EPPO

In an extensive operation carried out today, 21 March 2023, against a criminal group based in Naples (Italy), believed to have orchestrated a massive VAT fraud through the sales of electronic equipment, 12 people were arrested by the Italian Financial Police (Guardia di Finanza), including four public officials, for corruption offences. 

During the operation, led by the European Public Prosecutor’s Office (EPPO) in Naples and Milan, 25 searches were carried out in Naples, Caserta, Milan, Rome, Alessandria, Prato and Pistoia by 100 officers of the Italian Financial Police (Guardia di Finanza – Nucleo di polizia economico-finanziaria Napoli).

The Italian pre-trial judge, at the request of the EPPO's European Delegated Prosecutors, issued an order for detention on remand of the 12 suspects, and a freezing order for a value of approximately €8 million.

At stake is a suspected 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 (VAT).   

According to the investigation, the fraudulent scheme, which took place between 2017 and 2022, involved 170 shell companies in different countries, including Albania, Austria, Bulgaria, Czechia, Germany, Italy, the Netherlands, Poland, Slovakia, Slovenia, Spain and the USA. The electronic equipment (mainly AirPods) were ostensibly traded through these companies, using fictitious invoices, in order to evade the payment of VAT.

The goods were ultimately sold at very competitive prices through large organised distribution companies in several parts of Italy, creating serious competition distortions in this market.

The criminal profits were then laundered and also reinvested in metal companies selling copper and wire rods.

The crimes under investigation include conspiracy, VAT fraud, corruption, hacking and  money laundering.

During the operation, bank accounts were frozen, and cash, high-value watches, vehicles and jewellery were seized, in execution of the order issued by the judge.  All the 12 suspects were arrested: five entrepreneurs, three accountants and four public officials, all of them from Italy.

Further investigations are still ongoing into a massive fictitious VAT credit (€200 million) sold by a US company from Delaware to several Italian companies, and understood to have been already partially used to offset fiscal debts.

According to the evidence collected by the Guardia di Finanza, the criminal group was based in Naples, working as a professional company that sold VAT evasion models to its clients.

The organised criminal group also involved four public officials, three from Guardia di Finanza and one from the Tax Enforcement Agency (Agenzia delle Entrate - Riscossione), suspected not only of playing an active role in the VAT fraud mechanism, but also of accepting bribes in order to slow down criminal proceedings and tax audits, avoid the enforced payment of tax debts and illegally obtain information from police and judicial databases.

The Guardia di Finanza worked closely with the EPPO in the investigation, leading to the officials’ arrests, diligently and resolutely tackling the suspected criminal activity within their ranks.   

All persons concerned are presumed to be innocent until proven guilty in the competent Italian courts of law.

At the request of the European Public Prosecutor’s Office (EPPO) in Palermo (Italy), the Italian Financial Police (Guardia di Finanza) have executed a seizure order on Wednesday, 1 March, against a farmer suspected of fraud involving agricultural funds, with estimated damages of €600 000.

Between 2012 and 2022, the suspect under investigation allegedly falsified statements and declared ownership and possession of land in the province of Messina that he did not own, in order to obtain agricultural funds from the European Union – namely through the European Agricultural Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD).

According to the investigation, the suspect declared that he was in possession of numerous agricultural land parcels, located mostly in the Nebrodi national park, allegedly resorting to false lease contracts.

In some cases, as demonstrated by the evidence collected, the suspect claimed that he was in possession of parcels of land that were actually owned by the State Forestry of the Sicilian Region, or produced false lease contracts bearing the signature of owners deceased before the date of the contract – thus misleading the Italian agricultural payments agency AGEA (Agenzia per le erogazioni in agricoltura), and unduly receiving over € 600 000 in EU subsidies.

At the request of the European Delegated Prosecutors, the judge for preliminary investigations in Patti, Sicily, ordered the preventive seizure of assets for the sums unduly received, a precautionary measure that was executed by the Guardia di Finanza of Sant'Agata di Militello.

The precautionary measure was issued based on the evidence collected during the preliminary investigation. All persons concerned are presumed to be innocent until proven guilty in the competent Italian courts of law.

The Annual Report for the activities of the European Public Prosecutor’s Office (EPPO) in 2022 shows a clear focus on EU fraud affecting public revenue, in particular cross-border VAT fraud. By the end of 2022, the EPPO had 1117 active investigations with overall estimated damages of €14.1 billion, nearly half of which (47%) resulted from VAT fraud.

In 2022, the EPPO received and processed 3318 crime reports and opened 865 investigations. Moreover, judges granted the freezing of €359.1 million in EPPO investigations (compared to €147.3 million in 2021), which represents more than seven times the organisation’s 2022 budget.

2022 in numbers

Some of the key figures featured in the Annual Report, valid on 31 December 2022:

3318 crime reports were processed;

865 investigations were opened;

1117 active investigations with estimated damages of €14.1 billion;

16.5% of active investigations (185) were linked to VAT fraud, but account for 47% of the estimated damages (€6.7 billion);

€359.1 million in freezing orders granted;

114 European Delegated Prosecutors in active employment;

217 staff members at the central office in Luxembourg.

Laura Kövesi, European Chief Prosecutor:

‘One year-and-a-half after the start of our activities, the potential of the EPPO cannot be ignored. In 2022, we have demonstrated that the EPPO has an unprecedented capacity to identify and trace volatile financial flows and opaque legal arrangements. We have proven that the speed, efficiency and information gains in EPPO-led investigations make it hard for traditional cross-border coordination methods to compete.

