There’s a new game in town.
Well, it’s based on an old game, actually. A game that’s as old as the European Union’s open internal borders.
It’s called VAT Fraud Carousel, and it’s all about robbing European (and Maltese) taxpayers to stuff one’s own pockets by moving goods around. Now, there’s a video game that shows you how it’s done.
A cross border investigation by more than 30 European newsrooms, including The Shift, revealed exactly how VAT fraud carousels operate, and how they’re being used in Malta.
Basically, the scam works by moving the same goods (or fictitious goods) between different companies in different EU countries. The more complicated the web of companies that the goods are moving between, the more lucrative this scam becomes, as goods can be moved back and forth across national borders multiple times.
This movement of goods racks up large amounts of VAT, which is never paid. A different company in the scheme then claims a refund on that fictitious VAT, draining national revenue agencies and robbing European taxpayers of an estimated €50 billion each year.
Why would any country pay refunds for VAT which was never collected?
The fact that it wasn’t paid in the first place is deliberately buried in the complicated web of transfers between companies that appear to be different on paper, but which are actually controlled by the same hidden hands.
As The Shift reported in its Grand Theft Europe articles, Malta is a convenient location for scammers using the VAT fraud carousel scheme because of its lax enforcement.
Basically, in order to run such a scam, you need a company to run it through. Where better to register that company than in an EU country, but one where officials are known to look the other way on matters that don’t directly concern them.
The Shift News reported on how Malta is openly discussed by criminals in these circles, who choose the country for its large network of corporate service providers, quick company formation, nominee services, and understaffed regulatory agencies.
If someone does start asking too many questions, they simply move the money and let the business become “inactive” on the Register of Companies.
One of these scams was being run by a company called STK Europe Ltd, right out of its offices at Smart City. It was shut down by Italian authorities in 2017. Despite registering €50 million in turnover in its first year of operation, no red flags were ever raised in Malta.
It’s difficult for citizens to grasp how something so abstract is actually stealing from them. Tax scams are complicated for the average person to understand, and difficult for law enforcement agencies to prove. That’s why they work so well. The structures involved are so opaque, decentralised and layered that no one agency or person gets a view of the total picture, and few agencies have the resources to devote to figuring them out.
They say the best way to understand something is to learn by doing it. And that’s what NewsGamer has done. By teaming up with Correctiv, and based on the findings of a major investigation by European newsrooms, including The Shift, NewsGamer has created a way for you to understand VAT fraud carousel from the inside.
You can try it out here.
The game allows you to set up your own virtual VAT carousel fraud. I did it a few times this morning, and I was shocked by how easy it is to abuse the system.
The game walks you through each step of the decision making process, allowing you to put yourself into the minds of these criminals while explaining what the different steps mean and why they work.
I suspect this game will be interpreted in very different ways depending on where it is played.
I can see my German neighbours playing it and becoming increasingly horrified at how easy it is to manipulate the rules and defraud taxpayers, draining revenues that could be spent on social programs which reduce inequality. Their response to it would be outrage.
But this game could backfire very badly in Malta, where I could see it being interpreted as an instruction manual for easy money.
There’s no reason to expect outrage in Malta, where the typical response to the long list of corruption scandals plaguing the country is a shrug, an excuse, and whataboutism. I have a feeling that, in certain circles, this criminal scam will be met with envy instead.
For Grand Theft Europe, The Shift News teamed up with a network of 35 European media partners from every European country, coordinated by the German non-profit newsroom CORRECTIV. Together the network is investigating VAT carousels, the biggest ongoing tax fraud in the EU. The investigation has resulted in numerous stories, a podcast and a number of TV documentaries.
The project: www.grand-theft-europe.com