Europol has supported an action across eight countries which targeted criminal groups under investigation for VAT fraud amounting to EUR 85 million. On 22 November 2023, 59 searches were carried out, resulting also in the arrest of one of the alleged ringleaders.
Seizures included:
- a total of 1 800 AirPods;
- cash and two luxury cars (a Lamborghini and a Porsche), worth a collective EUR 550 000;
- a super luxury watch, worth EUR 907 000;
- a jammer – used to scramble communications and to avoid detection by the Police – was also confiscated.
Code-named ‘Goliath’, the investigation was led by the European Public Prosecutor’s Office (EPPO) in Hamburg, Germany, with the support of Europol and law enforcement authorities in Denmark, France, Germany, Hungary, Lithuania, the Netherlands, Sweden and Switzerland.
The investigation focused on the suspected members of two criminal organizations, active in the international trade of consumer electronics (mainly AirPods). They are believed to have evaded tax by means of a VAT carousel fraud – a complex criminal scheme that takes advantage of EU rules on cross-border transactions between its Member States, as these are exempt from value-added tax. The estimated loss to the EU and national budgets amounts to at least EUR 85 million.
During the action day, Europol deployed one of its specialists to the coordination centre in Luxembourg to facilitate the information exchange and crosscheck against its databases the data gathered during the house searches.
For Asian corporate groups, it is important to understand how complicated and complex such projects between the member states of the EU are, you may just have a look at the participating authorities in -Goliath-:
- Europol
- German tax investigation units: Steuerfahndung Nürnberg, Steuerfahndung Hamburg, Steuerfahndung Oldenburg, Steuerfahndung Braunschweig, Steuerfahndung Konstanz
- German criminal police investigation units: Landeskriminalamt Düsseldorf, Polizeipräsidium Dortmund and Polizeipräsidium Düsseldorf
- Hungary: Budapest’s Metropolitan Chief Public Prosecutor’s Office and the National Tax and Customs Administration
- French Customs: Douane – Finances
- Denmark: Rigsadvokaten (Director of Public Prosecutions), Københavns Politi (Copenhagen Police) and Funen Police
- Switzerland: Public Prosecutor’s Office of Kanton Thurgau
- Sweden: Ekobrottsmyndigheten (Swedish Economic Crime Authority)
- Other law enforcement authorities in Lithuania, The Netherlands and Switzerland.
Realistic View
Do you think this is efficient? Of course not, it is a joke. Such “projects” often result in nothing. Highly intelligent criminals can not be apprehended. It is the “small fish” they catch labeling it as a “big catch” (Two cars worth EUR 550 000 – there are a lot of schemes actives involving hundreds of millions of EUR).
So why are they doing this? Because there is the political will within the EU to show that cooperation works. In practice, it does not work at all.
Maybe a minor exception: VAT – why? Because the members states need the VAT revenue to survive. Without it, they would be bankrupt…
VAT refund fraud is one of many challenges confronting tax administrations
Because of the synchronized and systemic attack on the tax regime by organized criminals who do not respond to usual compliance interventions, tax administrations must adopt a coordinated strategy and deploy a range of dynamic countermeasures to combat the threat that the fraud poses to revenue receipts. The prime objective of the strategy should be to protect the revenue.
This is tried in various way, but as mentioned before, it does not work. As Taiwanese corporate group, you should maybe know these approaches, because these points represent the weak points of the criminal defence system of the EU:
- Preventing the fraud or tackling it at the earliest opportunity – usually pointless, it often takes years until authorities of members states agree to work together on a certain case.
- Denying fraudsters access to the proceeds of their crime: Highly sophisticated criminals that transfer assets instantly off shore, no chance for European authorities.
- Increasing the financial risks for those who participate in, profit from, or facilitate the fraud: The risk is so low, that a minor increase does not hurt at all.
- Developing, implementing, and coordinating a range of interventions across government departments and with external stakeholders both nationally and internationally, with emphasis on closer working and collaboration, including establishing a special antifraud unit with officials from both the tax administration and other relevant government agencies: Every authority wants to be in charge (especially German authorities), nobody is okay with compromises – it takes ages!
- Ensuring that sufficient resources, particularly human resources, are deployed to combat the fraud: These authorities are permanently underfunded. They do not get good lawyers because salaries “tiny”, it is the Third Guard to get criminals often being advised by the best lawyers globally/the First Guard
Status Quo
So what is the reality? The EU does not work. We see it on various fields – and everybody can see it here, in the context of criminal cooperation. Why do Europeans not change this system if everybody knows that it is defective? Because it is still the left-wing political wish because of World War II to believe in a “unified Europe”, although professionals can see it on a daily basis: This system cannot work It has a reason why the UK opted out of the EU…
No single administrative intervention will resolve the problem of VAT refund fraud.
