Consider the following list: Chile, Slovenia, Qatar, Uruguay and Barbados.  Well, incredibly, each comes above Spain when it comes to corruption according to Transparency International (TI), the German-based NGO that tracks corruption levels around the world.  Much to do with slack laws and the real estate sector, it is no surprise that the Spanish Tax authorities estimated that in 2007 tax evasion in the property sector alone totalled €8.6bn.

As an Anglo-Spaniard and ex-international banker with over 25 years experience of doing business in Spain, and following the recent publication of my novel, Deadly Secrets (www.deadlysecrets.es) - a fictional story of corruption and money laundering - with the odd murder thrown in, in Andalucia, I am often asked why do I think Spain is so corrupt?

Well, a major contributing factor is that each town hall in Spain has a high degree of autonomy over planning, which generates the majority of their income in the form of building licences.

In addition, many Town Halls are run as personal fiefdoms by the mayor or other senior officials, such as Juan Antonio Roca in Marbella who was unelected.  And many of them have got into power not due to their qualifications or experience but because of who they are and who they know.  With little transparency in the planning process and no sense of accountability - then clearly you have a recipe for disaster.

Throw in confusion over the competences of the local, regional and even central authorities (e.g. Valencia's land grab law) -  not to mention a judicial system which is seriously understaffed and a legal system which is loaded in favour of developers.  Combine it with an economy heavily reliant on tourism and construction - and it's not so surprising corruption is rife.

I also think socio-economic factors are also important drivers as to why corruption occurs on such a large scale in Spain which, until relatively recently was poor and the gap between the haves and have-nots large.  The advent of democracy in 1976, the affluence brought on by membership of the EU did little to change this.  In fact, a booming economy, combined with a de-centralisation of power to the regional and local authorities, only made matters worse, as it also did in Russia and, to a lesser extent, Bulgaria and Rumania.  Going from dictatorship to democracy and from bust to boom involved a shift from limited/controlled corruption to wide scale corruption as politicians and businessmen use their new found political and economic power to get rich quick.

So how does this corruption manifest itself?  Well large scale property related corruption is most commonly undertaken, as described in my book, by buying rustic land cheap with the promise that it will be re-classified for urbanisation/construction.  Bribes are paid to the relevant officials and the buyers (who may include town hall officials or their friends or relatives) make lots of money by selling on the land once it has been reclassified or by developing it and selling the properties.  Often officials will receive properties in the development as "payment" for services.

Related transactions may include paying cash and/or "gifts" of cars and other valuable assets to officials and their relatives to secure planning permissions, building and opening licences, municipal contracts etc.

Take two recent examples, in Alcaucin police found 150,000 euros in cash under the bed of the so-called Flaminco mayor, Jose Martin Alba, while in Alhaurin el Grande, police discovered that mayor Juan  Martin Seron had bough nine properties in just a few years without a mortgage.

Meanwhile, in nearby Estepona it has recently emerged that most of the bribes paid in the Astapa corruption scandal were in cash, banked in Gibraltar and then transferred to Morocco were it was invested in land and building projects.  Brazil seems another popular place to invest those "surplus" undeclared cash payments.

It is a much accepted fact that around one third of all 500 euro notes are said to be in Spain.  And with just 2,000 of these so-called "Bin Ladens" (because you never see them) adding up to a million it is not that hard to carry them around or hide them discreetly.

The true mastermind of laundering this so-called B-money (or Caja B) was Juan Antonio Roca, the mastermind behind the massive Malaya corruption scandal in Marbella (two billion euro and counting).  When finally arrested in 2007 police found 600,000 euros in cash and assets worth hundreds of millions, from office buildings and hotels throughout Spain, to residential properties, art, luxury cars, race horses and even a helicopter.   It has since emerged that he used tax havens such as the Cayman Islands, Isle of Man, Lichtenstein, Virgin Island and Andorra to receive bribes and also proceeds of the sale of land and properties.  The scale was enormous, for example New Routes Corp, an Andorran company linked to Roca, received a ?1.15bn transfer from an unknown company in the Cayman Islands.

He also had an extensive network of Spanish SL companies which he controlled via his lawyers and "advisers".  These companies were involved in lots of inter-company transactions, loans etc. and also in the acquisition and sale of assets at below and above market values to create tax losses etc.  A real maze to befuddle most accountants or tax inspectors.

Also, in Spain it is not a legal requirement to make the names of the shareholders of an SL nor a full set of accounts publicly available - which makes it difficult to know who the bona fide owners are.  In fact, the 2007 report commissioned by the Tax Authorities found that the Spanish Tax Office has organisational deficiencies which severely impact its ability to properly investigate 95.9% of Spanish companies!

In Roca's case, when the police found 600,000 euros in the house he simply claimed that he, his wife and his daughter had won the lottery several times.  Given that in Spain lottery tickets and their winners are anonymous, this seemed plausible.  It truth he was in cahoots with a "friendly" bank manager who was responsible for paying out winning lottery tickets.  When a winner came to make a claim he would pay the winner B cash for the winning ticket and then pay Roca the legitimate winnings thus laundering the B cash.

So what are the Spanish authorities doing to clamp down on money laundering and tax evasion?

Well, along with other G20 members it is pressuring tax havens to cooperate in information sharing by joining the so called "white" list.  This involves tax havens entering into unilateral information sharing agreements with at least 12 OECD countries.

In 2008 they created a centralised database of property transactions undertaken at notaries throughout Spain and also obliged notaries to report all property sales to the relevant land registry - something which they had previously not been required to do.  They have also implemented more reporting requirements on Spanish banks regarding large cash deposits / withdrawals and inter-bank transfers.

Nevertheless, despite these measures, in October 2008 the European Commission announced it was taking Spain to court for failure to implement the 3rd European Directive against money laundering.  So it could be the classic case of Spain saying it will do something and then failing to implement the relevant measures or provide sufficient resources to do so.  Nevertheless, with all the fuss at G20 about tax havens we can expect Spain to continue to tighten its grip on money laundering and tax evasion.

Corruption - well that's another issue!  The only meaningful measure that I am aware of is that since 2008 local politicians have to declare their business interests - but we all know how easy it is to get round that, in Spain or elsewhere.  What, in my opinion, would make a big difference would be a fully accountable and transparent planning procedure/ process along with the clarification (and possibly re-balancing away from local authorities) of the planning powers of the local town halls and the regional governments.  Of course, making Spain's judicial process faster and more efficient would also make a big difference but that really would require a change in culture and attitude so don't hold your breath!

 

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