or hidden money are laundered, to a great extent, in real estate development which is hurting the environment on the northern shore of the Mediterranean sea.

Tax evasion through the non-declaration of earnings and the use of tax havens by transnational companies caused losses of at least 50 billion dollars in the developing world in 2000, and today that figure can be multiplied seven-fold, according to a study by Oxfam.

The Tax Justice Network, made up of Oxfam and other non-governmental organisations, produced a report according to which the approximate world total sum kept in offshore accounts and trusts is 11.5 trillion dollars.

The Organisation for Economic Cooperation and Development (OECD), which groups together the world’s industrialised countries, has estimated for its part that in 50 percent of global trade transactions, there is a portion that is diverted to tax havens.

Developing countries may be losing tax revenues of approximately 385 billion dollars a year because of tax fraud in the “submerged economy” (the black market and untaxed wages), tax evasion by transnational corporations, and the pressure on governments to provide tax incentives to attract foreign investment.

This loss of revenue, or conversely, this extra profit for transnational companies, is nearly double the estimated cost of halving poverty by 2015, one of the United Nations eight Millennium Development Goals.


Globally, Spain is one of the countries most affected by money laundering, as indicated by the fact that it is awash with one-third of all the 500-euro bills in circulation in the whole of the European Union.

These high-denomination banknotes, equivalent to 650 dollars each, are not in general use for everyday purchases. They are equivalent to the monthly wage of undocumented rural immigrant workers.

Spain also borders on Gibraltar, a United Kingdom overseas territory which hosts a large number of “paper companies.”

In the last 12 months, Spanish police have seized more than four billion euros (5.1 billion dollars) in “dirty” money, 100 times the amount confiscated 10 years ago.

This has largely been due to the reorganisation of specialised teams to fight these crimes, carried out in 2004 by the administration of socialist Prime Minister José Luis Rodríguez Zapatero.

According to official information from the OECD, there are 35 tax havens, and another six that have promised to stop operating as such, which no longer appear on the official list. However, non-governmental organisations estimate there are about 70.

Juan Hernández Vigueras, the coordinator of the Tax Havens Committee of the Association for the Taxation of Financial Transactions for the Aid of Citizens (ATTAC), particularly pointed to Andorra, a small country between Spain and France with many banks specialised in managing large fortunes.

In 2004 Andorra joined the Organisation of Ibero-American States, which held its 16th Summit meeting in Uruguay last weekend.

“As a tax haven, Andorra is unbeatable, because it has large banks with secret accounts, and as everyone is aware, those accounts are known only to the owner, the banker and God,” said Hernández Vigueras.

He added that in practice, tax evasion was not considered to be a crime in Spain.

Current law in Spain, enacted in 2003 during the administration of rightwing prime minister José María Aznar (1996-2004), stipulates that business transactions and operations between residents and non-residents that incur or may lead to external fees and payments are free, as are transfers to or from places abroad.

Branches and permanent establishments abroad belonging to companies or individuals located or resident in Spain are defined as non-resident.

The reorganisation of the specialised police teams carried out by Zapatero has resulted in successful actions, such as Operation White Whale (2005) and Operation Malaya (2006), although non-governmental organisations say more should be done.

In these operations about a dozen people were arrested and sent to court, and the authorities also seized assets and cash to the value of approximately 4.8 billion euros (6.1 billion dollars).

Action against trafficking in “dirty” money is weak, agreed José María Peláez, president of the Tax Inspectors Association, who maintains that Spain has the most advanced administration in the world to keep tabs on the small tax-payer, but in terms of fraud control it is still “in the Middle Ages.”

This mediaeval situation can be seen in the southern province of Málaga on the Mediterranean Sea, which is one of those most affected by the invasion by real estate and construction companies. There are only eight inspectors to check the accounts of 2,048 companies with turnovers of 1.8 to six million euros a year.

A large proportion of the invoicing and investments in this province and others along the coast is derived from the real estate market. Over the last four years, approximately three million dwellings were built in Spain, half of them in coastal areas.

In July, the international environmental watchdog Greenpeace published a study reporting further plans to build hundreds of thousands of houses and hotel rooms, 40,000 yacht moorings and hundreds of golf courses in these areas, which in addition are suffering from drought. Last Thursday, by order of Judge Baltasar Garzón, police searched the Madrid and Barcelona premises of the Portuguese Banco Espírito Santo and the French BNP Paribas, as part of an investigation into illegal capital flight and money laundering.

Cartera Meridional, an investment bank in Madrid, was also searched, as were the Barcelona premises of Cahispa, an insurance firm, and the private residences of Cahispa’s president and one of its employees.

The public prosecutor’s office said that the origin and the channelling of funds by corporate and individual clients of this lending establishment were also being investigated.

Garzón’s investigation will determine whether the prosecutor’s accusations are correct, and if so, this will be another step forward against monetary and fiscal fraud.

 
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