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Last Updated: Friday, 1 September 2006, 11:38 GMT 12:38 UK
Customs officers foil VAT fraud
By Ian Pollock
Personal finance reporter, BBC News

A mobile phone
Mobile phones are at the heart of European carousel fraud
Combined teams of UK and German customs officers have swooped on a cross-border VAT fraud worth as much as 116m.

In "Operation Sunrise" earlier this month, the teams seized more than 30,000 mobile phones at Frankfurt airport and on the German-Swiss border.

The authorities suspect many of the phones had been repeatedly imported and exported as part of a "carousel" fraud.

Countries in the EU have stepped up their efforts to stop the trade, which deprives them of vast amounts of VAT.

Operation Sunrise is the first cross-border co-operation between HM Revenue & Customs (HMRC) and its European counterparts to combat carousel fraud, also known as Missing Trader Intra-Community (MTIC) fraud.

The UK and German authorities agreed to work together in May this year.

"We expect more co-operation to come," an HMRC spokesman said.

Arrests pending

The five-day operation - which ran from 14 to 19 August - centred on Weil am Rhein, one of the main motorway crossing points between Switzerland and southern Germany just north of the Swiss city of Basel.

This kind of fraud is just as severe in Germany as in other EU countries
Wolfgang Schmitz, German customs investigation department

About 50 German investigators were helped by eight colleagues from HMRC.

No-one has been arrested yet, but Wolfgang Schmitz, a spokesman for the German customs investigation department (ZKA), said he expected arrests to be made as the investigation progressed.

Not all of the phones that were seized were found to be involved in a carousel.

But Mr Schmitz said: "This kind of fraud is just as severe in Germany as in other EU countries."

Nemesis

The key to this month's operation in Germany was a computer database operated by HMRC since last year called Nemesis.

This contains the identification numbers of all mobile phones imported and exported from the UK.

When the phones seized in Germany were scanned into the database it revealed those which appeared to have been previously moved around the EU for no apparent commercial purpose.

Switzerland is not in the EU, but it is part of the contrived supply chains that the fraudsters use to channel their goods around Europe.

HMRC said the Swiss-German border is "a common route used to reintroduce goods previously involved in fraud and exported to a third country back into the European Union to be used in further frauds".

"Data suggests that in 2005, mobile telephones to the value of 2.1bn euros ($2.7bn; 1.4bn) were imported into Germany from Switzerland, despite there being no manufacture of mobile telephones there, and no obvious commercial reason for such trade," said a spokesman.

How it works

The ability of criminals to defraud the VAT system hinges on the fact that goods shipped from one EU country to another do not attract VAT at the point of entry.

Former Nottinghamshire CID officer Neil Walker, one of nine men found guilty at a series of trials between 2002 and 2006 of importing mobile phones and falsely collecting VAT
A former CID officer must repay 1.6m in carousel fraud proceeds

Once they are sold to a wholesaler or retailer VAT is then charged - at which point the fraudsters collect the money but run off with it rather than passing it on to HMRC.

If the mobile phones - and other small high-value goods - go round and round on a so-called carousel, being passed from country to country, then the losses can become huge.

The UK government admits it lost between 1.1 billion and 1.9 billion this way in 2004-2005.

But experts fear that an upsurge in the incidence of the frauds - sufficient to distort national trade statistics - will drive the figure far higher for the most recent financial year.

In order to fight back, the UK authorities are awaiting final EU authorisation to change the UK's application of the VAT system.

Under the impending policy known as reverse charge, VAT on certain electrical goods will be charged - and thus collected for HMRC - only at the final point of sale to a customer, for instance by a High Street mobile phone shop.

The idea is that in this way, the opportunities to steal (and fraudulently reclaim) VAT via a carousel will be curtailed.


SEE ALSO
Ex-detective told to repay 1.6m
30 Aug 06 |  Nottinghamshire
Ramsay police probe fraud links
23 Aug 06 |  Glasgow and West
Trade tainted by VAT fraud rises
10 Aug 06 |  Business
New clampdown on carousel fraud
21 Jul 06 |  Business

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