On the shadow economy and economic crime website, different public authorities introduce their operations in relation to the shadow economy. The website content is produced in collaboration with the ministries and public agencies appearing on these pages.
Ministry of the Interior
The Ministry of the Interior is the ministry that oversees internal security and immigration, as well as activities such as policing. Its key tasks include legislative drafting and the strategic planning, control and supervision of its administrative sector.
On 28 April 2016, the Government issued a resolution on a national strategy to tackle the shadow economy and economic crime during the period 2016–2020. The resolution required that a separate action programme be developed for the implementation of the strategy in practice. Both the strategy and the action programme were prepared by the Ministry of the Interior.
The strength of the action programme lies in cooperation between sectors, with projects being advanced through cross-administrative cooperation. Responsibility for projects is divided between different authorities. Some project measures will have a preventative impact, some will directly affect operational activities and the impact of some can only be evaluated in the longer term.
Key measures with the greatest impact (from the perspective of the goals of the strategy to tackle the shadow economy and economic crime) have been selected for the action programme. There are 20 projects, 19 of which have been started, with one having been completed. (situation as of 9 October 2017).
The projects included in the action programme are related to one of the strategy's four key projects.
The key projects include:
- Securing the functioning of the market and fair competition by improving the scope for businesses and citizens to act appropriately, reducing the administrative burden and stepping up the fight against and preventing corruption
- Proactive intervention in shadow economy activities and economic crime, and shaping attitudes
- Further development of information exchange between public authorities
- Intensifying the impact of the anti-shadow economy chain of actors, and developing administrative sanctions.
A party with main responsibility and in charge of starting up the project has been appointed for each project. Monitoring of the action programme is based on notifications received from these parties and the Ministry of the Interior is responsible for updating the monitoring report. Progress is monitored by the steering group for the prevention of economic crime, which assesses potential change needs and reports, on progress made in the project, to the Ministerial Committee on Economic Policy and the parliamentary monitoring group for the tackling of the shadow economy and economic crime.
Most economic crimes investigated by the police are reported by other crime prevention authorities
The measures taken and crime-prevention priorities of the supervisory authorities affect the number and nature of economic crimes reported to the police. Most requests for investigation received by the police are made by the Finnish Tax Administration and receivers of bankrupt estates. Economic trends also tend to affect police investigations of economic crime.
Of economic crimes investigated by the police, most involve tax, accountancy and debtor offences, and various kinds of benefit offences and fraud. Economic crimes also involve money laundering, whereby the criminal tries to disguise the origin of money.
The police investigate an average of 1,800 cases of economic crime each year. Such crimes are primarily investigated by regional police departments. The police cooperate with authorities both nationally and internationally when combating and investigating economic crime. Tracing and seizure of the proceeds of crime and securing damages form an essential part of criminal investigations by the police.
Customs promotes smooth foreign trade, secures a level competitive playing field for its customers, and intervenes effectively in cases of wrongdoing
In the years 2012–2016, Customs collected EUR 207 million in unpaid fees to the State on the basis of company and documentation audits. In the same period, its economic crime prevention activities accrued EUR 113 million to the benefit of the state. The number of cases of tax fraud uncovered and investigated by Customs rose by around 73% between 2012 and 2016. The number of tax fraud offences of all types has increased. A total of 58% more cases of aggravated tax fraud were detected last year (2016) than in 2015.
Customs combats tax evasion by a number of means. The key issue is that Customs has continuous control over the goods that it taxes. Customs combats the shadow economy through all of its functions, which are organised to be mutually supportive – from customer identification onwards.
Responsibility for the collection of over EUR 10 billion in excise taxes and tax-related duties will be transferred to the Finnish Tax Administration during the years 2017–2018, although the related tax control will remain with Customs. It should be noted that Customs will still collect taxes and tax-related fees amounting to hundreds of millions of euros after the change.
Customs promotes foreign trade, protects society and performs duties in the administrative areas of all ministries
Customs has the task of promoting the smooth flow of trade in international goods, ensuring that trade is valid and effectively collecting excise duties. Customs is a cross-sectoral service and law enforcement organisation, which protects society, the environment and citizens. Customs promotes the functioning of the EU's internal market and ensures a level competitive playing field for companies. It performs statutory duties within the operational sectors of all 11 ministries and the Prime Minister's Office.
One of the tasks of Customs is to implement the national strategy for combating the shadow economy and economic crime, employing measures such as the more effective tracking and recovery of criminal proceeds, minimising proceeds of crime and increasing awareness of the risk of detection among criminal operators. Within Customs, this is not limited to minimising tax evasion and the proceeds of crime; the agency also intervenes on a wider basis in breaches of international trade regulations and the implementation of UN and EU sanctions. In addition, Customs engages in the control of taxes collected by the Tax Administration and targets its activities based on the evaluation of uncollected taxes.
Customs is the only authority that controls the flow of internationally traded goods and the luggage of cross-border passengers. It therefore plays a major role in protecting society. Customs’ role in internal security primarily involves supervising the flow of goods, through which it engages in the prevention of emerging threats. Customs has so far succeeded in performing these tasks effectively, despite its continuously shrinking resources and outdated technology. Customs has been sufficiently effective at intercepting drugs, weapons and explosives, other dangerous goods and banned and restricted goods among freight, post and luggage. To the extent permitted by its resources, Customs is present at all of Finland's frontiers. In practice, it is often the only authority that cross-border traffic will meet within the Schengen area.
Customs as an agency combating the shadow economy and economic crime
One of the key objectives of Customs is the effective collection of taxes under its responsibility and combating the shadow economy. Customs’ various functions include a broad range of activities aimed at combating the shadow economy, economic crime and tax evasion. These are present throughout its organisation and are viewed as the joint task of all of its staff. Correct tax collection is ensured by a number of means, including both pre-emptive measures and real-time and retrospective control. Cooperation between authorities, which involves close liaison between Customs and several Finnish and overseas authorities, plays a key role in combating the shadow economy and tax evasion. Customs plays a major role in combating internationally organised economic crime.