However, developing and deploying a combination of carefully planned interventions, supported by the continual collection and analysis of information linked to the monitoring of risk will significantly help minimize the level of fraud. But why should the authorities of different member states cooperate at all? Of course, the whole system is full of rivalries, there is no incentive to work together. And we know the nature of man: If there is no incentive, nothing will happen.
The European Union (EU) is one of the attractive jurisdictions for illicit money flows (IMFs) in the world. That is correct, because its anti-criminal system does not work in practice. Criminals engaged in IMFs use sophisticated methods such as trusts, shell companies, and VAT carousel to commit crimes such as money laundering and tax crimes. The link between tax crimes and other IMFs is built on the principle that financial criminals will ensure that their criminal proceeds are safely placed, layered, and integrated into the legitimate financial system. In all these processes, as usually associated with money laundering, the proceeds are susceptible to tax crimes since the criminals would evade payment of taxes in most cases.
Diversity and Complexity of Forensic and Juridical Methods
Complex and diverse methods and structures significantly hinder the efforts to tackle tax crimes across all the European States, as criminals continue to complicate and broaden their scope of operations. However, law enforcement is lagging behind in developing sophisticated systems to confront the sophistication by the criminals. This is partly due to limited resources (human, financial, technology) at the disposal of law enforcement and partly due to ineffective cross-border cooperation. For this, authorities would need excellent recruits or rather offices. These authorities will never get these high potentials if they can earn five to ten times as much as the EU pays them. Another question Europeans may ask themselves: Where does all the money goes to? The tax systems in the EU ask for European cities to pay a lot every year. Why is there not enough money to pay decent or rather highly qualified officers?
Other key findings Taiwanese businessmen should be aware of when being active in the EU:
- Tax evasion is considered in different criminal codes all over Europe…
However, there is no universal or a common EU definition. How can such a system work if we are dealing with highly sophisticated criminals not even having on single definition of tax evasion in Europe? Answer: It does not work, and it will never work.
- There is still no real whistleblower protection regime. If you spill the beans, you might get executed by the mob. Every responsible Attorney-at-Law has to recommend his client in such a scenario to not talk to officials, if he does not want to risk the lives of his family.
- Thin line between tax crime and tax avoidance as well as (aggressive) tax planning – lack of highly professional tax officers, that will never be recruited under these circumstances. More proactive efforts should be made by stakeholders to clearly demarcate these zones of confusion.
- Systematic tax evasion carried out over several years can prove more difficult to prosecute than a single fraudulent arrangement or transaction. Therefore, it is best to arrest the evasion situation early than later in order to gain relatively easy access to the right information and evidence for prosecution. But exactly this “early start in the battle” nearly never ever happens due to systematic problems in the EU (Nobody simply wants to give up competences).
- Cooperation and information sharing are key determinants of success in cross-border counter crime framework. In order to tackle tax crimes as a cross-border phenomenon, one of the most crucial measures is to ensure that jurisdictions foster and enhance effective information exchange among themselves. But exactly this never really works as notional authorities are scared to give away crucial information / that they will not be in the limelight if some fake success is reached.
Takeaways in regard to criminal prosecution for Asian companies in the EU
The criminal system in Europe lies devastated on the ground – you will not hear that in European media, of course.
Even Germany, with the strongest economy in Europe, only can offer often unqualified officials that prefer not to work and stay “in home office”. As I German lawyer, I hardly reach anybody at the public prosecutor’s offices or at a court after 1:00 or 2:00 pm. They are usually already at home now working anymore.
We often advices our clients’ primitive structures with entities in Poland, Germany, the Netherlands and Italy. Highly cost efficient, this is already to much for European criminal prosecutor´s. If Taiwanese corporate groups outsource their accounting department to Germany accounting firm, for instance, the likelihood of getting into touch with any of the criminal prosecution officers of the 21st century goes to zero.
Is this in the interest of Europe? No, of course not. Crime harm all of us, they weaken our governmental system.
This seems to be the price we have to pay for the lie of a unified Europe – and trust me, we European citizens have not been asked if want this system. As a German citizen, the underwriter has been forced by the German government – they say history repeats itself.
