Why is Spain One of the Most Corrupt Democratic Countries in the world?

Published on 09/11/2009 in Spanish Culture

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.

Corruption in SpainIn 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!

Written by: Robert Tenison (Deadly Sectrets)

About the author:

Anglo-spaniard, 25+ years of living and working in Spain.  Author of Deadly Secrets, a crime thriller involving corruption, money laundering and murder in Andalucia:  "A very slick and well written novel, well researched and coherent.  I was impressed."  Kitty Sewell, bestselling author of Ice Trap.




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Comments:

Gustavo said:
09 November 2011 @ 11:59

This is a shameful banana republic. The only place in the world where tres local persons can commit a violent aggression against a foreigner, and "justice" instead of convicting the criminals, punish THE VICTIM!!!


Jack said:
18 October 2011 @ 13:11

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2011:286:0004:0011:EN:PDF


Miguel Sureda said:
22 October 2010 @ 16:47

I am Spanish, now living in Spain, and previously lived in the central US for over 12 years.

I can tell with direct experience that by no means is the US anywhere nearly as corrupt as Spain. Corruption is a somewhat "legalized" form of governance here, where in the US it exists, but to no extent like it is here in Spain. A friendly "gift" given to the police or a local official with a smile will always solve or prevent a lot of problems here. Is this actually a good thing?

In contrast, this would never be acceptable in the US and you can easily go to jail for it, and would certainly be considered kind of "creepy" in the social culture. Besides, in the US it's always possible to get caught, whereby in Spain, you have to commit a very bold and big act of corruption before anyone will notice.

Corruption in Spain is real. It is culture, but its a culture created by years of unfair government intervention in people's lives, which is much less present in the US, so Americans don't really benefit from it.



Carlos said:
13 April 2010 @ 13:59

Published in http://www.orfeu.es/2010/04/13/why-is-spain-one-of-the-most-corrupt-democratic-countries-in-the-world/


Roger R said:
15 November 2009 @ 13:16

I am now retired, but I recall early in the 1990s setting up an enterprise with colleagues aimed at delivering management and marketing training for small and medium-sized enterprises in post-communist central & eastern Europe. Our unique angle was that learning would be founded on ethical principals. We found substantial demand within the CEE countries for whom market-based business was a new and mysterious thing.
However, there were few fledgling entrepreneurs that could afford western-sourced training and so we were dependent on accessing western governmental funding for our projects. I recall one very telling conversation with a UK official of the European Union PHARE Fund who very tellingly told me: 'You must understand that the EU operates on the basis of consensus of the lowest common denominator, and in the matter of business ethics the l-c-d is Italy; and therefore, whilst we could expect many expressions of support from North-West member states, we would be unlikely to get financial support as our approach would actually run contrary to the way of doing business in some other member states'.
Accordingly we never did access any EU money and our subsequent research and experience went on to indicate that nations of a more catholic and less protestant tradition had less sympathy for our projects. That is not to say that it is a faith issue, but rather a social one which is likely to have been grounded in the cultures formed from the religious experiences of Europe's past.



Webster said:
10 November 2009 @ 14:35

When I purchased my first property in Spain, my solicitor told me that if I wanted to rent it out, he would keep the money in a shoe box under his desk and I could come and collect the cash personally when I visited. He had dozens of shoe boxes under his desk . . . .


Bill M said:
10 November 2009 @ 13:57

We hear about corruption all the time, but don't see much being done about it. I agree with the proposals to counter corruption in this article, but why have the European Parliament not done something before now. Spain should not have been allowed entry to the European Union with such basic legal systems in place which are wide open to abuse. The EU needs to take positive action about this now, as Spain seams incapable of doing it on their own.

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