Within Customs, combating the shadow economy takes the form of supervising legal activities and detecting illegal ones. Since this entire process has been refined to support the exposure of non-compliances and the detection of possible illegal activity, Customs can be regarded as a key player in the fight against the shadow economy and cross-border crime. In this respect, Customs has the objective of preventing the harm caused to society and business by the shadow economy and unfair competition.
The prosecutor's role in handling shadow economy offences
The shadow economy impacts on the prosecutor's work when actions taken to combat the shadow economy have resulted in crime reports and tangible suspicion of an offence. The prosecutor must be actively involved in the pre-trial investigation, handling the matter all the way to its conclusion, i.e. a legal judgement. In such processes, bringing the perpetrators to justice tends to take years.
The prosecutor's duty is to enforce criminal liability. In the case of shadow economy phenomena, this refers to the prosecutor deciding whether there are grounds for deeming that the preconditions of a criminal offence have been met. Shadow economy crimes tend to involve tax offences, debt evasion, accounting offences, occupational pension insurance fraud and registration offences. Corruption offences, fraud, benefit fraud and money laundering are also involved.
As a rule, the prosecutor must press charges when there are probable grounds for doing so on the basis of the evidence gathered in the pre-trial investigation. A criminal case is initiated in a District Court on the basis of an application for a summons and progresses to the main hearing after the related preparations. In many cases, after the District Court proceedings the case is referred for a further hearing in the Court of Appeal, after which leave to appeal is sought from the Supreme Court.
Cooperation between public authorities in the criminal justice chain
The criminal justice chain refers to all authorities that participate in criminal investigations. In addition to the prosecutor, a Tax Attorney from the Finnish Tax Administration is involved at all stages of the criminal justice chain in the case of tax offences. The surest guarantee of enforcing criminal liability within the shadow economy in particular is provided by close cooperation between the prosecutor and Tax Attorney from the very beginning. This also enables the success of claims made in court regarding the proceeds of crime.
Like all economic crime, criminal cases in the shadow economy tend to involve many international connections. This further underlines the importance of the prosecutor's tasks during the pre-trial investigation.
Shadow economy prosecutors
The most challenging and extensive criminal cases involving the shadow economy are handled by prosecutors specialising in economic crime. Such prosecutors must follow the related developments in both national and European legal practice, so that they can direct the pre-trial investigation of shadow economy cases in accordance with the applicable case law.
Economic crime trials
Trials for economic crime tend to last from a few weeks to several months. The oral testimony for the main hearing alone can take over six months in a District Court. Extensive cases involving so-called fake sales receipts, corruption and VAT fraud keep prosecutors specialising in economic crime busy in the Greater Helsinki area in particular. Each of these very extensive trials ties down several prosecutors.
Prosecutors dealing with economic crimes must also handle a considerable number of cases involving debtors’ offences, due to the efficient system for handling bankruptcies. In addition to shadow economy offences involving various phases of the criminal justice chain, prosecutors specialising in economic crime are in charge of several serious and time-consuming suspected cases of fraud and money laundering in international business, as well as various cases of securities fraud.
Ministry of Finance
Key measures currently being taken against the shadow economy by the Ministry of Finance include the establishment of a national Incomes Register, development of information exchange on the shadow economy, and stepping up action against financial market abuses.
Tasks and administration
The Ministry of Finance prepares the government's financial and fiscal policy and the state budget, and serves as an expert on tax policy. The Ministry of Finance is also responsible for tasks such as preparing the financial market policy and the state's employer policy and HR management, and developing the public administration. It also steers the development of information management in the state and municipal administration. The Ministry participates in EU activities and those of a number of international organisations and financial institutions. The Ministry has Economics, Budget, Tax and Financial Markets departments, a Department of Local Government and Regional Administration, a Department of Public Sector ICT, and a Personnel and Governance Policy Department, which also functions as the Office for the Government as Employer.
The Ministry of Finance's administrative agencies include the Finnish Tax Administration, Customs, the Financial Supervisory Authority, the Financial Stability Authority, the Regional State Administrative Agencies, local register offices, the Government Institute for Economic Research (VATT), the State Treasury, Statistics Finland, the Population Register Centre and the Finnish Government Shared Services Centre for Finance and HR. Senate Properties is a state enterprise. HAUS Finnish Institute of Public Management and Hansel Oy are limited companies of the state. The State Pension Fund, the local government pensions institution Keva and the Municipal Guarantee Board also fall within the administrative sector of the Ministry of Finance.
The Tax Department of the Ministry of Finance is the Government's expert on tax policy. It is responsible for developing the tax system and assessing the effects of tax policy measures. It drafts tax legislation and participates in developing the work of the Tax Administration and Customs. It also prepares Finland's tax treaties with other countries and represents Finland in tax and customs preparation in the European Union. A representative of the Tax Department is also included on the senior management group for tackling the shadow economy and economic crime, which has prepared a strategy for combating the shadow economy and an action programme to tackle the shadow economy and economic crime in the years 2016–2020.
National Incomes Register
From the perspective of the Ministry of Finance's efforts to combat the shadow economy, the establishment of a national Incomes Register is a key project of the current government term. The register will provide the authorities and other users of income data with a real-time overall picture of citizens’ income.
Among other things, it will enable more up-to-date tax control and more effective action against the shadow economy, since employers will report payroll data to the Incomes Register with a single notification immediately after the payment transaction. At the moment, employers only report recipient-based payroll data by the January following the year of payment, enabling the monitoring of such income data only in the year after the income was paid.
Government proposal 134/2017 vp, on legislation establishing an Incomes Register, was submitted in October 2017. It is intended that the Incomes Register will be introduced in early 2019. At the initial stage, the public authorities and other users of income data will gain an overall picture of the salary and comparable income of individuals. The aim is for pension income and other benefits to be included in the register from the beginning of 2020.
