ATHENS Nikos Lekkas' team of tax investigators knew they were on to something when they found that a humble Greek farmer on the island of Thasos owned a red Ferrari and a Porsche.
Intrigued by how a farmer who had declared just 100,000 euros in income over the past decade could afford such luxuries, Lekkas dispatched an undercover tax agent to the north Aegean island.
The agent was back soon -- not only was the Thasos "farmer" earning far more than he had disclosed to the state, he was in an entirely different line of business: loan sharking.
Greece is now close to a deal to seize 10 million euros from the man, says Lekkas, the no. 2 official in Greece's newly relaunched Financial and Economic Crime unit. He proudly points to the case as one of many signs Greece is finally serious about hunting down tax cheats and making them pay up.
"Earlier there was no political will by governments to get to the bottom of this," Lekkas, a tax veteran at 59, said in his office near Athens's sprawling port.
"Now that we've reached the edge of the cliff, they've decided to implement measures against tax evasion."
As Lekkas says, Greece has little choice. Kept afloat only by bailout loans, it must convince exasperated lenders that it is capable of filling depleted state coffers with tax income as part of reforms to get its finances back on track.
Rampant dodging is one of the reasons why a popular tourist destination that enjoyed an economic boom in the early 2000s stumbled into a debt crisis that has since sucked in larger economies like Italy and threatens to break apart the euro zone.
In the midst of Greece's languid beaches, ancient ruins and craggy mountains is a thriving shadow economy that accounts for about 28 percent of the 220-billion-euro economy -- the highest proportion in the euro zone. Annual tax evasion is estimated at 40-45 billion euros, says Lekkas.
Greeks joke that cheating the taxman is the national sport.
POLITICIANS MADE US EVADERS
Just a few blocks away from the finance ministry where European Union, European Central Bank and International Monetary Fund inspectors discuss reforms, illegal immigrants hawk fake watches and handbags in plain view along a busy shopping street.
Down a narrow side street, Dimitris, a stocky 59-year-old in tattered overalls lights a cigarette inside his dingy souvlaki shop and begins a rant. Why should he be honest when he sees politicians milking the state for millions.
"Politicians have made us tax evaders. Why should we follow the law when they are stealing? Let the politicians and the rich lead the way."
A year ago, tax inspectors in plain clothes showed up at Dimitris' shop and slapped him with two 300-euro fines for two missing receipts -- they had counted the number of seated customers and compared that to the number of receipts issued.
After 35 years in the business, Dimitris now duly prints out a receipt for each customer. But he remains unrepentant, and has figured out another way to make up for the shortfall: making smaller pension and social security contributions for one of his employees by recording just half the hours worked.
"There are other tricks to evade taxes," Dimitris said, puffing away on his cigarette despite laws against smoking in public places.
"You can pay lower contributions for your staff, for example, or issue other receipts with lower value added tax."
Down a street selling T-shirts and tacky souvenirs near the ancient Acropolis, a deli shop owner pockets money for bottled water without any mention of a receipt.
Nearby, shop assistant Yiorgos recalls how he worked as a waiter for months earning a pittance off the books. As a 20-year-old hunting for a job in a country where nearly one in two youths are unemployed, he was paid 550 euros a month without any welfare contributions by his employer.
"I knew there was no hope of anything else," he said. "When you're young, that's what they tell you they will offer you."
On the other side of town in a residential suburb, car mechanic Yannis offers a familiar story of evasion so widespread that it is the norm, and anger at corrupt politicians and punishing tax hikes that heap new burdens on the average Greek.
"Everyone in my line of work evades taxes," the 49-year-old said. "We are not fools to obey the law when politicians are stealing."
He says his customers themselves ask for his services without a receipt so they can pay less.
"If I were to be 100 percent legal, I would have to shut my shop," Yannis said.
STARTING FROM ZERO
Signs of change are slowly beginning to appear, however.
Over the past month, Greeks watched in surprise as a top plastics company executive, a construction firm CEO and a fashion designer were hauled away in handcuffs for tax evasion.
The arrests by Lekkas' unit and police were unprecedented. Lekkas notes that his agency carried out 16 arrests in the last 25 days -- compared to a grand total of zero in previous years.
Although his agency has technically had the power to make arrests since 1995, it took the prospect of a debt default and an exit from the euro zone before the law was beefed up to make it easier to carry out arrests quickly, Lekkas says.
Even more significantly, Lekkas says no-one has interfered with his work in the year he has been at the agency.
"I've never gotten a phone call from a politician or a minister to cover up a case," he said.
In between barking orders to agents on the phone, Lekkas speaks animatedly as he rattles off his unit's successes in the past few weeks as a new electronic system allowed investigators to cross-check tax filings with property records and bank data.
In one case, investigators found a doctor in an upscale Athens suburb had reported income of 200,000 euros over the last seven years but stashed 5.5 million euros in his bank account, most of which will now be seized by the state.
In another case, a foreign multinational company was pressured into striking a deal to pay 20 million euros of the 35 million euros it owed the government, he says.
Spurred by the spate of recent arrests, 17 others with tax arrears rushed to pay up a total of 5.6 million euros to avoid jail, says Lekkas.
"Our goal is to win the war against tax evasion," he said. "We Greeks like to win and we will win."
Victory, however, is still a good distance away.
All those arrested over the past month have been released pending trial.
One of them -- Leon Levi, the owner of fitness firm BodyLine -- was sentenced to three years in jail for owing about 620,000 euros but was allowed to avoid prison by paying 10 euros a day for the duration of his sentence -- 11,000 euros.
The To Vima daily wryly summed up the state of affairs with:
"Big name arrests, but bread crumbs for state coffers."
"The impact of the recent actions is purely symbolic," said Dimitris Karantinos, director of research at Greece's National Centre of Social Research, pointing to a slow pace in the Greek court system. "It takes a long time to see something done. And it takes 10 years to clear up a case."
The European Union taskforce on Greece says the tax dispute system is weighed down by a backlog of 165,000 cases representing about 30 billion euros in unpaid taxes, made worse by the fact that they are usually tied up for seven to 12 years.
The taskforce estimates the Greek state is owed a total 60 billion in tax arrears -- worth over a quarter of GDP -- but only 6-8 billion euros of that is considered "collectible."
The European Commission's latest report on Greece published this month bluntly said results from the country's fight against evasion so far were "not satisfactory," despite progress in stepping up audits of the wealthy and self-employed.
With the self-employed accounting for close to 40 percent of the labor market and thousands of small, family-run enterprises forming the backbone of the economy, Greece is particularly vulnerable to evasion, Karantinos said.
Byzantine tax rules that are difficult to implement but easy to ignore and a level of welfare contributions that ranks among the highest in Europe further add incentives to cheat, he said.
Indeed, in a country of about 5 million workers and hundreds of glitzy yachts moored at the Athens harbor alone, only 33 individuals declared income of over 900,000 euros last year.
Just 293 people declared income of between 500,000 euros and 900,000 euros.
"It's a matter of cultural change and whatever has to do with cultural changes will take years to remedy," Karantinos said.
"Greeks are very loyal to their families and neighborhoods, but not as much to the state -- they don't trust the state."
(Editing by Sonya Hepinstall)