Decline in the number of new cases of economic crime coming to the attention of the police – but a record amount of criminal proceeds was recovered
The number of new criminal cases classified as economic crime decreased last year. Last year, a total of 1,722 new matters involving economic crime came to the attention of the Police, 347 fewer than in 2017. This represents a year-on-year decline of almost 17 per cent. The recorded criminal matters involved a total of 3,799 crimes, 11 per cent less than in the previous year (Chart 1).
The number of open cases of economic crime – that is, those still under investigation – was 2,508 last year. The number of open cases has remained at the same level over the past three years.
In 2018, a total of 1,767 criminal investigations were concluded. The number of cases concluded also decreased significantly compared with previous years. Compared with 2017, a total of 330 fewer cases were concluded, a decline of almost 16 per cent. A positive development is that last year slightly more criminal investigations were concluded than new investigations were opened.
Decline in the number of tax crimes coming to the attention of the police
Cooperation between the authorities is very important in the prevention of economic crime. Most economic crimes investigated are reported by other economic crime-prevention authorities. The key reporting parties are the Tax Administration and bankruptcy estate administrators. In 2018, cases of economic crime primarily comprised tax fraud, accounting crimes and debtor’s crimes. These accounted for almost 44 per cent of the total number of crimes reported to the Police.
The number of cases involving tax fraud and aggravated tax fraud coming to the attention of the Police declined significantly (Chart 2). In 2018, tax fraud decreased by almost 37 per cent and aggravated tax fraud by about 35 per cent year-on-year. Last year, 84 cases of tax fraud and 404 cases of aggravated tax fraud were recorded.
Substantially fewer cases of fraud, identity theft, forgery and embezzlement categorised as economic crime came to the attention of the Police last year. In addition, significantly fewer environmental offences were reported than in previous years. On the other hand, there was a substantial increase in cases involving dishonest debtors, registration offences, aggravated money laundering and aggravated forgery.
Police recovered more than eur 27.4 million in criminal proceeds
The amounts of both the crime damage that came to the attention of the Police and the criminal proceeds recovered by the Police increased substantially last year (Charts 3-4). The nature of the criminal matters under investigation by the Police affects the criminal proceeds recovered, which is why the amount recovered varies from year to year. Last year, the Police recorded a total of about EUR 27.4 million in criminal proceeds recovered from economic crime, over EUR 10 million more than in 2016 and 2017. Generally, only a part of criminal proceeds are recovered. That said, the amount of proceeds recovered by the Police can be considered to be good in international comparisons.
The financial intelligence unit operates effectively
Money laundering is a key engine of transnational crime, and combating it should be prioritised.
The duties of the Financial Intelligence Unit (FIU) include preventing, exposing and detecting money laundering and terrorist financing and referring such matters to investigation. The FIU receives, processes and analyses reports and discloses relevant information to other authorities in Finland, such as the police, the Tax Administration, the Finnish Security Intelligence Service, Customs and the Border Guard. Last year, information disclosed accounted for about 7 per cent of all money laundering reports.
Last year, 39,220 reports on suspicious transactions were submitted to the FIU, 17 per cent fewer than in 2017. At the same time, the number of reports made by banks and other financial institutions continued to grow for the fourth year running. All in all, banks submitted more than 9,000 reports, a year-on-year increase of around 75 per cent.
Last year, the FIU halted – that is, froze – transactions valued at over EUR 5.2 million. The authorities recovered more than EUR 2.3 million in suspected criminal proceeds. The figures were significantly higher than in previous years.
The highest number of reports were filed by gaming communities, money services businesses and banks. The most common reasons for filing a report were unusual wire transfers, unusual behaviour within a customer group and lack of information on the origin of funds.
Customs protects tax revenues, combats the shadow economy as well as uncovering and investigating economic crime
The statistics illustrate the impact of tax collection and both administrative and crime prevention operations by Customs. Customs statistics should be examined by comparing them with the observations and statistics of other authorities presented in this snapshot. This makes it possible to determine the correct scales and weights of issues and phenomena.
Customs promotes fair competition and takes effective action against irregularities
Customs controls goods and collects taxes on them. Customers can only take possession of goods after paying taxes and duties, except for credit customers.
The new phenomena of this decade, such as international economic crime involving e-commerce and intra-Community supply, affect Customs in its efforts to combat economic crime. The internet is also increasingly often used in the marketing and sales of highly taxed products to customers, while also circumventing the tax provisions applying to such products.
Customs focuses its control measures on operations associated with substantial tax interests. Real-time customs control of different modes of transport and related goods, vehicles and passenger flows plays a central role in ensuring correct taxation and, consequently, combating the tax gap. The measures for preventing economic crime that fall under the investigative responsibilities of Customs also aim at reducing the tax gap.
The percentage of unpaid taxes of the total taxes and charges varied between 0.05–0.25% in 2013-2018. In 2018, the amount of tax arrears came to about EUR 2 million, which is 0.48% of the approximately EUR 0.5 billion collected by Customs in taxes and charges (Chart 1).
Customs conducts corporate audits and document controls
The audits carried out by Customs ensure the fiscal correctness of customs and taxation matters, facilitate and safeguard smooth foreign trade, and protect society by, for instance, weakening opportunities for shadow economy operations. The audits carried out in 2018 covered customs procedures, fairway dues, agricultural and internal market aid paid by the EU, and the tax boundary between Åland and Mainland Finland. In addition, Customs still carries out controls of tax-free warehouses relating to excise duties on behalf of the Tax Administration. Audits are nationwide and carried out in real time and on an ex-ante and ex-post basis. In addition to corporate audits and document controls, Customs also performs warehouse controls as well as controls of procedures, accounting and goods. Audits and controls are carried out on a statutory basis and based on risk analysis. Risk-based selection of audited and controlled entities is supplemented by random sampling.