Information from the Incomes Register will be used by the Finnish Tax Administration, Kela, the earnings-related pension sector and the Unemployment Insurance Fund from early 2019. Unemployment funds, insurance companies providing coverage against occupational accidents and diseases, the Education Fund, municipalities, Statistics Finland, pay security and subsidy functions, and occupational safety and health authorities will be included in early 2020.
Information exchange between authorities
The further development of information exchange between authorities in both Finland and abroad is another key issue in the fight against the shadow economy.
The elimination of obstacles and constraints on such information exchange will ease the identification of shadow economy actors and provide a cost-effective way of enhancing the fight against the shadow economy.
Automatic information exchange on the basis of international taxation commitments has expanded markedly. Government Proposal 97/2017 proposes that the Tax Administration be enabled to proactively inform the pre-trial investigation authorities of any corruption-related observations. The scope of the obligation compliance report services of the Grey Economy Information Unit has been expanded and can be extended further in support of the fight against the shadow economy, when legislation on the authorities requesting such reports is amended to expand rights to obtain information.
Combating financial market abuse
The Financial Markets Department of the Ministry of Finance is exploring ways of intensifying the prevention of financial market abuse, as part of the fight against the shadow economy. Financial market regulation is almost exclusively based on EU legislation. However, a degree of subsidiarity has been retained with respect to criminal sanctions in particular. There is also scope for developing information exchange and monitoring between authorities. In spring 2018, as part of the programme for combating the shadow economy the Ministry of Finance will prepare a Government proposal for the regulation of aggravated criminal misrepresentation on the securities market and the expansion of the Financial Supervisory Authority’s investigative powers.
The Finnish Tax Administration tackles tax fraud efficiently
The Finnish Tax Administration plays a major role in combating the shadow economy, and handling tax-related and other forms of economic crime. Cooperation between the Tax Administration and other authorities ensures a holistic approach to identifying, combating and monitoring various shadow economy phenomena.
The Tax Administration has intensified the fight against more serious manifestations of the shadow economy. Personnel specialising in the task, up-to-date monitoring and enhanced information exchange between authorities have contributed to clear growth in the number of cases on which a crime report has been made, or that have been referred for consideration of a crime report.
New phenomena reaching Finland, challenges are growing
Various types of identity misuse – and VAT return fraud committed on their basis – have increased in Finland. In addition, groundless withholding tax has been claimed using documents with falsified content. Some actions are purely aimed at undermining the credibility of the tax system or official registers. Attack on welfare system is a phenomenon that has been identified throughout the Nordic countries.
E-commerce, alternative payment methods and platforms, virtual currencies and the sharing economy and its variations are creating challenges for those combating the shadow economy. Accounting and other documentation can be stored in various cloud services. Business is being conducted in Finland from abroad, without fulfilling the proper obligations here.
Monitoring the shadow labour force is a joint challenge for the authorities. Many crimes, including tax offences, are interlinked. Organised crime and professional enablers can be involved in various arrangements. Uncovering the facts can be challenging and further emphasis is being placed on the importance of inter-authority cooperation and information exchange.
The Finnish Tax Administration stops fraudsters at the earliest possible stage
The Finnish Tax Administration must react quickly to both traditional and new shadow economy phenomena. In combating the shadow economy, the Tax Administration is focusing more on eliminating the potential for shadow economy activities at the earliest possible stage, instead of retrospective control.
Naturally, the performance of taxation and the related controls lie at the heart of the Finnish Tax Administration's activities. However, in its fight against the shadow economy the Tax Administration's tasks differ, in many respects, from traditional ideas of taxation.
Tax audits are the ‘big bazooka’ in combating the shadow economy
Tax audits play a major role in combating the shadow economy. Most tax offences detected by the Tax Administration are uncovered during tax audits; in many cases, tax audits of shadow economy operations are the only way of determining the facts in order to define the right tax amount and possibly refer the case for a pre-trial investigation.
In 2016 almost 650 tax audits were referred for consideration of a crime report. In addition to that, a significant number of suspected cases of new crime phenomena, such as VAT fraud committed on the basis of identity theft, were taken to the same procedure.
Tax recipients are represented by the Tax Collection Unit in tax offences
The Finnish Tax Administration speaks on behalf of tax recipients in criminal cases involving taxes and fees handled by the Tax Administration. In criminal matters, the Finnish Tax Administration is represented by Tax Attorneys – who specialise in handling criminal offences – from the Tax Collection Unit. Tax Attorneys represent the tax recipients in the actual criminal case and in seeking compensation for damages due to the offence in question.
Crime reports are most often initiated during tax control, but suspected crimes are also reported by stakeholders. If the prosecutor presses charges, the Tax Attorney will present a claim for damages. After the judgement, the Tax Attorney considers a possible appeal and handles the matter in the higher courts.
We produce information on the shadow economy
In addition to operational audits, the Finnish Tax Administration studies the shadow economy and its impacts. The task of the Grey Economy Information Unit is to promote the fight against the shadow economy by producing and disseminating information on the phenomenon and how to combat it.
The importance of cooperation is continually growing
Preventative measures and retrospective control of the shadow economy often involve seamless cooperation between several authorities. The pre-trial investigation authorities, with which the Finnish Tax Administration engages in extensive information exchange, are key partners in this regard. The practical implementation of cooperation – including tax audits involving inter-authority collaboration – is highly advanced. Continuous efforts are being made to step up real-time cooperation with the pre-trial investigation authorities, while increasing practical cooperation with new public agencies.
Ministry of Social Affairs and Health
The Ministry of Social Affairs and Health contributes to the fight against the shadow economy by working with other agencies to implement the action plan, approved by the Government, for tackling the shadow economy and economic crime. Agencies and institutions within the Ministry's administrative branch combat the shadow economy, alongside other public authorities, in accordance with their own sectors and powers.
