FISCAL FRAUD - WHAT DO CRIMINALS THINK
- Fiscal fraud is particularly appealing to criminal organisations because, as stated by a cooperative witness during an investigation conducted by the European Public Prosecutor’s Office (EPPO),
- “You risk nothing, you just need to find an accountant, a good lawyer and someone who knows how to talk, and you can make big money”.
- In contrast, drug trafficking is seen as less attractive,
- “With its very severe prison sentences in the event of conviction”.
- Moreover, drug-related crimes draw significant public attention, often prompting a strong response from authorities.
FISCAL FRAUD PAPER
- Marco De Simoni and Antonio Pellegrini have published a Fiscal fraud paper titled
- "Not a dog. Not a wolf. All he knows is what he’s not:
- Detection indicators for BUFFER COMPANIES involved in complex fiscal frauds".
BUFFER COMPANIES (BCs)
- BCs are used in complex fiscal frauds, where they obscure the link between illicit transactions and their final beneficiaries.
- They help extend the fraud chain and shield Real and Operating Companies (ROCs) from direct involvement, while these latter ultimately benefit from illicit activities.
- This makes detection more difficult for AML functions of financial intermediaries.
THIS STUDY
- In this study, the authors build and analyse a unique dataset of BCS, sourced from Italian Supreme Court rulings and suspicious transaction reports submitted to the Italian Financial Intelligence Unit (UIF).
- The findings reveal that BCs exhibit an “amphibious” behaviour, combining Shell Companies (SCs) and ROCs features.
- The authors develop a composite indicator for identifying potential BCs, offering a screening tool for AML functions of financial intermediaries.
- This tool can support more effective detection and timely reporting of suspicious entities to UIF, reducing the risk of serving potential criminal clients.
- This study, released by the Italian Financial Intelligence Unit (UIF—Banca d'Italia), examines the role of buffer companies in sophisticated tax fraud schemes.
- These companies obscure the link between illicit transactions and their ultimate beneficiaries, complicating financial institutions' detection of suspicious activities.
- The paper introduces a synthetic indicator designed to help distinguish buffer companies from shell entities or legitimate businesses, enhancing AML screening and tax risk management across the financial sector.
- Overall, this study aims to address a gap in the literature by providing practical tools for FIs to detect and report BCs to the Financial Intelligence Unit promptly, thereby mitigating potential financial and reputational risks.
- Nevertheless, it is acknowledged that this is a preliminary pilot study and not exhaustive; additional data and analyses are needed to validate the proposed indicator.
- It's a significant step forward in combating financial crime.
References
