In Greece, Bailout May Hinge on Pursuing Tycoons

By LIZ ALDERMANFEB. 26, 2015

The New York Times

ATHENS — As he sifted recently through a sheaf of Greek bank accounts held by executives, politicians and other members of the Greek elite, Panagiotis Nikoloudis, the nation’s new anti-corruption czar, was struck by some troubling numbers.

A man who was claiming unemployment benefits and declared zero income on his taxes had more than 300,000 euros, or $336,000, stashed away at his bank. Another, who told the tax authorities that his annual income was just €15,000, turned out to have €1.5 million in various bank accounts.

Mr. Nikoloudis estimated that the men had bilked Greece’s Treasury of thousands of euros in tax revenue, even as other Greeks struggled under the government’s austerity budgets and embattled economy.

“I have nothing against rich people,” said Mr. Nikoloudis, a financial crimes specialist, leaning into a table one recent afternoon in his office in western Athens. “I’m against dishonest rich people. And I’m here to get them.”

For years, Greece has been trying to attack corruption and tax evasion, from the smallest taverna owner to the nation’s most powerful oligarchs. Now, Prime Minister Alexis Tsipras is vowing to take far more action than previous administrations in cracking down. He says his government, led by his leftist party, Syriza, will succeed because having never held power, it is not beholden to the entrenched interests that have long fought to maintain the status quo.

But even Mr. Nikoloudis acknowledges that fixing Greece’s finances will not be easy. Which throws into question how readily, or at least how quickly, the government can fulfill its promise to its European creditors.

This week, in exchange for keeping Greece’s €240 billion financial lifeline in place for at least four more months, Athens outlined a two-pronged approach to battling corruption. The first involves going after wealthy tax evaders.

The second promises a more herculean effort: reshaping a system in which Greek tycoons dominate much of the economy and engage in sometimes murky business practices — including, Mr. Tsipras asserts, tax evasion — that analysts say deprive state coffers of billions in revenue.

Tax collection is the starting point for what will eventually become a broader effort to make Greece a place where the rule of law, and the civic duty to pay taxes, might finally take deeper root. Mr. Nikoloudis, 65, is the point man on that cleanup campaign.

As a former prosecutor for Greece’s Supreme Court, Mr. Nikoloudis has spent decades pursuing cases on money laundering, oil smuggling and corrupt contracts. Soon, he plans to set his sights on Greece’s oligarchs.

For now, though, he is focused on tax evasion more broadly, at a time when the estimated total of unpaid taxes in Greece has soared to €76 billion. Only a small fraction of that is considered recoverable.

Mr. Nikoloudis said he had in hand 3,500 audits amounting to €7 billion in back taxes, €2.5 billion of which he hopes will be collected by summer. An additional 22,000 cases, worth several billion euros, will soon be ready for pursuit, he said.

Frustratingly out of reach, he said, is considerable untaxable Greek wealth outside the country. That includes more than 2,000 Swiss bank accounts held by Greeks named on a list that Christine Lagarde, now the head of the International Monetary Fund, sent to Greece in 2010 when she was France’s finance minister. In all, an estimated €120 billion in Greek assets are held outside of the country, mainly in investment accounts that Mr. Nikoloudis said Greece cannot get its hands on.

But as Greece redoubles its tax efforts at home, the ineffectiveness of the country's tax collection and justice systems could impede progress.

Harry Theoharis, who was appointed Greece’s top tax collector by the previous government in 2013, recalled a case in which his office assessed a €5 million fine on a wealthy Greek citizen who had evaded taxes. The person took the case to court, where Mr. Theoharis said it died after prosecutors did not show up for trial.

“The person was powerful enough to reverse it,” Mr. Theoharis said in an interview. He resigned last year under what he hinted was political pressure, after he pursued wealthy Greeks aggressively. He is now a member of Parliament from To Potami, an opposition party.

Such influence-brokering is even more pervasive among Greece’s major tycoons, whom Mr. Tsipras accuses of costing the government billions in lost income over the years. Mr. Tsipras has vowed to “to clash with the oligarchy that is evading taxes,” not only by stepping up the level of tax scrutiny, but also by targeting what he says are corrupt business practices among a number of the several dozen powerful families that control critical sectors, including banking, shipping, oil and construction.

Although they are among the nation’s largest employers, Greek oligarchs have historically presided over an opaque, closed economy and operated with virtual impunity, thanks to intimate ties with politicians and Greek banks. They are accused of helping their companies win state contracts through uncompetitive tenders, taking ownership in Greek television stations without paying for licenses, and thwarting competition in various industries. The government claims that some have also engaged in illicit activity like fuel and tobacco smuggling, at a cost to the Greek Treasury.

Mr. Nikoloudis recalled a case he helped prosecute several years ago against Lavrentis Lavrentiadis, a magnate under investigation for fraud and tax evasion. Mr. Lavrentiadis was accused of embezzling money from a bank he controlled in the mid 2000s in order to finance shell companies. But he was able to avoid prosecution temporarily by simply paying the money back, thanks to a law quietly passed while he was in trouble.

“I had to cry when I saw this case,” Mr. Nikoloudis said. “It was a can of worms that involved crony loans and businesses with vast reach.”

Mr. Lavrentiadis, he said, was hardly the only Greek tycoon to be involved in such schemes. “It shows that there is a very tight caste of people with tentacles across the spectrum of the Greek economy,” he said.

Mr. Lavrentiadis was eventually arrested and jailed in 2012 after a new law effectively voided his immunity. A trial is scheduled to begin in March.

One of the sectors Mr. Nikoloudis says the government wants to target for corruption is energy, where a handful of firms hold sway. Fuel smuggling has been rampant in the sector for years, costing an estimated €3 billion annually in lost tax revenue.

Dimitris Mardas, Greece’s new deputy finance minister, said the smuggling often involved the fictitious export of fuels through vast illegal networks that enabled the companies to evade taxes in Greece. Dismantling those networks could prove daunting.

Last year, the police broke up a fuel-smuggling ring of 15 people that the authorities alleged was run by George Spanos, the president of Eteka, a midsize Greek fuel company. The authorities said the Greek state lost €3.5 million in taxes and duties when members of the ring stole fuel for export with Eteka’s participation and resold it in the Greek market.

Mr. Spanos denied the charges and was set free on €300,000 bail in April pending trial.

But more influential oligarchs may be more difficult to confront, and so far, the government has not disclosed the names of any it plans to pursue. It is unclear whether cases have even been put together. For now, the objective appears to be to undermine the ease with which they have been able to function, for example by casting greater scrutiny on privatizations and state contracts, or requiring the tycoons that hold Greek television station permits to start paying for airwave licenses, which the government thinks could eventually generate at least €500 million over all for the Treasury.

In the meantime, Mr. Nikoloudis is forging ahead to generate whatever revenue he can quickly from the tax evaders he has identified.

Saying he was “not a miracle worker,” he acknowledged it would be wise to remain realistic, but he offered a glimmer of optimism.

“If people see that I’m clean and the prime minister is clean, and that those who are not clean will eventually go to jail, I like to hope it will inspire a change in Greek society,” he said. “Our priority is to collect more.”

Dimitris Bounias contributed reporting.