Anti-shadow economy activities within the Ministry’s sector have a particular focus on compliance with labour legislation and the supervision of alcohol regulations.
Supervision of alcohol regulations
The task of the National Supervisory Authority for Welfare and Health (Valvira) is to ensure, via effective supervision, that uniform practices apply to the licensing and supervision of the serving and retail of alcohol across Finland. Valvira also functions as a licensing and supervisory authority for the wholesale and production of alcoholic beverages. Depending on the division of responsibilities, Regional State Administrative Agencies supervise the serving and retail of alcohol within their geographical areas. Alongside Valvira, through their supervisory activities Regional State Administrative Agencies prevent the occurrence of shadow economy activities and economic crime in the alcoholic beverages sector.
Compliance with labour legislation
The occupational safety and health authorities contribute to fighting the shadow economy by ensuring that employers only use labour force with work permits valid in Finland, comply with the minimum terms of employment and only use subcontractors and temp agencies that have fulfilled their social obligations. Together with the Finnish Tax Administration, such agencies ensure that employees on construction sites wear a photo identification card with a tax number.
The role of the Occupational Safety and Health Administration in combating the shadow economy
The Occupational Safety and Health Administration contributes to combating the shadow economy by supervising the following issues:
- Employers only use foreign employees who have the right to work in Finland.
- The minimum terms of employment at least fulfil the minimum level required by law. The Occupational Safety and Health Administration supervises the minimum conditions of employment of foreign and posted workers, i.e. whether such workers are paid in accordance with the related collective agreements for work done in Finland.
- Employers acting as clients of employee rental firms and subcontractors use only partners that fulfil employers’ legal obligations concerning disclosure (in terms of tax and pension contributions, for example).
- Employer-clients ensure that they do not enter into contracts with companies under a business prohibition or contracts in whose case the client should have known that the other party had no intention of fulfilling its legal payment obligations (so-called under-priced contract).
- Actors in the construction sector (developers, main contractors and employers) ensure that all construction workers have a photo identification card with a tax number.
- The main contractor on the building site has an up-to-date list of all employees working on the site.
Current shadow-economy issues in the supervision of occupational health and safety
More employees without work permits have been observed during immigration control operations. This phenomenon may be due to better targeting of surveillance and the development of control methods. Asylum seekers who have been denied asylum is one reason for the growing number of such workers.
Responsibility for occupational safety has been a key supervisory task of the Occupational Safety and Health Administration in combating the shadow economy. Through extensive monitoring, legislative changes and active cooperation with stakeholders and other public authorities, the construction sector has achieved good results, especially regarding compliance with the Act on the Contractor's Obligations and Liability when Work is Contracted Out. In addition, planned supervision of tax and personal identification numbers has reduced the use of so-called undeclared workforce on construction sites. This is reflected in statistics compiled by Statistics Finland, which compare the amount of salary paid in the construction sector with that reported to the Tax Administration relative to the workforce.
In terms of supervision, a new phenomenon has arisen based on which work traditionally done in employment relationships is organised as one-off entrepreneurship through a so-called invoicing cooperative. The relationship is not always problem-free and in some cases it is not clear whether, in practice, it involves an employment relationship in which the employer determines issues such as the hours and performer of the work.
Employers insure correctly for the main part
On average, earnings-related pension contributions account for 24.4% of the payroll. The question of how well employers handle statutory obligations, such as earnings-related pensions, is far from irrelevant from the perspective of guaranteeing fair competitive circumstances and combating shadow economy. The supervision done by the Finnish Centre for Pensions suggests that most employers insure their workers correctly.
The results of the supervision by the Finnish Centre for Pensions have been consistent throughout the 2010s. Annual wages amounting to 100–120 million euros have been left uninsured. This equals roughly 0.2% of the insurable sum under the Employees Pensions Act.
Both employers and entrepreneurs are supervised
One of the statutory tasks of the Finnish Centre for Pensions is to monitor earnings-related pension insurance under the Employees Pensions Act and the Self-Employed Persons’ Pensions Act.
Supervision ensures that all employers and entrepreneurs in Finland are in an equal position with regard to their insurance obligations. Supervision promotes fair competition between companies and combats shadow economy. The Finnish Centre for Pensions makes sure that employees get the pensions they are entitled to by law. In addition, insurance supervision supports pension providers as they administer insurance and collect pension contributions. These measures secure the funding base of earnings-related pensions.
Typical supervised client
A typical client supervised by the Finnish Centre for Pensions is a construction company operating in Uusimaa (25% of the supervised targets) that pays 100,000 to 500,000 euros per year in wages, has a tax debt (32.3% of the supervised targets) and has been in business for more than five years.
This information is revealed by a customer classification performed by the Grey Economy Information Unit of the companies that the Finnish Centre for Pensions has supervised. The classification also reveals that there are companies in all sectors that either intentionally or accidentally insure their workers inadequately.
Comprehensive and topical supervision
The Finnish Centre for Pensions cooperates with pension companies and various public authorities in its supervisory work. It is entitled to get information from employers and authorities for the supervision. If an employer does not voluntarily meet its insurance obligation, the Finnish Centre for Pensions takes out insurance on behalf of and at the expense of the employer (enforced insurance).
The Finnish Centre for Pensions aims to prevent companies from neglecting their insurance obligation. For example, it sends a letter to all new employers and entrepreneurs in which it informs them of their duty to insure.
Extensive register comparisons of mass data ensure that the supervision conducted by the Finnish Centre for Pensions is comprehensive and up to date. In addition, the Supervisory Department at the Finnish Centre for Pensions comes across cases through individual inquiries by workers, via risk target screenings, as well as authority reports and authority cooperation.
