Situational picture

Changes in the operating environment are identified quickly in combating the shadow economy and financial crime

Publication date 16 May 2022

The war in Ukraine and the resulting flow of refugees may increase the already existing cases of work-related abuse, including labour exploitation, the use of undeclared workers and even human trafficking. The authorities combating the shadow economy estimate that people in a weaker position are always at risk of abuse. International sanctions give the authorities more supervisory duties and obligate all parties.

The authorities combating the shadow economy and financial crime conducted a survey at the beginning of 2022 to identify changes in the operating environment. The survey requested the authorities to provide their views and observations of changes in the operating environment regarding the shadow economy and financial crime, as well as their prevention. An overview of current phenomena is a sum of many parts, combining the views of different authorities.  Any weak signals identified may be an indication of a single phenomenon raising its head or the first symptom of a change that may be significant in the future or mean that a previously existing phenomenon has taken new forms.

The amount of light entrepreneurship and self-employment increasing, often showing signs of work carried out in an employment relationship

The authorities have seen that some employers have used light entrepreneurship to outsource their obligations to employees, especially among the foreign workforce. In these situations, the actual conditions of the worker, acting as a self-employed person or light entrepreneur, meet the characteristics of an employment relationship. The worker may receive work locations, working hours, tools and other work equipment required from a principal customer acting in the role of an employer at a worksite. The worker often has no other principal customers, and they act under the principal customer’s supervisory rights.

The worker may not always know that they are actually a self-employed individual or want to be one. Some workers may be under the impression that they have signed a new employment contract, although what they actually signed was a self-employed individual’s assignment agreement. Such workers who are forced into self-employment do not usually have the required linguistic skills. The worker may also have been reported as a self-employed individual retroactively, in which case the employer may aim to have the employees’ pension contributions refunded. Bogus and forced self-employment has especially been discovered not only in the construction sector, but also in transport. 

Drawing a line between self-employment and an employment relationship depends on consideration of the choice between actual self-employment and work based on an employment relationship. The legal nature of an employment relationship must be assessed based on the actual work-related conditions and the worker’s position. Arrangements made for evading legal provisions do not have any legal protection. Assigning work and working also involve significant amounts of ignorance and partly inaccurate information about which party should take care of statutory insurance related to work.

Labour exploitation increasingly subject to cooperation between the authorities

In addition to labour exploitation, the exploitation of foreign employees may also involve human trafficking, extortionate work discrimination and protection racket cases. Through the residence permit process tied to the employer, employers may have affected employees’ rights. Such an employer usually also exploits foreign employees’ insufficient linguistic skills and ignorance of Finnish law. Employees’ wages may have been recovered or forwarded to the bank account of a supervisor or shareholder through invoicing service companies. Cases of abuse involving labour exploitation are often discovered not only in seasonal work, but also in long-term employment relationships.

Abuse cases have increasingly become hot topics in public debate. Employees subject to abuse have had the courage to talk about their situation once visible measures have been taken. Victims of exploitation may not always know that they are subject to crime, or they may not want or have the courage to help investigate the case. Labour exploitation is increasingly subject to cooperation between the authorities, and the authorities are also able to better identify it, while prevention also calls for more cooperation and more exchange of information. At best, new forms of working provide many with new opportunities for working, but, in addition to their positive impact on employment, they may also involve various negative phenomena.

The impact of the war in Ukraine is already reflected in the authorities’ activities

The authorities are monitoring the development of the international refugee situation. The growing flow of refugees is providing the Finnish labour market with many new employees in different sectors. Refugees may have an urgent need to obtain income, also making them specifically susceptible to exploitation. Such employees particularly enter sectors where Finnish skills are unnecessary, including agriculture, accommodation and construction. The work offered may be short-term or seasonal work, for which the threshold for using undeclared foreign employees is low. There may also be professional criminals from various countries. In addition to employee exploitation and undeclared work, there is also the growing risk of different fundraising and other financial support fraud targeted at refugees.

The sanctions imposed on Russia as a result of the war have expanded, and suspected criminal cases related to the sanctions may increase. Evading sanctions directed at goods, people and transport may give rise to new types of crime. Supervising the sanctions calls for significant resources from the authorities. According to the authorities’ estimates, goods subject to sanctions may also be smuggled into Russia, and sanctions related to money transfers may be evaded using virtual currencies. Assets and funds subject to sanctions may also be maintained and imported into Europe through front men.  Forged documents and receipts intended for evading sanctions have already been identified.

