On 28 April 28 2011, a new regulation combating money laundering and tax evasion, the Gesetz zur Verbesserung der Bekämpfung der Geldwäsche und Steuerhinterziehung (the Schwarzgeldbekämpfungsgesetz or the Act), was launched in Germany. For the full text of the Schwarzgeldbekämpfungsgesetz, please click here. The Federal Cabinet approved the content on 8 December 2010, the law was announced in the federal law gazette, the Bundesgesetzblatt, on 2 May 2011 and will have an impact on the German penal code, the Strafgesetzbuch (click here for the German law texts), Section 261. The Act came into force the day after its announcement in the Bundesgesetzblatt.
The Act was a reaction by the German government to an issue raised by the Financial Action Task Force (FATF), of which Germany was one of the founding members. In its 18 February 2010 report, the FATF detected shortcomings within the German legal system in relation to anti-money laundering/terrorist funding (and also in relation to anti-piracy and trade mark protection, as Section 261 of the German Penal Codes links to other bodies of law, i.e., the Securities Trading Act (WpHG) or the Trade Mark Act). These shortcomings related to a controversial element in German tax law (strafbefreiende Selbstanzeige; Teilselbstanzeige), which can be found in Section 370 AO.
Under Section 370 AO, there is an opportunity for certain tax offenders, in defined circumstances, to be granted immunity from prosecution if they report the offending behaviour to the authorities (self-denunciation). Authorities had noted a great number of self-denunciations resulting from data storage devices that had been purchased in order to reveal tax offences committed against the German treasury, putting pressure on companies. As a consequence, one of the main aims of the new Act is a tightening of the rules regarding immunity in order to make Germany more compliant with FATF guidance.
Previously, offenders only had to reveal details of the individual offence. From now, the offender will be obliged to reveal in full and correctly, all tax details, not just details of the offences. This change should avoid the situation where tax evaders only officially reveal their actions because they are afraid of a disclosure and yet as a result are "rewarded" by an exemption from punishment. The declaration must include all types of tax from all assessment periods within the statutes of limitation. This naturally makes self-denunciation more onerous for businesses: operational taxes are very complex and self-denunciation is difficult as all taxation irregularities need to be corrected in their entirety and at the same time.
Under the previous regime, a business could self-denounce even at the stage where a tax audit had commenced, i.e., if the auditor had entered the premises. Under the Act, at this stage it is now too late for self-denunciation. However, the Act still allows a business to self-denounce at the point of an audit being announced. It is seen by many as a weakness of the Act that tax evaders can still wait until they are likely to be exposed before admitting their offences and are essentially "rewarded" for this by exemption from punishment.
Another change brought in by the Act concerns tax offences exceeding €50,000. In these cases, self-denunciation does not lead to an automatic exemption from punishment. In order to halt a prosecution, the business must pay the evaded tax plus 5% of that amount to the treasury.
It was of course debated hotly whether immunity should simply be withdrawn. However, authorities are often dependent on the offender's insider knowledge of the offences, particularly when several jurisdictions are involved. In particular, in relation to tax offences that have implications for anti-money laundering/terrorist funding, it is vital that the business and its personnel cooperate fully with the authorities in order for as much information as possible to be obtained.
As far as the international anti-fraud community is concerned, the Act is a step in the right direction as it balances not only the needs of the Government to prevent and punish tax offences and obtain restitution, but also to have access to the crime behind the offence.