Employers are conscientious payers of unemployment insurance
Unemployment insurance contributions are being paid diligently; only a small proportion of negligence is deliberate. Monitoring data from the Unemployment Insurance Fund (TVR) suggests that most failures to meet the payment obligation are due to human or system errors by the employer.
Monitoring is based on payroll data comparisons and cooperation between the authorities
Around 170,000 employers in Finland have the obligation to pay unemployment insurance contributions. Monitoring is mainly based on comparing earnings payroll data reported by employers with payroll data received from the Finnish Tax Administration. Employers are also monitored on the basis of data obtained through cooperation between authorities. Active cooperation is carried out alongside agencies such as the Finnish Centre for Pensions (ETK) and the Accident Compensation Centre (TVK). Inter-authority cooperation on monitoring will be further emphasised when the national Incomes Register is introduced in early 2019.
Transfer of supervision to the Unemployment Insurance Fund
One of the statutory tasks of the Unemployment Insurance Fund is to combat the shadow economy by monitoring the payment of unemployment insurance contributions. Such supervision was previously carried out in cooperation with accident insurance companies. The setting and collection of unemployment insurance contributions were transferred to the Unemployment Insurance Fund at the beginning of 2013. Supervision of the payment of unemployment insurance contributions was transferred in full to the Unemployment Insurance Fund in late 2015.
Is failure to take out insurance against occupational accidents and diseases part of the shadow economy? Is failing to insure worth it?
Not all employers are aware that they must insure their employees against occupational accidents and diseases. On the other hand, some deliberately neglect their duty in this regard. Payments imposed for this can be a nasty surprise for employers. Such fees could add up to tens of thousands of euros.
A construction company employee has a serious accident during working hours. During the investigation of the accident, it transpires that the employer had not taken out statutory occupational accident and disease insurance. The State Treasury then imposes an insurance fee payment of EUR 16,000 and a penalty fee of EUR 16,000 on the employer. In addition, the employer is charged a deductible of EUR 5,140 for the cost of clearing up the accident. Neglecting to take out insurance therefore costs the employer EUR 37,140.
Failure to take out insurance against occupational accidents and diseases is part of the shadow economy
Deliberate neglect of the obligation to take out occupational accident and disease insurance is a shadow economy activity in the same manner as other failures to meet employers’ obligations. Failure to fulfil the insurance obligation distorts private sector competition and statutory charges are not recovered.
Supervision by and information from the Accident Compensation Center combat the shadow economy
The Accident Insurance Center (TVK) combats the shadow economy by retrospectively supervising employers’ fulfilment of their insurance obligations. Retrospective supervision involves the comparison of insurance information on the insurance register with company payroll data obtained from the Finnish Tax Administration. Employers that have paid salary to their employees but for whom no occupational accident and disease insurance can be found are selected for the list of cases to be investigated.
The Accident Insurance Center also investigates suspected cases of neglect to take out insurance that have been reported in various ways. For example, the employer itself or a regional government authority may report the issue. Companies paying wages ‘under the table’ are monitored on the basis of notifications by the Finnish Tax Administration.
In many cases, the reason for failure to insure is lack of awareness, which is prevented by providing information. The TVK issues information on the obligation to insure to organisations entered in its employer register which are not paying insurance.
The purpose of supervision by the Accident Insurance Center is to ensure that all employers operating in Finland fulfil their statutory insurance obligations.
Failure to fulfil the obligation to insure against occupational accidents and diseases can be expensive for companies
An employer that neglects its obligation to insure is charged penalty fees. These include:
- a fee corresponding to the insurance premium
- a penalty fee at least three times as large as the notional insurance premium
- a deductible of up to EUR 5,140 in the case of an accident
In certain cases, the employer may also be convicted of accident insurance premium fraud, for which the maximum sentence is one year in prison.
The Ministry of Justice fosters legal protection
The Ministry of Justice maintains and develops legal order and legal protection, and oversees the structures of democracy and the fundamental rights of citizens. The Ministry is responsible for the drafting of the most important laws, the functioning of the judicial system and the enforcement of sentences. As a part of the Government, the Ministry of Justice lays down guidelines for legal policy, develops statute policy and directs its administrative sector.
The Ministry of Justice participates in combating the shadow economy and economic crime by preparing legislation within the scope of its sector, such as in the areas of criminal and procedural law. In addition, the Ministry of Justice participates in the law drafting projects of other ministries that are relevant to the sector of the Ministry of Justice. Units such as various boards and the Legal Register Centre, which maintains criminal records, operate in connection with the Ministry of Justice.
The Ministry of Justice participates in the preparation and handling of matters concerning its sector in the European Union, the preparation of international agreements, and monitoring the enforcement of agreements, such as in related country assessments.
The Ministry of Justice engages in Nordic cooperation and international judicature, as well as performing tasks in criminal law cooperation between countries, which may also involve economic crime. The Ministry of Justice or its unit serves as a central authority for a range of international agreements and European Union instruments.
The Ministry of Justice serves as the national coordination authority for anti-corruption efforts. The anti-corruption work of the Ministry of Justice is also firmly connected to combating the shadow economy. Investigations indicate that suspected cases of bribery, for example, are closely linked to economic crime and to the shadow economy in particular. For instance, in the construction industry, bribing those who decide on contracts, or influencing them in other inappropriate ways, fosters an operating environment that is favourable to criminal activity and also distorts competition.
Accordingly, in combating the shadow economy, the Ministry of Justice seeks to pay even greater attention to anti-corruption efforts in cooperation with other authorities and stakeholders, in order to weaken the ability of shadow economy actors to engage in profitable criminal activity. As the authority coordinating anti-corruption efforts, the Ministry leads and coordinates development projects to tackle and prevent corruption, supports the anti-corruption efforts of various authorities and leads an anti-corruption cooperation network that promotes anti-corruption efforts at national level.