The war has had a significant impact on imports and prices of raw materials and foodstuffs. Low-quality or forged foodstuffs may be placed on the market to replace any deficiencies in food imports due to the war. Any rapid increase in the general price level and the prices of energy, fuels and raw materials may increase the shadow economy and financial crime to reduce other business expenses. According to the authorities’ estimates, the decline in the Russian economy will have a variety impacts on crime in the border region, for example.

An increase in virtual currencies and online payment platforms involves risks 

The virtual currency market has increased during the coronavirus pandemic. According to the authorities’ findings, the use of foreign virtual banks for the transfer of funds has increased. A single party may have up two 200 different virtual currencies. Virtual currencies are only transferred between the parties to the transfer which means that transactions are more difficult to trace than in conventional money transfers. Access to data requires international data requests, as funds are increasingly held in international bank accounts or in foreign virtual banks. Virtual currencies can be used to conceal assets and apply for social benefits higher than to which the applicant would be entitled based on their real assets.

In the platform economy, the provision of user-friendly online solutions requires that the same obligations are complied with as in any other business activity—submitting appropriate permits and reports to the authorities. On an international scale, there are signs that some companies try to evade national and international laws by only operating online. This practice may spread in the near future. The labour law position of those working via online platforms may also be unclear as the work is not tied to any fixed location or equipment. As online shopping increases, the number of foreign payment transfer service providers and various money transfer platforms will also increase, reducing the authorities’ access to information.

Offences in the food chain identified better than before

Various offences have been identified in the food chain, relating to health, marketing, registrations, industrial rights, fraud, environmental pollution and aid fraud. Food crime presents a direct risk at people’s health and safety. Food crime often involves small sanctions and a low risk of getting caught. While the identification of offences in the food chain has improved through increased training and awareness, the settlement of cases often calls for extensive international investigations and cooperation between the authorities.

According to observations, professional food preparation completely outside the scope of food control has increased during the pandemic. Often, food is also prepared in facilities unfit for the purpose. Meals prepared outside the scope of food control are delivered for retail sale, and their volumes can be significant. These activities may involve the use of undeclared employees and neglected employer obligations. Buyers of products can rarely identify food crime. 

Smuggling and sales of related products have become more professional

The decrease in passenger volumes has affected the smuggling of highly taxed products, and the import and sale of products has extensively gone online. Large volumes of alcoholic beverages are being ordered online from Central Europe, among other places, for further distribution in Finland. In illegal importing, criminals have especially used commercial goods transports, postal and courier services. Smuggling operations also involve Finnish companies that distribute goods from Finland and the EU to the black market in third countries.  The wealth of the individuals behind these companies may have come from income whose origin cannot be reliably identified, untaxed income or criminal activities.

Snus smuggling and sales of related products have become more professional, and the parties involved often play highly specific roles in smuggling chains. Operations have also been run from other countries where part of the criminal proceeds obtained from snus sales has ended up. Larger amounts of illegal snus imports have been identified along the land border between Finland and Sweden and in ferry traffic. Snus has especially been sold in encrypted snus groups and other groups on the public Internet. Snus operations also involve tax offences and illegal imports.

Changes in the operating environment also offer new opportunities for organised crime

The authorities have identified that the risk of organised crime being involved in benefit-related abuse has increased during the pandemic. There are also signs that organised crime has found its way to key procurement chains, in which buyers often need to receive their goods urgently. Operations are often international and networked.

Organised crime is broadly involved in various business activities. Criminals infiltrate reputable companies and exploit the distribution channels to import forged or unfit products into the EU market. Small transport volumes reduce the risk of getting caught. Criminals use specialists in different fields and exploit shell companies. In addition, they use invented invoicing chains and circulate goods and declaration documents. Criminals aim to avoid official obligations associated with business activities and to use business activities for money laundering purposes. High proceeds from environmental crime, the low risk of getting caught and mild consequences also attract organised crime. 

For more information, see “Findings of changes and phenomena in the operating environment – results of the survey sent to the authorities combating the shadow economy and financial crime” in Finnish (PDF 383 kB).