Fraud using companies

Professional exploitation of companies by fraudsters is an offence

As a phenomenon, the professional exploitation of companies in order to commit fraud takes many forms, particularly in the case of financial crime. It typically involves the use of incorporated companies as “tools” to commit various kinds of fraud. Fraudsters often designate a “front man” as the responsible officer of the company. These front men operate under their own names, but work covertly on behalf of someone else.

The same companies often carry out many kinds of fraud involving orders and VAT returns, for instance, and may also apply for groundless refunds of employer contributions. Cases of corporate identity theft have also been detected – that is, fraudsters have used the ID and status of an honest company to commit such offences. One well-established form of professional exploitation of companies involves the acquisition of a company on the verge of bankruptcy, with the intent of committing fraud. In such cases, companies that have tax debt or are otherwise in trouble are sold with a view to winding down their operations. The fraudsters may use such companies to keep sales income off the books and as tools for committing various kinds of fraud.

Professional fraud is international

Cases of VAT fraud come to light in various fields of business and companies of different sizes. Foreign individuals have increasingly been encountered as both perpetrators and front men in fraud cases. It has been noted that Estonian companies have frequently been used for fraudulent activities in Finland. Their responsible officers are likewise Estonian, or sometimes Russian. Some fields of business and product groups are particularly vulnerable to fraud. Fraud is more common in labour-intensive fields of business with small capital requirements.

Fraudulent orders are a topical and acute phenomenon that has grown strongly, particularly in recent years, alongside the rise in online sales.

Criminal exploitation of companies causes losses to both companies and the state.

For instance, VAT return fraud causes tax losses for the public economy. Tax losses represent lost income for funding society and indirectly add to the tax burden of honest companies.  From the perspective of companies, fraud hinders competitive neutrality, such as when a fraudulent actor wins a competitive tender for a construction contract.

Problems also arise in cases of identity theft, such as when a stolen identity is used to place fraudulent orders, for instance. In such cases, the companies do not receive payment for the goods they have supplied. Financial fraud causes losses to financial firms and other providers of finance. From the perspective of individuals, fraudulent corporate activities may involve an individual ordering and paying for goods, but never receiving them.

The professional exploitation of companies to commit fraud is causing extensive damage to companies and society. The scope of this phenomenon has not been measured in euro terms, and no statistical information is available on it.

Information and cooperation between authorities form the basis of combating professional fraud

The authorities seek to prevent fraud involving the exploitation of companies by publishing information on cases and phenomena. A key preventative action comprises ensuring and monitoring that registers are up to date and contain the correct information (for instance, the Trade Register, VAT Register, Prepayment Register). Register maintenance includes activities such as removing information from the register, preventing access to it and requests for information.

Criminal actors are detected in connection with taxation, especially during tax inspections and monitoring visits. The police also become aware of risky actors through criminal investigations and new crime reports. The authorities' participation in the exchange of information in both Finland and internationally is an important part of crime prevention efforts. The investigation of professional fraud offences emphasises rapid and efficient preliminary investigations, and the wide-ranging use of coercive measures in support of investigations.

In Finland, the effectiveness of prevention could be enhanced by means such as enabling an authority to disclose information on a stolen identity to other authorities.

Continuous development is the key means of protecting against fraud offences 

Crimes committed in the name of companies or based on the abuse of company information target the government in particular. When protecting against fraud, efficient processes and information exchange between the authorities play a key role. Steps are being taken to further develop information exchange between authorities, both in Finland and internationally.

Companies should regularly check whether the information on the company in different information systems (incl. the Trade Register) is correct and unchanged. A company should always contact the authorities if it has reason to suspect that a crime has been committed. It is very important that private individuals protect their own personal information, such as their personal identity number and banking codes.

See the Internet site of the Finnish Patent and Registration Office for useful instructions on how to protect yourself against fraud, such as corporate hijacking and fraud notifications, and on how to check your personal information in the Trade Register.