Enforcement offices prevents the shadow economy and economic crime
Enforcement offices participate in enforcing the rule of law. Well-functioning enforcement proceedings ensure that rights are respected in debt-related matters. In addition, the activities of enforcement offices support the prevention of defaults, while maintaining payment morality and the prerequisites of a credit-based society. Opportunities to commit and benefit from financial abuses are diminishing. On the whole, the enforcement offices’ actions prevent economic crime and shadow economy activities.
Contribution of special enforcement proceedings
In terms of combating the shadow economy and economic crime, the key task of the enforcement offices involves special enforcement proceedings at national level. Such actions mainly concern cases requiring particularly large amounts of work to determine the wealth of debtors and perform the related measures. Debtors are subjected to such measures on the basis of the offices’ normal enforcement proceedings, or cases are notified via another authority, such as the police or the Tax Administration.
There is major annual variation in the amount of monetary receivables paid to creditors and the number of debtors investigated. For example, 541 debtors were investigated in 2014, compared to 269 in 2016. A total of 586 investigations were completed in 2014 and 642 in 2016. During the same period, the income enforcement proceedings varied from EUR 18.5 million to EUR 25 million.
Virtual currencies and the shadow economy
The use of virtual currencies is expanding rapidly and the development of exchange tools is impacting on enforcement proceedings. There are currently around 1,000 virtual currencies, of which Bitcoin is the most common. Use of Bitcoin is based on user-maintained peer-to-peer exchange, independent of public authority. In practice, such exchange is relatively fast, free of charge and anonymous.
It has been estimated that most Bitcoin payments occur as part of fully legitimate activities. Although Bitcoin is not an official currency, it has asset value based on supply and demand. As assets, Bitcoins are therefore subject to enforcement, but the challenge lies in tracing them and obtaining the public and private “keys”, or code sets, required to place such assets in the possession of enforcement officers during enforcement proceedings.
It is known that a major part of drug trading is done via the Tor network, which enables anonymous use of the Internet. The Tor network and virtual currencies also enable the placing of other financial activities beyond the control of society.
People who are experiencing financial problems and those subject to recovery proceedings may feel sorely tempted to use tools such as the Tor network in their business activities and purchases, and to make payments with virtual currencies. Anonymous payment transactions and – in many cases – the entire business then remain beyond the scope of official supervision. This lowers the threshold for engaging in shadow economy activities, i.e. neglecting public payments. The same opportunity to exploit anonymity and virtual currencies exists in relation to salary payments and income. The consequence is that the enforcement officer cannot always obtain information on attachable income and assets belonging to the debtor.
Bankruptcy Ombudsman – The Office of Bankruptcy Ombudsman
Bankruptcy Ombudsman is an independent special authority supervising the administration of bankruptcy estates. The Ombudsman is attached to the Ministry of Justice with branch offices in Helsinki, Tampere and Turku.
The duty of the Ombudsman is to see to the effective, economical ja prompt administering of bankruptcy proceedings and restructuring of enterprises.
Combatting grey economy and economic crime
Combatting and preventing grey economy and economic crime form the most essential part of the activities of the Ombudsman. Auditing the accounts and activities of bankrupt debtors and placing them under public receivership have proven effective methods of investigating financial and other bankruptcy-related offences. The Ombudsman works actively together with other authorities involved in combatting grey economy and economic crime.
Bankruptcy Ombudsman can order a special audit of the debtor’s activities to be carried out by an authorized auditor. Special audits orderedby the Ombudsman aim at finding out offences and possible grounds for recovery in the actions of the debtor. Special audits can also be carried out in cases where the assets of the bankruptcy estate are insufficient for the continuationofthe bankruptcy proceedings.
The costs of the special audits are paid from public funds. The state’s costs are recovered from the bankruptcy estate if the audit has been necessary for the estate and assets have been obtained to the estate as a result.
At the request of the Ombudsman the court may orderthat a bankruptcy is to continue under public receivership if this is to be deemed justified due to lack of funds in the estate, the need to investigate the debtor or the bankruptcy estate, or for some other special reason. In practice, cases of bankruptcy tend to move into public receivership if there is a reason to suspect that the debtor has committed a serious economic crime.
Public receivership can be used to establish criminal liability or liability for damages; to tackle undesirable bankruptcy-related phenomena such as the fraudulent acquisition of a company on the verge of bankruptcy and bankruptcy chains; to carry out bans on business operations; and to take action for recovery on behalf of the bankruptcy estate.
Public receiverships can be regarded as cost-effective for society, since the costs recovered by the state and the disbursements paid to creditors usually exceed the amount of expenses paid from public funds.
The administrative sector of the Ministry of Economic Affairs and Employment and the fight against the shadow economy
The key task of the Ministry of Economic Affairs and Employment (TEM) is to create good preconditions for business and industry, thereby improving employment and Finland's competitiveness. TEM is responsible for ensuring a good business environment for entrepreneurship and innovation, the functioning of the labour market, the employability of the labour force, and regional development. The objective is a business environment in which companies have a level playing field.
Among other issues, TEM is responsible for preparing and developing public procurement and competition and labour legislation. Key principles include open and effective competition for public procurements and the equal and non-discriminatory treatment of tenderers.
TEM contributes to the fight against the shadow economy and economic crime by developing legislation and ensuring that various projects take account of efforts to combat the shadow economy. These include the reform of the Act on Public Contracts and the supervision of auditors, as well as legislation on working life, posted workers and customer liability.
Combating undeclared work
TEM has established a network for promoting cooperation against undeclared work. The network supports the activities of the EU’s European Platform Tackling Undeclared Work and national strategies and programmes for fighting the shadow economy. A key task of the network is to disseminate information to various actors on cooperation, means of supervision, new phenomena and best practices in fighting undeclared work. Finland is committed to combating undeclared work. The issue was added to the action programme to tackle the shadow economy and economic crime in the years 2016 to 2020.
