Euro-day spurs the tax dodgers

THE SMALL Alpine town of Jungholz is an unlikely destination for smugglers but the impending arrival of the euro, coupled with a fierce new onslaught in Germany to crack down on untaxed cash - is making it Austria's El Dorado.

The town - population 370 - oversees enormous wealth. Its banks, and those in two nearby towns, advertise themselves as 'the last investor paradises'. Eager to get their hands on German money, they are offering potential customers glasses of £50-a-bottle cognac, Cuban cigars and even a free massage if they sign on the dotted line. And the concept is working as Germans pour across the border with money they want to keep away from tax inspectors at home.

Austrian banking laws are more secretive than Germany's. To be sure, there is no guarantee their funds will remain undetected: all the banks point out that customers have a duty to report interest to their own tax officials. But the print is very fine and the sales pitches are clearly meant to give the impression that if they do not tell, the banks will not either.

The wealth of these local banks as e-day approaches is colossal. The Kleinwalsertal-Raiffeisensbank has a balance sheet of £600m and record profits for a ninth successive year.

Germany, renowned for its bureaucracy, is doing its best to impede a flood of undeclared money heading out to foreign accounts for exchange before the biggest currency switchoveri n history on 1 January. To that end, roaming squads of German police and customs officers ambush unsuspecting motorists on the roads to Switzerland and Luxembourg - £3.3m in 'black money' was confiscated last year.

But it is perfectly legal to take money to Austria and, say police, impossible to patrol the lonely mountain pass to Jungholz all hours of the day. The foreign money makes up an estimated 80% of administered wealth in the region. Banks which once just used to help local farmers arrange loans to buy new tractors now employ a plethora of investment especialists and juggle billions on international markets each day.

If accounts are discovered back home, backdated interest is charged and citizens lay themselves open to the inquisition of the feared Finanzamt - the inland revenue. But the bankers themselves say there is little chance of being rumbled if caution is shown. 'Austrian bank secrecy is stricter than in Germany,' said one. 'To abolish it would require a two-thirds majority in parliament - and that would never happen.'

The big spenders

MEANWHILE fur coats, houses and yachts being snapped up by people desperate to spend 'illegal' money, before the euro's advent renders national currencies worthless, have aroused the interest of Germany's tax inspectors.

Those with money hidden from the taxman - savings stashed under the bed or ill-gotten gains from criminal activities - are racing against time to cash in their Deutschmarks before the end of February, when the currency will no longer be valid.

In September, a 14-strong tax team raided the Interboot international yacht show at Friedrichshafen, near the southern German border with Switzerland. Rolf Mohne, Interboot organiser, told Der Spiegel magazine the tax inspectors arrived unannounced and that their presence had ruined the atmosphere, as they brought 'considerable disquiet'.

Elmar Reichle, head of the nearby Ulm tax office, said: 'The officers visited a number of randomly-chosen exhibitors of expensive yachts. We demanded to see sales contracts and offers that had been made.' He said a number of people who had been to the yacht show would soon receive unwelcome visits from his tax office. In particular, he said, people thought they had the taxman beaten if they bought an expensive yacht from a foreign company. 'We got information from foreign exhibitors over which we usually would have no authority,' said Reichle.

One yacht dealer from Liechtenstein handed over the addresses of 10 customers whose finances would now be investigated.

The introduction of the euro is expected to see the biggest ever extermination of illegal money - Germany's Bundesbank estimates people hoarded around Dm100bn(£32bn) away from the taxman last year alone. All this has to be changed into euros, dollars, pounds or other currencies by the end of February or it will be just metal and paper.

Cash spending sprees have also been reported in eastern Europe, where Deutschmarks in particular have been used for decades of illegal business.