Grand Theft Europe #2: Fraud by companies in Malta exposed

• Probe reveals lax law enforcement in Malta where registered companies get away with filing no VAT returns and no audited accounts, and then remain on the country’s Register of Companies as “inactive” after millions disappear.

• A company with offices at Smart City was shut down by Italian authorities in 2017. Despite registering a €50 billion in turnover in its first year of operation, no red flags were ever raised in Malta. It is one of a number of similar cases unravelled by foreign State investigators.

• Criminal kingpins boast that Malta’s ‘business friendly’ environment is a good node for the lucrative scam.

Tax and security services investigations have revealed a number of companies registered in Malta involved in schemes that defraud billions in taxpayers’ money, according to a probe of 300,000 pages of previously unseen documents.

The scam, known as Missing Trader Intra Community (MTIC) Fraud, or VAT Carousel Fraud, involves a Europe-wide racket that is robbing taxpayers of €50 billion annually. The documents on which the investigation is based, analysed by a network of 35 European media partners including The Shift News, also shed light on the players involved.

The Europe-wide probe, coordinated by non-profit newsroom CORRECTIV, reveals lax law enforcement in Malta where registered companies get away with filing no VAT returns and no audited accounts, and then remain on the country’s Register of Companies as “inactive” after millions disappear.

Fraudsters abuse of the internal market and cross-border exemptions from VAT to set up webs of companies in different European countries to import and export goods, rack up significant amounts of VAT, never pay it, and later claim a refund through another company.

The Malta link

One case last month involved a navy Admiral in Catania, Giovanni di Guardo, who is accused by Italian prosecutors of taking advantage of the permanent Italian military mission of assistance to the Maltese army to set up companies in Italy and Malta as part of a scheme to steal VAT funds. It is one of a number of cases involving Malta in VAT carousel fraud that extend beyond the country’s immediate neighbours.

In 2006, a British gang perpetuated a £500 million (€582 million) scam involving the trade of mobile phones, CPUs and pre-paid phone cards across multiple countries. The Maltese company, Micromkt Ltd (C37211), established as a conduit trader (the company that exports goods into a fraudulent chain), traded in excess of £60 million (€70 million) worth of CPUs and never even filed a single VAT return in Malta or any audited accounts.

During that same year, another VAT carousel, that involving Entatech / Changtel was also in full swing in the UK causing a £50 million loss. Another Maltese company, Trade Zone Ltd (C40546), featured in one of the fraudulent trade chains with upwards of £10 million (€11.6 million) worth of trades in USB sticks and a £1.2 million (€1.4 million) tax hole. In its 12 years of existence, Trade Zone Ltd never filed any annual accounts.

To ensure the scam is profitable, volumes need to be large so fraudsters typically target wholesale trades in goods that are small (to minimise transport costs) but high in value. However, in practice, any good or service subject to VAT is vulnerable to carousel fraud.

If the turnover is good enough, fraudsters may attempt to offload goods onto the retail market. This appears to have been the case with Gli Stockisti, a popular Italian website selling smartphones, tablets and TVs at unbeatable prices. The company was shut down in 2017 by the Italian Guardia di Finanza. The secret to their unbeatable prices was VAT carousel fraud to the tune of €50 million, according to the Italian police. The owner of the website was STK Europe Ltd (C61219), a company with offices at Smart City.

In 2014, STK Europe Ltd had run a promotional campaign about its reasons for setting up in Malta and the number of employees it would employ. When the company, which is facing insolvency proceedings in the Maltese courts, eventually filed its first set of accounts it registered €50 million in turnover in its first year of operation. No red flags were raised in Malta at the time.

These schemes defraud taxpayers to sustain lavish lifestyles for crooks, and the proceeds have even been used to sustain terrorism, the mafia and other illicit activities, according to the European Commission.

The involvement of companies in Malta did not start yesterday – some of the scams being unravelled involving Malta date back almost a decade. It is a risk with all countries positioning themselves as “financial services jurisdictions”, but when compliance and supervision are sacrificed, the likelihood of Malta being used by criminals increases significantly.

Millions ‘disappear’ daily

Fraudsters do not even need to physically move goods – goods in warehouses or oil storage depots particularly within Freeports or Free Zones often change hands through paperwork without needing to move – or even exist at all.

In 2006, a Maltese company, Bruins Consortium Ltd (C 36928) featured in a particularly messy carousel where the UK’s Her Majesty’s Revenue & Customs (HMRC) found that the paperwork was sufficiently suspect (the same goods were marked as being delivered before they were even bought, or they were being delivered simultaneously in different countries) to suspect many of the goods never changed hands or existed at all. Bruins Malta never filed a VAT return or accounts in 13 years. Again, no red flags in Malta at the time.

Financial authorities have said they witnessed as much as “€10 million a day” disappear (watch video below).

This pales in comparison to Operation Round Trip in Italy – a massive carousel involving a network of 180 companies spread out across 15 countries (four conduit companies were in Malta) which traded over €900 million worth of non-existent hi-tech goods as well as food products.

Certain carousel frauds such as those that targeted the EU carbon emissions market in early 2010, or those that traded in VoIP (internet telephony) in Italy, the UK, the US and Finland, involved intangible digital goods or services allowing thousands of transactions to take place in mere minutes.

Malta, a safe bet

Perhaps unsurprisingly, the majority of carousel cases involving Malta focus on one of the country’s main imports and exports – petroleum.

Over the past four years alone, Maltese companies have featured in no less than six busts by the Italian Guardia di Finanza involving the illegal importation of petroleum products and related VAT carousels.

These include investigations by the Italian Guardia di Finance on Operazione Sturm Oil, Operazione Cocktoil, Operazione XP (which includes the related Dirty Oil investigation), Maloa, and, as recently as last March, Operazione Calderone which revealed the smuggling of diesel fuel from the Balkans officially destined for Malta but ending up on the black market in Italy in a scam amounting to €8.6 million.

In each case, the Maltese companies are accused of acting as conduits importing or exporting petroleum into or out of the chain. All persons involved deny any wrongdoing.

Malta and its “business friendly” government policies, including one-stop shops to swiftly set up VAT registered companies stands out. Criminal kingpins, as well as smaller fry, boast that Malta’s ‘business friendly’ environment is a good node for the lucrative scam, according to the documents seen as part of the probe.

The cache of documents investigated show that crime kingpins openly boast about this, as well as smaller fry such as a former Admiral in the Italian navy Di Guardo, who bragged about his fiduciary company in Malta, saying he could “transfer funds while by the pool in Romania”.

With a vast array of corporate service providers offering quick company formation and nominee services, combined with under-equipped and understaffed regulatory authorities, Malta is a prime location as a node in the network.

Read more: Grand Theft Europe: Malta’s role in a scam worth €50 billion annually

According to VAT fraud expert Marius-Cristian Frunza, most of the big VAT carousel fraud cases involved gang members holding at least two different passports. In order to hide common ownership of companies in a carousel, some fraudsters opt to create multiple identities without even needing forged documents.

Cash-for-passport schemes such as Malta’s add arsenal to the fraudsters’ toolkit. Multiple passports make it extremely extremely difficult for law enforcement authorities to accurately assess the full extent of the individual’s involvement in the cross-border crime.

Questions sent to the Finance Minister were not answered by the time of writing. Questions were also sent to the Prime Minister’s Office.

Did you miss the Part 1 of the Grand Theft Europe investigation? Click here to learn more on how the fraud works.

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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