Social responsibility applies to everyone, including the public sector
Within the Government, TEM is responsible for the corporate social responsibility policy, which builds on a notion of social responsibility that takes account of one’s own social impacts. The themes of corporate social responsibility can therefore vary from respecting labour rights to privacy protection and the fight against corruption in land use issues. Corporate social responsibility not only concerns companies. The public sector too can meet its social responsibilities through responsible public procurement, for example. Social responsibility also promotes compliance with the statutory obligations of companies at a general level.
Fighting the shadow economy within TEM’s administrative sector
The Finnish Competition and Consumer Authority is involved in fighting the shadow economy by means such as cooperation between public authorities and exchanging information, which help to expose cartels and create unfavourable conditions for them. Problems with consumer protection can involve consumer fraud and actions that undermine consumer confidence in the functioning of markets in general.
The National Board of Patents and Registration is responsible for maintaining and monitoring information submitted to the Trade Register. However, the number of trade register offences brought to light and of Trade Register submissions investigated on a risk-basis are indicative of the possible amount of shadow economy activity.
The TE Offices review the appropriateness of partial employee residence permit decisions, including so-called assessments of workforce availability, as well as ensuring the legality of employment relationships and the employer's capacity to operate as a socially responsible employer. Around 10% to 15% of partial decisions made by TE Offices are negative. TE Offices exercise their discretion on issues such as obligation compliance reports. Preventative supervision by TE Offices reduces the pressure to engage in retrospective monitoring of compliance with terms of employment and employers’ obligations.
The background details of applicants are investigated through Tekes’ funding activities.Extensive public-sector information obtained through obligation compliance reporting is Tekes’ largest single means of combating the shadow economy. Cases involving the shadow economy and economic crime are revealed each year through financial supervision. Most economic crime revealed in this way concerns suspected cases of benefit fraud or debtors’ offences.
Signs of crime can already be glimpsed in Finland’s food chain
In the food sector, 2013 is remembered as the year of the horse meat crisis. At that time, the authenticity of meat products, i.e. whether the type of meat listed on the packaging was the same as that established by laboratory tests, was examined in Ireland. It turned out that horse meat, which was much cheaper than beef, had been systematically used as a raw material for foodstuffs, despite the labels claiming that only beef had been used.
It was the horse meat scandal that ultimately led to awareness in the European Commission and Member States that fraud was being committed in pursuit of major financial gains in the food industry, and that such gains had been made. Consumers too became aware that crimes were being committed in the food chain.
Closer cooperation in the EU
In the wake of the horse meat scandal, the European Commission established an EU Food Fraud Network of food supervision authorities, which began to meet regularly. In 2015, a system was introduced for suspected cases of fraud in the food chain, enabling authorities in Member States to request assistance from each other easily when handling cross-border cases.
Via this network and information exchange system, the food and pre-trial investigation authorities of Member States have jointly investigated several cases of food fraud that would have been virtually impossible to solve previously. The European Commission’s website on the issue was opened in the spring of 2017.
What is food fraud?
Food fraud is not defined under Finnish or EU legislation. According to a working definition of the concept, food fraud involves:
- A violation of EU food law - that is committed intentionally in order to - pursue economic or financial gain by - deceiving a trading partner or consumer.
Food fraud is a particularly tempting criminal activity because food counterfeiting is easy, highly lucrative and the risk of being caught is small.
The risk of being caught is lowered by the relatively low level of cross-sector or cross-border cooperation between the authorities. For example, sentences are very light compared to those issued for drug offences, making the food industry more tempting – in many respects – for criminals than more traditional types of crime.
Food fraud tends to take the form of economic crime. It often also involves the shadow economy: for example, food supervision fees are avoided by doing business ‘off the radar’ of food safety authorities, or taxes are avoided by non-disclosure of revenue.
Evira is actively building official networks in Finland
In addition to more intensive cooperation between EU Member States, inter-authority cooperation has been intensified in Finland in recent years. The Finnish Food Safety Authority Evira is the central authority governing the food chain and is the contact point of the European Food Fraud Network in Finland.
Evira has so far been engaged in coordinating cases of food fraud across several municipalities and has assisted municipal and Regional State Administrative Agency supervisory authorities in matters such as requesting inquiries.
Cooperation between authorities has also been strengthened by training sessions organised by Evira. A training day focusing on food fraud, to which the authorities of each region were invited, received particularly good feedback. Officials representing the food chain, the police, prosecutors, the Tax Administration, the enforcement authorities and Customs formed effective new cooperation networks across the country during the training tour.
Identifying fraud is a challenge for conventional supervision
Fraud in the food chain has mainly been a hidden form of crime in Finland. It is not easy to detect with normal food safety supervision tools and methods, due to which crime in this sector has seldom been brought to court in Finland. However, the food safety authorities have recently sharpened their perspective on the issue, due to which far more criminal and pre-trial processes are under way around the country.
The suspected offences so far identified by the food safety authorities in Finland tend to be cases of fraud concerning the origins of food. There have also been more suspected cases of the illegal slaughter of animals in recent years. It is likely that the number of cases will increase further and they will become more varied as experience accumulates and cooperation between the authorities intensifies.
Valvira’s role in the alcohol administration
Valvira, the National Supervisory Authority for Welfare and Health, oversees the licensing and supervision of the serving and retail sale of alcohol and ensures that these are performed in a uniform manner throughout Finland. Valvira also acts as the licensing and supervisory agency for the wholesale and production of alcoholic beverages. Regional State Administrative Agencies supervise the serving and retail sale of alcohol within their regions.
Valvira monitors implementation of the supervision of retail sales and the serving of alcohol. Fulfilment of the financial preconditions of licence holders and applicants is supervised in order to prevent and curb activities within the shadow economy, and to reduce the number of actors failing to fulfil the reliability or financial preconditions set by the Alcohol Act for the serving or retail sale of alcoholic beverages. From the perspective of the alcohol administration, the evaluation and supervision of financial reliability are an established part of combating the shadow economy.