A corporate audit covers the operations, organisation, administration, internal control, business systems and accounting materials of a company. Most corporate audits involve a company visit. A corporate audit may be conducted on an ex-ante basis before a licence, permit or position is granted as well as before approval of a change in a licence or permit. The purpose of an ex-post corporate audit is to review the company’s operations and the correctness of its business transactions and customs declarations after a customs clearance or taxation.
Document controls refer to controls on business transactions carried out after customs clearance or the taxation process. Usually, the controls are targeted at a large number of customs clearance or taxation decisions. The number of document controls also includes controls involving licences and administrative executive assistance.
In 2018, Customs conducted a total of 231 corporate audits and document controls (Chart 2). Year-on-year variation in the number of audits and controls is the result of the priorities approved for the audits and controls each year, the areas audited and controlled, and the increasing use of electronic materials. The total sum of debited taxes based on post-clearance recovery resulting from tax audits amounted to EUR 6.9 million at the end of 2018. The annual variation in the amount of post-clearance recovery depends on the auditing and control priorities, the risk analysis and critical selection criteria used in the selection of entities, the proportion of entities subject to statutory audits and controls, the size of the companies audited and controlled and the scope of the audits and controls. Even a single larger entity audited or a major error will have a significant impact on the annual post-clearance recovery total. In 2018, five corporate audits of shadow economy targets were based on criminal offences or led to a pre-trial investigation. The corresponding number of audits in 2017 was six.
Growth in e-commerce is evident in counterfeit product control
Customs supervises goods infringing intellectual property rights pursuant to Council Regulation (EU) 608/2013. The purpose of the supervision is to protect customers from exposure to products that may endanger their health and safety, safeguard tax revenue and the financial interests of rights holders. Most of the counterfeit products detained by Customs infringe a registered trademark or design. Products that infringe patents are also occasionally detained. The supervision takes place in connection with, for example, physical inspections.
The number and calculated value of counterfeit goods detained by Customs were in decline in 2013–2018 (Chart 3). In 2018, the number of detained goods saw a substantial year-on-year decrease, almost 74 per cent. On the other hand, the calculated value of counterfeit goods grew more than fourfold compared with the previous year. The long-term trend indicates a significant decline in detentions of large-volume shipments, and most detentions involve postal and express freight traffic. This is partly due to very strong growth in online shopping, which has led to a large number of small shipments. A similar trend has been seen in other EU countries.
The new EU Trademark Regulation that came into force in March 2016 gives Customs the powers to detain goods infringing EU trademarks while in transit to third countries via Finland. In 2018, it became more apparent that the largest share of shipments was detained in postal and express traffic, in which online sales play a major role. Postal traffic is challenging to supervise due to the large volumes and because identification of counterfeit products requires more detailed examination of the products, and X-raying is generally not useful.
Investigation of economic crime
Customs investigates suspected economic offences that fall under its jurisdiction. Economic crime refers to crime that is committed in connection with legal business operations with the aim of obtaining financial gains. The main offence usually involves tax fraud or aggravated tax fraud. Customs also investigates offences involving forgeries as well as customs clearance, environmental and accounting offences. Customs also classifies the smuggling of products subject to excise tax (alcohol, snus and cigarettes) as economic crime when it is comparable with business and professional activity, and even when it is not disguised as business activity.
The societal impact of economic crime prevention by Customs in 2018 totalled about EUR 27 million, while it was almost 50 per cent higher a year earlier (Chart 4). The impact comprises the sum of damages resulting from the cases investigated, i.e. evaded taxes, damages resulting from cases under or pending investigation (sequestration and prohibition of transfer), assets recovered by Customs and assets assigned to the enforcement authority or another official. Most of the decrease in the impact in 2018 is attributable to the decrease in damage caused by offences. The amount of recovered proceeds of crime varies from year to year. In 2018, Customs investigated a total of 1,294 tax frauds, of which 116 were aggravated. The number of tax crimes is rising.
Customs collaborates with the Tax Administration and law enforcement authorities in other countries to combat the growing phenomenon of Intra-Community VAT fraud.
Efficient and well-targeted combat against the shadow economy
In line with its strategy for 2016–2020, Customs combats the shadow economy and protects society by ensuring product safety and preventing serious cross-border crime. The impact of the measures taken by Customs to combat the shadow economy and prevent economic crime is measured by the number of administrative measures and those based on criminal offences. In 2013 – 2018, the impact varied between EUR 36 and 87 million (Chart 5). The number of uncovered cases of tax fraud has increased by 132 per cent from 2013 to 2018. The number of cases of aggravated tax fraud during the six-year period has varied between 51 and 116 per year, cases of tax fraud between 148 and 251, and cases of petty tax fraud between 358 and 927.
In the case of shadow economy phenomena, this means that the prosecutor decides whether there are grounds for deeming that the preconditions of a criminal offence have been met. 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.
Source: Ministry of Justice
The number of cases of financial crime decided by district courts has remained level in recent years.
The most common financial offence decided by district courts is aggravated accounting offence. Aggravated accounting offences are often connected to other offences, such as aggravated tax fraud. The handling time of a financial offence is influenced by factors such as the scope of the case. The median handling times of cases in district courts range from approximately 60 to 200 days, depending on the type of offence.