When Carmelo Aured, developer and former mayor of the Spanish town of La Muela, went to his 2012 sentencing for dodging €734,666 (about $930,000) in taxes in 2004 and 2005, he had reason to think that he could pay his fines and go home. But things had changed since he’d committed tax fraud, and the judge sentenced him to three-and-a-half years in jail, which left his defense attorney baffled.
“He had the money in the bank to pay, but the judge didn’t want it,” his lawyer, César Ciriano, told the Spanish newspaper El País.
Aured is not the only tax fraudster in Spanish prison. In 2012, there were 88 people incarcerated in Spain for tax fraud. Since then, the number has risen by 64%, to 144. All told, 615 people are in jail in Spain for economic crimes, which include tax fraud, money laundering, and corporate malfeasance.
The numbers may be small—economic criminals account for less than 1% of the 64,000 prisoners in Spain—but they signal a sea change in how tax and white-collar crimes are viewed in Spain, and throughout Europe.
European countries were slow to take a strong stand against tax fraud, says Judith van Erp, a criminology professor at the Erasmus School of Law in Rotterdam. But that changed after the continent’s recent economic crisis and the social spending cuts that followed.
“There’s more awareness that it’s not right, if people have to sell houses or there are large cuts in social services, that the rich get richer by cheating,” says van Erp. “In the boom before that, everybody could get rich, and playing ‘smart’ was not so condemned. Now, in times of crisis, fairness is far more important.”
Spain suffered more than many other European nations. And Spaniards realized that “budget shortages can be partially blamed on lack of tax collection, on fraud,” says Ernesto Díaz-Bastien, a Madrid lawyer who works with white-collar defendants.
That outrage has affected judges too, says Edmundo Bal, the president of the Association of State Lawyers. While Spain has strengthened the penalties for tax fraud, adding an “aggravated” fraud category with higher fines and prison terms in late 2012, the big difference has been that judges are now less likely to let those who pay their fines avoid jail time.
“They’re not allowing them off like in the past,” says Bal. “They share the citizens’ anger.”
There are historic parallels between Europe’s awakening to economic crimes and the United States’ earlier moment, in which a White House scandal spurred Americans’ interest and prepared the ground for later prosecutions in the savings and loan crisis.
“In the early 1970s, with the exposure of Watergate and other high level cases, there was an upsurge in prosecutorial interest,” says David Friedrichs, a professor of sociology and criminal justice at the University of Scranton.
The recent upsurge in outrage and interest in Europe has been accompanied by increased budgets for economic crime prosecutions.
In the Netherlands, van Erp notes that the state created an economic crime program in 2009 and plans to add 585 police by 2015; the tax fraud unit has added 36 people to work against money laundering; and the public prosecutor has gotten a €6.3 million budget increase to fight financial crime.
In Spain, Ernesto Díaz-Bastien, the attorney, says that he’s seen an increase in investigating technology and personnel, and a “clear increase in inspection activity.”
Today, while European investigators are still behind those in financial centers like New York and London, they are catching up.
“We’re five or 10 years years behind the U.S., and the Europeans are five or 10 years behind us,” Mark Beardsworth, the London-based co-head of the white-collar defense and government investigations practice at law firm Brown Rudnick.
Keeping up the momentum may be difficult for European investigators, however. Prosecuting economic crimes is time-consuming and complicated, and the public usually focuses on locking up murderers and rapists.
“Is that going to continue? Or is it an aberration?” asks Henry Pontell, a professor of criminology and sociology at the University of California, Irvine.
Ironically, as Europe catches up with the U.S. on white-collar crime prosecution, the U.S. has shifted away some of its focus on the issue. No major Wall Street banker has gone to jail for the recent banking crisis, Pontell notes. And that, he says, may be on account of Al Qaida.
“After 9/11, there was a big cut in FBI people doing white-collar crime. They moved to terrorism,” he says. “And there was a huge drop in white-collar crime cases handled by the FBI.”
Indeed, according to a New York Times investigation, the number of FBI agents in the white-collar crime program dropped 36% between 2001 and 2008.
