The fall of a large, multinational money-laundering and financial criminal enterprise has just been witnessed. In an effort involving multiple agencies in a joint attack, German and Dutch authorities arrested two individuals believed to mastermind one of the largest-ever VAT fraud operations involving automobiles, a fraud worth a total of €300 million.
Whereas the general public associates organized crime with smuggling and physical heists, this operation has shown that computer skills and knowledge about tax law loopholes can prove even more profitable and dangerous than a conventional bank robbery.
What is a VAT "Carousel" Scam?
In order to comprehend the mechanism through which the two criminals managed to create a black hole worth €300 million in the economy of Europe, it is important to understand the details of so-called “VAT carousel” or “roundabout” fraud.
According to the EU rules on the movement of goods between its members' territories, the transfer of expensive assets from one country, such as the Netherlands to another, say Germany, is not subject to Value-Added Tax for the first time. In this case, the fraudsters used the loophole in the system of taxation by setting up a sophisticated scheme of fictitious businesses and "missing traders".
According to the allegations, the two men imported expensive cars without having to pay any taxes, sold them to the local dealerships including VAT in the price of the car, and kept the money instead of transferring them to the state treasury. In addition, the cars were exported back across the borders on paper and thus the suspects were able to receive huge refunds from the government.
The Paper Trails and Luxury Mansions
The sheer size of the investigation worth millions of euros needed to be handled seamlessly by the German Steuerfahndung and the Dutch tax authorities. The forensic accounting team had been tracing the web of fake invoices, shell corporations, and strawman directors in Western Europe for several months.
The turning point in the investigation arrived when the investigators spotted irregularities in the local motor vehicle registers. Top-of-the-line sports cars and luxury sedans appeared to change hands dozens of times each month, yet remained parked in the exact same spots without ever being moved.
During the police action, simultaneous raids on private residences and corporate offices uncovered not only evidence stored in the digital servers. Millions in cash, high-end real estate holdings, and many luxury vehicles were seized during the raids of the multi-million euro fraud scheme.
