The European Public Prosecutor’s Office (EPPO) has dismantled a suspected fraud ring of Chinese exporters believed to have evaded approximately €310 million in taxes.
The EPPO announced on March 28th that it had carried out ten searches in several locations in Belgium, including the Liège Airport and private residences, and arrested four suspects, in the culmination of what’s been dubbed ‘the Silk Road Operation’ involving Europol, the Belgium Customs, and VAT Authorities as well as several branches of the Belgian Police.
According to the investigation, Chinese exporters had put in place a complex system to evade VAT and other taxes while increasing their own profits.
Using three Belgian private customs agencies and a number of fake companies supposedly based in EU member states beyond Belgium, the exporters declared that the goods, primarily electronic equipment, toys, and various accessories, would be transported to locations outside Belgium.
The ring invoked Customs Procedure 42, which allows importers to not pay VAT tax at the port of entry if the goods are destined for other EU member states, where the VAT tax would then be paid.
Using reliable private customs agencies in Belgium and shell companies located in France, Germany, Hungary, Italy, Poland, and Spain, the Chinese exporters are believed to have created fake invoices and falsified transport documents to convince European tax and import authorities that duty and VAT taxes had been paid on the goods. In some cases, the ring allegedly used the names of real companies, which were unaware that their VAT numbers and identities had been stolen.
But investigators believe the goods were actually supplied to other real companies in distinct member states from the locations of the shell companies or sold to final consumers through online marketplaces. VAT was never declared, though charged to the final buyer.
The activities under investigation span 2019-2022, and a total of €303 million in evaded VAT and €6.6 million in evaded customs duties. Charges could include forgery, customs and VAT fraud, money laundering, and participation in a criminal organisation.
Suspects arrested include two directors, one accountant, and another employee of the Belgian companies under investigation. A dozen bank accounts have been frozen and four high-end cars seized, as well as electronic devices believed to contain evidence of the crimes.
The Belgian customs authorities and the European Anti-Fraud Office first suspected the fraud and brought the matter to the EPPO, a Luxembourg-based EU institution in operation since 2019 to investigate and bring to court individuals, organisations, or companies suspected of misusing EU funds, large-scale VAT fraud, or other financial crimes within the EU’s member states.
Reuters reports that Liege airport, mainly focused on freight, is the site of European operations for Chinese e-commerce giant Alibaba and its logistics arm Cainiao Network.
