New EU Prosecutor’s Office Takes Aim at 50-Billion-Euro-a-Year ‘Carousel Fraud’ Schemes
01 Dec 2020

By Will Neal, OCCRP, 30 November 2020

OCCRP — OCCRP spoke with the head of the new European Public Prosecutor’s Office about the challenges in fighting the widespread  — but often-ignored — criminal scheme.

“No one’s interested in value-added tax. It’s just not sexy enough.”

There’s an edge of exasperation in Euan Grant’s voice. Having spent most of his career as a tax and customs adviser, first in the U.K. and later for the European Union, he’s seen firsthand how lucrative value-added tax (VAT) fraud really is.

Every year, organized criminals use VAT schemes to bleed an amount equivalent to the GDP of Greece from the bloc’s budget. By far the most damaging and sophisticated of these scams is ‘carousel fraud,” which drains an estimated 50 billion euros per annum from the EU’s coffers.

But carousel fraud is diabolically difficult to explain, much less investigate and successfully prosecute. And despite the vast sums of money involved, Grant knows how hard it is to convince policy-makers of the importance of targeting this type of criminal enterprise.

“Careers today are made in terrorism; before they were made in drugs,” he said. “Carousel fraud is huge, only it never attracts the same kind of attention.”

That looked set to change in 2017, when the EU announced a new player in its fight against VAT scams and other such “crimes against the budget” in the form of the new European Public Prosecutors’ Office (EPPO). Laura Kövesi, who was appointed its first chief in October 2019, told OCCRP she expects the organisation to play a critical role in targeting cross-border tax scams that tend to fall through the cracks of the current system.

At present, national authorities in Europe are empowered only to investigate financial crime within their borders, relying on arduously complex and often slow avenues of cooperation to pursue wrongdoing further afield. It’s a crippling disadvantage, and one most VAT fraudsters seek to exploit.

“Until now, the procedures in place have been very time-consuming, and such investigations can often take two or three years. In the meantime, suspects can disappear, taking the money with them,” Kövesi said.

The EPPO’s supporters hope the new office will help public prosecutors from each member state to cooperate quickly and efficiently through a head office in Luxembourg, gathering evidence in a matter of days that can be used for prosecution in national courts.

But, after a year of warnings over inadequate funding and support, the new organization, originally due to launch this month, has yet to hire much of its staff.

From almost the moment she assumed office, Kövesi has said the funding on offer from the EU Commission is nowhere near enough. “After I first raised my concerns they did raise our budget to 30 million, but we’re still short the 18 million euros we need to start in the proper way, such that our activity will not be effectively halted within just one or two months,” she said.

Grant, who now works as a fellow at the U.K. Institute of Statecraft, added that securing the right level of funding will be only half the battle. He said the EPPO must enact safeguards to shield itself from influence by criminal interests, given how much money is at stake for the organized crime groups masterminding Europe’s largest carousel frauds.

“This is organized criminality with capital letters,” Grant explained, describing carousel frauds as “white-collar operations which often enjoy a degree of political protection.”

Kövesi’s home country, Romania, is a hotspot for illicit VAT schemes, but the new institution’s head is quick to point out there isn’t a clean country in the bloc.

Ramona Strugariu, a member of the European Parliament representing Romania, told OCCRP that carousel fraud is usually prevalent “either in countries without a strong rule of law, or member states where the judiciary is captured, dysfunctional, at threat of, or already under political influence, and where crime networks are extremely powerful.”

Carousel fraud cases often pop up in Poland, Greece, Bulgaria, and Hungary, while previous digging by OCCRP has revealed how the Italian mafia have used carousel rackets to launder their dirty cash.

Read more at OCCRP

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