Germany cracks down on money laundering, tax fraud

The 2027 federal budget proposal, with its estimated revenues and expenditures, is alarming. With projected expenditures of around €555 billion ($634 billion), Germany will have to take on approximately €200 billion in new debt next year.

No wonder the federal government is thinking hard about ways to boost revenue. It quickly zoomed in on the billions the government loses each year due to financial crimes. While there are no official figures, experts estimate the loss at between €100 and €200 billion per year.

Even if only a small portion of that could be recovered through more effective auditing and stiffer penalties, it would still be a big help to Germany's federal government, federal states and municipalities, whose budgets are funded almost exclusively by tax revenue.

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Police, tax investigators and customs authorities to work together

"The majority of citizens in this country pay their taxes, and they do so without question, without fail and without making a fuss," said Federal Justice Minister Stefanie Hubig in Berlin. "But there are also those who conceal their income from the tax authorities."

This ranges from illegal employment to offshore tax shelters, shell companies and slush funds, all the way to many other deceptive practices.

Together with Finance Minister Lars Klingbeil, Hubig has developed a 26-point action plan aimed at better combating tax fraud and money laundering. She also announced plans to establish a "Joint Center Against Tax and Financial Crime" within the Customs Department. A total of 1,500 new posts are planned in order to consolidate investigations, analysis and prosecution of money laundering and tax crimes.

Tax evaders 'cannot be allowed to get away with it'

"A key component of the center will be a new data analysis center," said Klingbeil. "Artificial intelligence will help sift through large amounts of data, decipher complex corporate structures and better identify front men."

Tax investigators from the federal states, the Federal Criminal Police Office and financial investigators from the Customs Department aim to collaborate more closely on major cases.

"No one should be able to rest assured that they won't be caught," said Klingbeil. "We cannot let honest people be the ones who lose out while tax evaders line their pockets with illegal tricks — they cannot be allowed to get away with it."

But that's exactly what has been happening in Germany for a long time. Take, for example, what became known as the Cum-Ex scandal. For more than 10 years, the government allowed capital gains taxes on stock dividends — which had been paid only once or not at all — to be refunded multiple times. It wasn't until 2011 that the scandal led to numerous investigations, court proceedings and political debates about the responsibility of banks, investors and regulatory authorities.

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Could tax evaders simply pay back taxes?

Another frequently debated topic is the option of voluntarily reporting tax evasion in exchange for immunity from prosecution. Germany has allowed this practice since 1919.

The idea behind it has been to encourage taxpayers to voluntarily disclose previously hidden income so that the government can collect the back taxes owed. This arrangement became hugely important starting in 2008, as authorities began uncovering an increasing number of Germans who had been maintaining anonymous bank accounts abroad to hide assets from taxation.

In 2011 and 2012 alone, there were around 30,000 voluntary disclosures after German tax authorities acquired several "tax CDs" with data on German clients at Swiss banks. Those who feared being caught chose to go to the tax office themselves, disclose their accounts and pay the outstanding taxes. Voluntary disclosure with immunity from prosecution has always been a thorn in the side of the center-left Social Democratic Party.

"Criminals should no longer be able to buy their way out of trouble that easily," said Klingbeil.

Plans to seize Porsches, Rolexes

Together with Hubig, Klingbeil is also pushing for harsher penalties. The maximum sentence for organized crime involving tax fraud is set to increase from 10 to 15 years in prison. Additionally, serious tax fraud will be reclassified to carry a minimum sentence of one year in prison.

Klingbeil and Hubig's action plan also provides for more opportunities to seize assets obtained through dubious means. Previously, such seizures were only possible after evidence of a specific crime, such as money laundering, was found and a criminal conviction was handed down.

In the future, customs authorities will be able to seize assets for 180 days. "The Porsche and the Rolex will be gone for the time being. That will really hit offenders hard," said Klingbeil.

Those affected would then have to prove that they acquired the assets legally.

Cryptocurrency deals under scrutiny

New regulations will also be introduced for the purchase and sale of cryptocurrencies. Currently, they are tax-exempt provided that more than one year elapses between acquisition and sale. That is set to change.

"We will also introduce blockchain analyses," said Klingbeil. "Tax crime in the digital realm is increasingly eluding traditional investigative methods, and we must respond to that."

But the government also intends to take a closer look at the traditional business world as well — especially where large amounts of cash change hands over the counter. Starting in 2028, anyone with annual sales exceeding €100,000 will be required to use a cash register. Jewelry and antique dealers, for example, would be affected by this.

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€1 billion in additional revenue projected for 2027

The action plan will now be turned into legislation as quickly as possible. Initial findings should be out in August.

In his budget plan for 2027, Klingbeil has already factored in new revenue. He has estimated an additional €1 billion ($1.1 billion) from the fight against tax crime, but expects the total to be much higher.

The nongovernmental organization Finanzwende  has welcomed the new plans, applauding the effort to more seriously and vigorously fight tax fraud. Now, it added in a press release, these plans must be followed by action.

This article was originally written in German.