‘We are on the right track, but we need to do more. The EPPO is far from having reached its full potential. If we want the EPPO to make a lasting difference, we need organisational and legal adjustments. This includes the revision of the EPPO Regulation, and the assignment to the EPPO cases of dedicated and specialised financial fraud investigators in all the participating Member States.’

Fraud detection on the rise

The European Delegated Prosecutors form the front line of the EPPO, working on the decentralised level in the 22 participating EU Member States. In all the different Member States, they have the same priorities and implement the same prosecutorial policy, as defined by the College of the EPPO. Their focus is on complex, cross-border investigations into sophisticated economic and financial criminality, in particular where serious organised criminality is involved.

In 2022, most of the backlog of cases opened by national authorities that were passed on to the EPPO was processed, and all the new reports about suspicions of fraud coming from all possible sources were dealt with. In total, 3318 crime reports were received. The proportion of reports from private parties (58%) is very high, which is an expression of great expectations from EU citizens towards the EPPO as a European Union judicial body.

A first positive evolution with regard to the level of detection of fraud affecting the financial interests of the EU in some Member States could be perceived. There are now more investigations into EU fraud initiated in the 22 participating Member States than the historical average before the EPPO’s establishment. This is particularly visible on the revenue side of the EU budget, with an increased focus by some national authorities starting to bear fruit, as well as the EPPO using its ‘helicopter view’ and capacity to identify links that had remained hidden, so far.

OPERATION ADMIRAL – EPPO UNCOVERS ORGANISED CRIME GROUPS RESPONSIBLE FOR VAT FRAUD ESTIMATED AT €2.2 BILLION

VAT carousel fraud is the most profitable crime in the EU, costing around €50 billion annually in tax losses to the Member States. Operation Admiral brought to light that all the participating EU jurisdictions can be involved, no matter where the damages occur at a certain point in time, or where it is detected. It also showed the complex international ramifications of this serious financial crime phenomenon. 

However, significant discrepancies remain, and these need to be addressed for the EPPO to be able to make a lasting change, particularly in the fight against cross-border VAT fraud.

The numbers in the EPPO’s 2022 Annual Report are very encouraging, but they do not yet mirror the expected gradual improvement of the overall level of detection of EU fraud. With the first projects funded under the Recovery and Resilience Facility only starting to be implemented, neither do they mirror the growth of the volume of financial interests of the EU to protect.

Review of the EPPO Regulation

In order to reach its full potential, the EPPO Regulation must be reviewed as soon as possible on several critical aspects. Beyond the need to simplify the administrative complexity of the EPPO, as well as to correct, for example, the rule on the partial replacement of its College, the EPPO must be able to exercise its competence for offences such as smuggling under the same conditions in all the participating Member States. Otherwise, criminal organisations are given the possibility to escape the most powerful prosecution available by simply moving their activities to another country. 

The European Public Prosecutor’s Office (EPPO) in Milan (Italy) has executed a seizure of more than €170 000 against Ms Stefania Zambelli, Member of the European Parliament (MEP), and four of her assistants, as part of an investigation into possible fraud involving parliamentary allowances.

The investigation, led by the EPPO and carried out by the Brescia branch of the Italian Financial Police (Guardia di Finanza), concerns a suspicion of fraud detrimental to the EU budget, regarding the remuneration of four parliamentary assistants hired in Italy.

According to the evidence, the four members of staff did not carry out the activities related to the function for which they were hired, or only carried them out partially, falsely documenting their activities to the European Parliament.

In addition, they misrepresented their qualifications, having declared educational and professional skills that they did not have, according to the investigation.

It is believed that the MEP, who is closely related to at least one of the people hired, also benefited from the sums paid by the European Parliament for the work activities that the staff should have performed.

The estimated damages to the EU budget amount to €172 148.82.

The execution of the seizure order was completed last Thursday, 23 February, by the Italian Financial Police, and included bank accounts and luxury cars.

The judicial measures were issued based on the evidence gathered during the preliminary investigation. All persons concerned are presumed to be innocent until proven guilty in the competent Italian courts of law.

The European Public Prosecutor’s Office (EPPO) in Milan (Italy) have seized assets and arrested six people, believed to be part of a criminal organisation, in a sting against a massive VAT fraud scheme involving several countries, with estimated losses of €40 million.

At stake is a suspected 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 (VAT). 

The complex investigation uncovered a labyrinthine network through which companies established in Bulgaria, the Netherlands, Poland and Slovakia sold electronics and computer equipment to shell companies in Italy, administered by figureheads, in order to evade the payment of VAT.

According to the evidence, the goods were sold, under-priced, to companies in Italy, making it more difficult to identify the scheme and its perpetrators, while also increasing the illicit profits.

Ultimately, the commodities were sold to regular Italian companies at very competitive prices, as well as to other companies in the EU, allowing for massive tax savings. The scheme also generated huge VAT credits in Italy, all leading to immense criminal profits that were then money laundered, according to the investigation.

The evidence collected during the preliminary investigation, which included wiretapping, led to six arrests and to 60 searches carried out in several EU Member States, in October 2022.

Later, on 30 January this year, the European Delegated Prosecutors in Milan issued a precautionary warrant which allowed the police to seize property, luxury cars, jewellery and cash, and also to freeze bank accounts, for a total amount of €40 million. The preventive seizure order was approved by the judge of preliminary investigation of Milan on 11 February.

These coercive measures, issued by the EPPO office in Milan, were executed by the Italian Financial Police (Guardia di Finanza) of Milan, Varese, Bergamo, Como and Sesto San Giovanni, who also conducted the investigation, under the coordination of the EPPO.

VAT carousel fraud, or Missing Trader Intra-Community (MTIC) fraud, is the most profitable crime in the EU, costing around €50 billion annually in tax losses to the Member States, according to the latest estimate by Europol.