European prosecutors office busts EU-wide VAT fraud ring involving Malta

The European Public Prosecutor’s Office has busted an organisation suspected of massive VAT fraud to the tune of €195 million, conducting searches and making arrests in 17 countries across Europe, including Malta.

The fraud related to the sale of smartphones, small electronic devices and protective face masks involved more than 180 searches, 14 arrests and the support of some 680 tax and police investigators.

Countries involved in the criminal scheme include Malta, Albania, Germany, Hungary, Italy, Poland, Sweden and the UK, among others.

During the search as a part of the operation called ‘Midas’, the authorities seized significant numbers of electronic devices worth some €15.3 million, as well as a €3 million yacht and some €1.2 million in cryptocurrencies and cash.

Several cars were also seized, including a BMW, Ranger Rover and a Rolls-Royce. Gold, jewellery and luxury watches were also seized from a number of the suspects’ residences.

A press release from the EPPO described it as “carousel fraud”, a “complex criminal scheme that takes advantage of EU rules on cross-border transactions between member states, as they are exempt from VAT”.

The investigation found that the suspects had created a complex criminal system, allowing them to defraud authorities of up to €195 million.

EPPO reported that, since 2017, a German conduit company led a number of different criminal schemes involving the sale of small electronic goods such as smartphones.

Fraudsters used chains of missing traders, who would make the sale, take the money, and then disappear without paying their fiscal dues.

When the COVID-19 pandemic hit in 2020, those behind the scheme got involved in selling protective face masks. When face masks were in high demand, the company bought them from a “missing trader”, channelling them through several buffer companies to disguise their final destination.

While on paper, the company was based in Hong Kong, the face masks were in Germany and remained there until the German government purchased them.

According to the investigation, the press release states that neither the company at the beginning of the supply chain nor the Hong Kong-based company reimbursed the VAT they had received upon the sale of the face masks to the ministry.

“Ultimately, the suspected criminal organisation behind the identified VAT fraud schemes is believed to have created layers of shell companies, straw men, fictitious identities and secret communication to mask their criminal activities,” the statement adds.

The investigation took place over two years and involved the cooperation of the Malta Financial Crime Investigation Department and similar entities in other European countries. Europol and Eurojust were also involved throughout.

This is not the first time Malta has been implicated in carousel fraud.

Update: Maltese media has named Maltese food importer Mohan Bharwani as one of those arrested as a part of the investigation.