Italy Uncovers €113 Million VAT Fraud Scheme Spanning Multiple Countries

The European Public Prosecutor’s Office (EPPO) in Italy announced the outcome of an investigation that led to the busting of a criminal group that allegedly organized a complex scheme to evade paying EUR 113 million in VAT. 

A joint investigation between EPPO offices in Bologna and Milan led to the arrest of seven suspects, including the two group leaders, and searches in 20 cities in Central Italy.

Complex Fraud and Investigation Results

The scale of this VAT fraud is not neglectable since it includes several countries, underground banking transactions, and products worth nearly EUR 500 million. The joint investigation showed that the fraud was committed through a complex scheme of ghost companies, also known as missing traders.

These companies would import hundreds of containers of clothes and accessories from China to Italy, abusing triangular trade with Bulgaria and Greece, thus camouflaging the origin of goods. Triangulation or triangular trade is an intra-community trade that includes supplies between three VAT-registered businesses in three EU countries.

The goods imported from China utilizing the triangulations are estimated to be worth EUR 500 million, whereas the total amount of evaded VAT is EUR 113 million. 

Profits gained in this illegal way were further laundered through the underground banking network, where the money was transferred through several EU countries and the UK before being moved to China. The investigation further concluded that the money was transferred back to Italy through regular banking channels, where group members used that money to invest in legitimate business activities.

The order to freeze EUR 116 million was also issued, and several restaurants, a shopping mall, a house, and an apartment were all seized in the EPPO action.

Apart from the Italian EPPO, the Italian Financial Police of Milan, Bulgaria’s National Revenue Agency, Germany’s State Criminal Police Office from Hesse, and Greece’s General Directorate of Financial and Economic Crime Unit all contribute to the success of this investigation and action.

Conclusion

The rules and processes for improving the trade between EU Member States or between EU and non-EU countries are often abused and represent an everyday challenge for police departments, customs and tax agencies, and other relevant government and EU governing bodies.

This case shows how elaborate and complex the fraudulent scheme can be and how hard it can be to uncover it, thus reducing the loss of revenue that governments generate from VAT.

Source: European Public Prosecutor’s Office (EPPO)