Financial Police investigators are now tracing the labyrinthine structures and corporate arrangements used by financial crime networks to launder the ‘black’ money they siphon from tax fraud at the expense of the public purse, as details emerge in major cases involving the well-known Pizza Fan and Choriatiko chains.
Despite ongoing digital reforms, the introduction of the MyData systems and the connection of point-of-sale terminals to cash registers, financial crime networks are staying one step ahead of those pursuing them, using more sophisticated technological systems for tax evasion and laundering the proceeds of their illegal activities.
With astonishing adaptability to new digital conditions, they are finding ways through AADE’s electronic net, undermining the belief that digitisation would automatically eliminate ‘black’ money.
The main scheme no longer relies on simply failing to issue a receipt, but on digitally sabotaging the very software used for tax audits.
In the Pizza Fan case, authorities uncovered the use of specially altered software in the central ordering system, which changed data before it was transmitted to AADE, concealing a huge volume of takings and the VAT due on them.
Similarly, at the Choriatiko bakery chain, a vast operation was set up to evade tax and avoid paying VAT and social security contributions, with losses to the state reaching astronomical levels.
From tax evasion to money laundering
Once tax evasion has been carefully orchestrated, the next stage is laundering the ‘black’ money. On the face of it, everything appears legal and above board for the legal entities that play a pivotal role in the laundering process: a valid tax identification number, registration with GEMI and a bank account.
The reality, however, is very different: companies that exist only on paper, invoices for work that was never carried out, ‘straw men’ presented as owners who are not the real masterminds, and money transferred from one company to another.
The money-laundering process is already under way. The first company is linked to several other businesses, which share directors or shareholders, or have other financial ties. These companies may be legally incorporated and have bank accounts, but have little or no genuine business activity.
Triangular transactions
One of the main methods that can be used to conceal the true origin or final destination of money is triangular transactions.
These involve three or more businesses that appear to conduct commercial transactions with one another. Triangular transactions are not illegal in themselves. They are a common tool in international trade. The problem arises when fictitious transactions, forged documents or companies with no genuine economic activity are used to conceal the movement of money.
For example, a business may appear to buy services from a second company, which is in turn invoiced by a third. If the services were never provided or the charges do not reflect work actually carried out, the documents may be used to justify payments that have no legitimate basis.
Fake invoices
Another practice is issuing invoices for services that were never provided or goods that were never delivered. Consultancy services may require particular scrutiny because their actual scope is not always easy to assess.
A company may, for example, report significant expenses for consultancy services without corresponding reports, deliverables, contracts or evidence of work. If the money goes to related parties or companies with no substantial business activity, this raises red flags that warrant investigation.
The crucial issue is not simply whether an invoice exists, but whether it corresponds to a genuine economic transaction.
Front companies
Front companies may present themselves as legitimate businesses, while in reality having no substantial operations, staff or corresponding economic activity. In some cases, corporate structures spanning different countries are used to make it harder to establish who the real owner is.
The existence of a company abroad is not in itself evidence of wrongdoing. However, when the owners remain opaque, transactions have no clear economic rationale and money moves between companies without an obvious business purpose, the risk increases.
Cash transactions
Money laundering may also be linked to businesses that conduct many transactions in cash. The trail usually begins with undeclared income, tax evasion, fraud or other illegal activities.
The money may then be channelled into financial transactions through businesses or other activities, with the aim of concealing its true origin. In some cases, fictitious transactions, companies or documents that do not correspond to genuine economic activity are used.
The ultimate aim is to make the sums appear to be legitimate income or assets, such as business profits and investments. To detect such practices, tax authorities examine whether declared income is consistent with actual business activity, purchases, expenses and tax documents. Unusual discrepancies may lead to further scrutiny, but do not automatically constitute proof of money laundering.
Property and luxury goods
Another category involves buying property, luxury goods or other assets with money of unclear origin. Their subsequent sale can create the appearance of legitimate income, which is why authorities examine the initial funding, the asset’s true value and the buyer’s financial means.