In one issue of the analytical newspaper Zagranitsa, journalist Pyotr Levsky quotes a truly fascinating remark by Friedrich Schneider, a professor at Johannes Kepler University in Linz, on the beneficial effect of the shadow economy on a country's economic development. With the author's permission, here is that remark: "money earned on the black labor market is not legalized and not saved — it enters the flow of goods and money immediately, boosting consumption and, in doing so, feeding the economy. Because of rising unemployment, shorter working hours, and reduced overtime, many Germans have seen their usual income fall. People try to make up the shortfall by working undeclared." Germany's tax authorities, however, take an entirely opposite view.
Unemployment in Germany runs fairly high. Where it can, the state tries to help people without work by paying them social benefits at subsistence level. Naturally, that is not enough to cover every need, so most of our compatriots, wanting to improve their family's finances, try to solve the problem by finding unofficial work — working "under the table," so to speak. Earnings of this kind are not reported to the authorities. But if the authorities do find out about this extra income, serious trouble follows — and the charges are brought not only against the person who worked illegally, but against the whole family.
Worth knowing
Undeclared work leaves an employee without social protection and can lead not only to back taxes and social-security contributions being assessed, but also to criminal liability for fraud under § 263 StGB.
Our clients — a married couple, the Schulzes — received an indictment from the public prosecutor's office under Section 263 of the German Criminal Code (StGB) — aggravated fraud. The provision reads, verbatim: "(1) Whoever, with the intent of obtaining an unlawful pecuniary benefit for themselves or a third party, damages the property of another by causing or maintaining a mistaken belief through the assertion of false facts or through the distortion or suppression of true facts, shall be liable to imprisonment for a term not exceeding five years or a fine. (2) An attempt is punishable. (3) In especially serious cases, the penalty is imprisonment from six months to ten years" (§ 263 StGB).
To repeat: the Schulzes were charged under Section 263 with aggravated fraud — that is, fraud committed as a commercial enterprise, an offense carrying the penalty set out in paragraph 3 of that section: imprisonment from six months to ten years. They were accused of having an additional source of income while receiving social benefits from the state, thereby enriching themselves by 2,500 euros, and of concealing that additional source of income from the state. The case was made even more difficult for the lawyer by the fact that the clients had already been summoned by the law-enforcement authorities and had given statements.
During the consultation, the lawyer explained to the couple that, under the law, he could represent only one client, and so it was necessary to decide which of them that would be. In this situation, Mrs. Schulz was in the more serious position, since she held a residence permit in Germany (unlike her, Mr. Schulz held German citizenship) and was the mother of three minor children. The goal was not only to try to have the criminal case closed, but also to preserve her status in Germany. It was therefore decided that we would represent the wife. Mrs. Schulz explained to the lawyer that they had already been to another lawyer, who had lost the civil case brought by the Jobcenter for repayment of the money, and that they were already repaying the Jobcenter the money obtained through the unlawful enrichment. Now they faced the additional threat of ending up behind bars. The woman was desperate, very agitated, and distressed — this was the first time she had ever faced criminal prosecution.
In their conversation, the lawyer tried to reassure the client, explaining in detail what she might be facing and what could be done to avoid a criminal penalty, and told her that he could work out a clearer strategy and tactics for the case only after studying the case file in detail. The file was requested, obtained, and examined. The lawyer then invited the client in again for a further conversation. Mrs. Schulz explained to the lawyer that her husband had been doing casual work on a construction site in Berlin, earning the minimum wage partly officially and partly "under the table" — an amount that in no way matched the figures recorded in the payroll documents contained in the case file.
A brief digression is worth making here to remind the reader that construction (and renovation) work is constantly underway across Germany. The firms carrying out this work take on all kinds of people: skilled specialists who work officially and earn good wages, and laborers who work partly officially and partly illegally. The laborers are paid a pittance, while employers pocket the bulk of the earnings themselves. Some of these firms have long been under surveillance by German law-enforcement authorities; their managers were eventually arrested and criminal proceedings opened against them. Trying to limit their own liability, they gave confessions and cooperated with the authorities, handing over lists of workers, records of wages paid, and similar material. The tax authorities, in turn, use that material to identify the workers named on those lists and pursue them for criminal liability for unlawful enrichment and for misleading government agencies. Our law firm has already handled several cases of this kind, and all of them were resolved successfully — successfully for the client, that is.
But let's return to the Schulz case. After interviewing the clients, the lawyer worked out the following line of defense: the wife did not know that her husband was working undeclared on a construction site. His elderly parents, who live in Russia, needed money for medical treatment. The husband wanted to help them, but his wife objected, since they themselves had three minor children and money was always tight. So the husband took the construction job, telling his wife that he was working officially for modest pay. He handed that modest amount over to her, while sending the rest — earned undeclared — to his parents. As already mentioned, the Schulzes had already given statements to the relevant authorities, in which Mrs. Schulz had said that she knew her husband worked at the firm, a statement confirmed by her husband as well. Those statements had been recorded and were part of the case file. The lawyer's task was now to refute them, convincing the court that the investigator had misinterpreted what his client and her husband had actually said. After discussing the problem with the clients, the lawyer set out the defense's position in a phone conversation with the court, pointing to shortcomings in the investigation and in the prosecution's conclusions. His goal, if a full acquittal could not be achieved, was to do everything possible to have the criminal case against the client closed. The court signaled to the lawyer that it agreed with his arguments and was inclined to have the criminal case against Mrs. Schulz closed. So there was now reason for hope. The point was that if the criminal case against Mrs. Schulz were closed, the charge against her husband would have to be reclassified to a lesser offense — simple fraud, for which the penalty could take the form of a fine.
Before the hearing, the lawyer met with the client and her husband once more, going over every detail of how they should conduct themselves in court and running through possible questions and answers. He also intended to speak with the court once more, so to speak, behind closed doors. The court gave him that opportunity, and the conversation between the lawyer and the court took place. The lawyer again set out his position and the shortcomings in the investigation to the court — in particular, that the application for social benefits for the Schulz family contained in the case file bore no signature from his client, and that the case file contained no document establishing that his client bore criminal liability for submitting incorrect or incomplete information. The court was on our side and invited the prosecution to reach a compromise in the case. It has to be said that the prosecution's initial reaction to that suggestion was quite negative. But after hearing out the defense's arguments, asking a series of questions, and receiving exhaustive answers to them, the prosecution agreed to have the case closed under § 153a of the German Code of Criminal Procedure (StPO), without a conviction being entered. What's more, by building his strategy this way, the lawyer secured a favorable outcome not only for his client but for her husband as well — the criminal case was closed with respect to both of them. The Schulzes were only asked to appear in the courtroom for the court to announce its decision. The sole condition the court imposed was that, for six months, they provide monthly confirmation that they were continuing to repay the state under the earlier court judgment. The clients were both relieved and stunned — this was not an outcome they had even dared to expect.
There's a good saying: facts are stubborn things — except in the hands of a good lawyer. And the case described in this article is vivid proof of that.
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