Greece's 'Lagarde list' sparks calls for catharsis over tax avoidance

Helena Smith guardian.co.uk, Monday 7 January 2013 15.54 GMT

Ex-finance minister George Papaconstantinou accused of doctoring list of suspected evaders to remove names of relatives

George Papaconstantinou (right) and his cousin Eleni, in 2005 Photograph: Pantelis Saitas/EPA

At the height of Greece's economic crisis, a few weeks after he had been replaced as finance minister, George Papaconstantinou received a text message from Christine Lagarde. "We miss you!" declared the then French finance minister.

For observers of the Greek political scene, it was easy to see why: the sophisticated, LSE-trained economist Papaconstantinou, who had spent more than half his life abroad, in London, New York and Paris, was a far cry from his less cosmopolitan successor, Evangelos Venizelos.

Lagarde, only months away from becoming head of the International Monetary Fund, felt she had lost a friend.

Now, however, as he stands at the centre of the biggest tax evasion scandal to erupt in Greece in decades, Papaconstantinou's name engenders shock and consternation among mandarins in the EU and at the IMF. From being the darling of reform-minded policymakers in the west, the man most associated with the modernising policies Greece so desperately needs faces accusations of not only failing to crack down on tax-dodging – which, at more than €27bn (£21.8bn) a year, is the biggest single drain on the debt-stricken Greek economy – but also of doctoring a list of suspected culprits to remove the names of three of his own relatives.

The catalogue of the deposits, held by more than 2,000 wealthy Greeks at the Geneva branch of HSBC, was given to Papaconstantinou by Lagarde with the express purpose of pursuing tax offenders in October 2010.

This week prosecutors are poised to summon his relatives for questioning, amid mounting calls for Athens' fragile coalition finally to clean up Greece's scandal-plagued political scene. The former minister faces a parliamentary investigation that may well pave the way to his being tried before a special court. Within hours of the revelations surfacing he was summarily expelled from the socialist Pasok party, headed by Venizelos.

As Greece prepares for its hardest winter since the debt crisis erupted three years ago, and with middle-class Greeks joining the record numbers struck by unemployment, poverty and despair, calls for justice to be meted out to the privileged elite have become ever louder.

For many, the "Lagarde list" is the best proof yet that Greece's rich have got off lightly, spiriting their money abroad while the vast majority endure the punishing reforms the EU and IMF has demanded in return for rescue funds to prop up the lifeless economy.

But Papaconstantinou has vehemently denied the accusations. In an environment made ever shriller by a population now baying for the blood of politicians, who are widely blamed for the country's financial mess, the ex-minister was already a hate figure for many as a result of his negotiation of Greece's first, and highly controversial, €130bn bailout. He says he has become a convenient scapegoat.

"I have been framed," he said recently. "It is very convenient for the entire responsibility for this issue to be held by just one person."

Over the weekend he went further, saying he knew who had erased the names of his relatives from the list.

Leaked documents prepared by Greek prosecutors suggest the erstwhile economics chief tampered with the list, excising the name of his cousin Eleni Papaconstantinou and her husband, with whom she reportedly held $1.2m (£746,000) in a joint HSBC account, and the spouse of her sister, Marina. The prosecutors allege he removed the names when he transferred the data from a CD containing the original information to a USB memory stick "for security reasons". A fresh copy of the list, obtained by three state officials who flew to Paris shortly before Christmas, revealed the missing accounts.

"Who put their hand in the list – the minister, or some cunning schemer, to set him up?" asked the prominent political commentator Pavlos Tsimas.

On Monday the main opposition leftist Syriza party raised the political temperature by demanding that parliament also investigate Venizelos, who replaced Papaconstantinou and is now one of the government's tripartite leaders.

The stridently anti-bailout party, which since the ascent of the prime minister, Antonis Samaras, to power in June is the country's most popular, says it is clear a witch-hunt is under way, and is demanding a wider investigation.

"Those who have destroyed Greek society over the past three years," it said in a statement on Sunday, "are rushing to limit the Lagarde affair solely to the person of Papaconstantinou to cover their friends and themselves."

If Venizelos were implicated in the scandal it would place serious pressure on the ruling alliance at a time when Greece's continued membership of the euro zone is still far from assured.

The coalition is already under immense strain over the adoption of draconian austerity measures to trim budgets by an estimated €9.2bn this year alone.

"Venizelos should also be brought before an investigative committee in parliament for dereliction of duty," said Kostas Vaxevanis, who caused uproar by publishing the list in his investigative magazine, Hot Doc, last October.

"First of all, he did not utilise the information on the list, thus denying the Greek state of revenue that would have resulted through the clampdown on tax evasion. And, secondly, he did not hand over the list when he left office but took it with him and held on to it for the next seven months," the journalist told the Guardian. "It is evident they don't want to upset him because Venizelos is threatening to bring the government down."

Greeks' scepticism over the ability of the political class to tell them the truth was reinforced not only by the apparent "loss" of the list – before it was leaked to Vaxevanis – but also by the bizarre decision to try the editor for breaking privacy laws after he went public with it.

Although acquitted of the charges, he has been ordered to stand trial again later this year.

Venizelos, a professor of constitutional law by profession, argues that he decided not to pursue the names on the list after the head of the country's financial crime squad (SDOE) said the information could not be used because it had been "obtained illegally".

Other countries that were handed similar lists by the French authorities – initially stolen by a renegade bank clerk at HSBC – did not have such compunctions, with Spain and Italy both raising huge amounts in revenue by pursuing suspected tax evaders.

"The most interesting question is why, of all the countries that received the same list, Greece is the only one that did not use it," Tsimas wrote in the weekend edition of Ta Nea. It was, he said, especially odd, given that Greece was the leading state in Europe, and the second in the world, in terms of tax evasion and a black economy.

Last week Eleni Papaconstantinou, a leading corporate lawyer, defended having an account abroad, saying the money in it was "the legal wealth of myself and my husband".

Friends expressed disbelief that Papaconstantinou, who long headed the association of Harvard alumni in Greece and is a passionate advocate of the country clearing up its business environment, would have concealed her wealth.

"We are talking about people who belong to the school of western-minded reformers," said one. "They are Greece's great hope."

Eleni Papaconstantinou has since resigned as an adviser to Taiped, the agency overseeing privatisations in Greece.

She is unlikely to be the last. The 300-seat Athens parliament has until mid-January to vote on whether to set up a special investigative committee into the actions of her former-politician cousin. If, as expected, the committee is established, parliament will then have to decide on the basis of its findings whether to convene an extraordinary panel of judges formally to try Papaconstantinou.

Prosecutors are working quickly. And Samaras, mindful that further international rescue funds will rest to a large degree on Greece's ability to clean up its act, has gone into the New Year promising "catharsis".

The scene is being set for more drama in the country where Europe's debt crisis was born.

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