In addition to the aforementioned tasks, Valvira draws up the national supervision programme of the alcohol administration, alongside Regional State Administrative Agencies. The supervision programme guides the regional licensing administration, ensures the consistency of decisions and supervises the effective implementation of the Alcohol Act.
Evaluation and supervision of financial reliability – cooperation as a prerequisite
Supervision by the Regional State Administrative Agencies is divided into advance and retrospective supervision. Advance supervision involves supervising licence applications, while retrospective supervision is aimed at licence holders. Tools for the practical supervision of tasks such as combating the shadow economy include tax debt information on licence holders, notifications by licence holders, margin reports, and obligation compliance reports requested by the Shadow Economy Intelligence Unit. Within the alcohol administration, cooperation is based on a supervision programme, information system management, case-specific cooperation and information exchange. Cooperation on information flows is facilitated by Valvira’s national alcohol trade register and the alcohol administration's shared extranet.
Public authority cooperation project
Valvira and the Regional State Administrative Agencies participated in the Finnish Tax Administration's restaurant project, which began in 2015. During the project, the Finnish Tax Administration conducted tax audits on hundreds of licensed companies. Key sources of information for the audits included restaurants’ purchasing and sales information from the alcohol trade register, and joint audits by the Tax Administration and the alcohol administration.
The deficiencies observed during the project shook trust in licence holders to the extent that, in 2016, licences to serve alcohol were withdrawn permanently from 29 and temporarily from 39 companies, for example. Permanent withdrawal of licences for the serving and retail sale of alcohol is due to failure to meet the reliability and financial preconditions required by the Alcohol Act. This refers to substantial or persistent failure to pay taxes and other fees required under public law, as well as serious shortcomings (such as the concealment of income) observed, during alcohol and tax audits, in meeting the reliability and financial preconditions. Temporary licence withdrawals have a much wider range of reasons. These tend to concern the finances or alcohol practices of the licence holder, such as serving underage or clearly intoxicated customers.
ELY Centres process and supervise transport permits
The South Ostrobothnia Centre for Economic Development, Transport and the Environment (ELY Centre) is responsible for the administration of public transport permits on mainland Finland and of taxi permits in Western Finland. The same ELY Centre also coordinates the administration of taxi permits for the whole of mainland Finland. Authority for handling transport permit issues will transfer to the Finnish Transport Safety Agency when the Act on Transport Services enters into force on 1 July 2018.
In addition to handling permit applications, the processing of transport permits includes annual inspections of companies engaged in freight, group and taxi transport. In the case of taxi companies, ELY Centres must perform at least an annual check of whether licence holders and transport operators still fulfil the appropriate reputation requirements and remain able to meet their financial obligations. The proper fulfilment of obligations is verified through surveys of Tax Administration collection units and enforcement agencies.
Each year, the ELY Centre of South Ostrobothnia selects a supervisory theme. In its supervisory activities, the ELY Centre has mainly focused on supervising solvency and the proper fulfilment of obligations. At the moment, in 2017, it is also monitoring the fulfilment of reputation obligations. If shortcomings or omissions in solvency or the fulfilment of obligations are observed, the ELY Centre issues the company with a deadline for resolving such problems. If they are not resolved within the deadline, the ELY Centre may cancel the transport permit.
Cooperation between authorities
All permit applications by freight and public transport companies are accompanied by an obligation compliance report issued by the Grey Economy Information Unit of the Finnish Tax Administration. Where necessary, on the basis of the information in the report the ELY Centre will engage in consultations with and supervisory activities respecting the company.
ELY Centres also receive a wealth of information that can be used to combat the shadow economy directly from the ‘field’, in addition to the financial information contained in obligation compliance reports and phenomena analyses. The police provide information on minor offences by companies guilty of serious crimes against society’s regulations. By far the vast majority of such information concerns driving or rest-time offences in one way or another. For example, repeated misuse of tachographs or over-long shifts may indicate an attempt to acquire financial gain or a competitive advantage on the part of the offender. The South Ostrobothnia ELY Centre has the task of monitoring minor offences and initiating supervisory measures against a company if the thresholds set in the EU Commission Regulation (403/2016) are exceeded.
Finnish Competition and Consumer Authority
The Finnish Competition and Consumer Authority (KKV) has several contact points with the shadow economy, particularly in relation to procurement supervision, cartels and corporate and consumer fraud. In addition, the KKV is involved in helping to lighten the regulatory burden associated with measures for fighting the shadow economy.
The Government resolution on the strategy to tackle the shadow economy and economic crime for 2016–2020 highlights the targeting of public procurement monitoring at the prevention of corruption.
The KKV drafts an annual report on supervision of the Act on Public Contracts, with a summary of:
- unlawful practices observed during supervisory activities, and detrimental practices with respect to transparency and non-discrimination, and their most common background factors;
- the number and content of measures referred to in Section 139 of the Act on Public Contracts;
- the number and content of prohibitions and commitments referred to in Section 140 of the Act on Public Contracts; and
- the number and content of proposals, and court judgements made on the basis of proposals, in Section 141 of the Act on Public Contracts (Section 144 of the Act on Public Contracts).
The regulatory burden
The Government Resolution on the strategy to tackle the shadow economy and economic crime in 2016–2020 emphasises the need to lighten the administrative burden of businesses. The action programme to tackle the shadow economy and economic crime in 2016–2020 designates the KKV as the party responsible for drafting a report on the regulatory burden. A model for lightening the regulatory burden will be developed together with the Ministry of Economic Affairs and Employment. The first calculations of the costs of means of combating the shadow economy will be ready by the end of 2017. The results of monitoring of the regulatory burden will be reported annually thereafter.
Cartels and fraud
Competition monitoring within the agency focuses on cartels, among other issues. Cartels have been detected during public procurements, for example. Links with corruption have also been observed within cartels. The Consumer Division and Market Research Unit also focus on consumer and business fraud.