Money Crimes -podcast’s text version 3/3

This podcast episode is a compilation of several real-life cases that have been merged into one fictional story. The episode is based on background materials, from which the original sources, cases and references to personal information have been changed to protect the privacy of real people. This episode focuses on the dangers behind easy money – does “easy money”, in fact, even exist? What kind of unexpected consequences can result from doing an insignificant-sounding favour for a friend against a small payment? In this episode, you will hear about the signs of tax fraud, and what fraud, or being a victim of it, can eventually lead to. This is the “Money crimes” podcast. 

Max was a man in his twenties with a life that had not gone quite by the book – rather the opposite.  

Max’s father had left the scene as soon as he heard Max’s mother was pregnant, leading to a life of struggling for the single mother ever since the boy was born. The mother tried to give his son a good life and worked in several jobs nearly around the clock, meaning that, because of her absence, Max had to learn to take care of himself from a very young age. Max’s plight was not made any easier when he started school. Due to frequent childhood illnesses, Max had remained very small – a fact that he was constantly reminded of once he reached school age. The other children picked on Max non-stop, and the boy could see no other way out besides using his own fists to defend himself. Max didn’t exactly win over any friends with this solution, but in time it did earn him a certain reputation that, at least, made others leave him be. Hiding behind a tough shell, the insecure teenage boy spent a lot of time alone in his own room playing computer games, and soon enough he found a new kind of entertainment from the depths of the internet that sucked him in completely and, before long, destroyed his life: Max began to gamble. Still underage at the time, Max found a loophole in the system of a gambling site, which allowed him to lie about his age, and before he knew it, online poker and casino games had filled all of his free time. Max’s gaming became compulsive: he got hooked on the risk inherent in the games and, in particular, the chance of winning a jackpot, which activated the dopamine, the pleasure hormone, in his brain. However, it tends to happen that the jackpot never comes, but the smaller wins keep encouraging the player to put more and more money into the games. This is what Max did, as well. After his own money ran out, he first secretly gambled away his mother’s hard-earned money, and then moved on to the world of quick loans. Still, the jackpot left him waiting and Max, who had become alienated from working life, was unable to pay back even the constantly growing interest let alone the actual loans. In his twenties, Max suddenly found himself in a huge amount of debt. His bank account was empty and the desk drawers were full of letters from the enforcement office, and Max no longer knew what to do. So, when one Tuesday afternoon the young man’s phone rang, Max felt like he had been saved. 

On the other end was Tommy, a slightly older man whom Max had met through mutual acquaintances, and whose true motive for the call was revealed quickly after a brief moment spent to catch up. Tommy, who was very much aware of the desperate pinch Max was in, offered him an opportunity to earn a fair sum of money with hardly any work. As one might guess, Max was all ears. The instructions Tommy gave him were very simple, 

“Go to the bank. Set up an account and get online banking credentials for it. In the near future, someone will come and ask for those credentials, and you must give them to that person.” 

Max could hardly believe what he was hearing. Was that really all? The job sounded ridiculously easy and, in a flash of insight, he wondered what was behind the task entrusted to him – what was it all about? Regardless, Max trusted Tommy and could not believe that the man wanted him any harm, so he pushed his doubts aside and accepted Tommy’s offer. The men agreed to meet at a local pub to discuss the specifics in more detail. 

“What harm can possibly come out of simply opening a bank account?” Max thought to himself. Later on, that same question would come to haunt him on multiple occasions. 

Working as a tax inspector for the Tax Administration, Elsa was known for her keen eye. Elsa had, through her own action, helped investigate tax fraud and stop the shadow economy so many times that you could not have counted them all with the fingers on both hands. One of Elsa’s work tasks in fighting the shadow economy was controlling the accuracy of the information that companies report to the Tax Administration, leading her to, among other things, carry out tax audits of companies. During an audit, one of the things the inspector aims to find out is whether the information reported about the taxes paid for the company’s sales, purchases and business activities actually holds true. This is the task Elsa was performing when her attention was drawn to the rather peculiar VAT status of a certain limited liability company. 

For companies, value-added tax works like this: If a small business owner wants to sell bracelets they themselves have made for 50 euros a piece, during the sale they will add 24% VAT to the 50 euros, bringing the total price to 62 euros. The 12 euros of VAT must then be paid in its entirety to the Tax Administration, unless the business owner has made purchases to further their own business activities by buying products or services, in quotes, “for company use”. Let’s say that the business owner has spent 41 euros in a retail store to buy the items needed for making their bracelets, with eight euros of the price being VAT. As they fill in their VAT return, the business owner can deduct this eight euros of VAT that was included in the price of their purchases from the 12 euros of VAT they must pay for each of their own sales. In this particular case, the business owner would then need to pay four euros to the Tax Administration instead of the original 12.  

In the VAT returns of the limited company Elsa was inspecting, the amount of taxes to be deducted for purchases exceeded the value-added tax from the sales, meaning that the company had accrued negative VAT. Such a situation is, indeed, possible, and quite simply means that the Tax Administration will refund an amount corresponding to the negative VAT back to the taxpayer. With this company, however, Elsa’s attention was drawn to the fact that the amount of tax to be refunded had risen to a fairly sizable sum: 35,000 euros. For a company to be entitled to a refund of this magnitude, its purchases should amount to nearly 150,000 euros without VAT. Based on the dubiousness of this VAT information, Elsa considered it appropriate to investigate further. The special inquiries Elsa performed resulted in a conclusion that was crystal clear: no purchases had ever been made from the company’s account. Neither did the bank account hold any suggestion of any revenue being paid into it, nor of any other kind of business activities being carried out through it. In addition to the VAT refunds from the Tax Administration, the only other potentially business-related transaction on the account was a payment for a notification of change to the Patent and Registration Office. By this point, Elsa was already certain that something was seriously amiss with the company’s activities – it didn’t seem to be doing any kind of business and all signs were pointing at it existing solely for defrauding the Tax Administration of VAT refunds. The last straw to recognising the case as tax fraud was when Elsa noticed that all of the refunds paid into the bank account had always, without exception, either been withdrawn as cash or transferred abroad on the very day the refund had been made. After that, the Tax Administration’s criminal offence attorney reported the case to the police as a suspected tax offence and a possible related accounting offence, and the investigation was continued by police officials.  

During the tax audit by the Tax Administration and the pre-trial investigation by the police, it became apparent that the company had been entered into the VAT register for the sole purpose of obtaining improper refunds. The VAT returns were deemed false, as the company had no business activities and therefore could not have made purchases for taxable business purposes. In addition, not a single person interviewed in connection with the case could tell anything about the company’s operation that would have explained all of this.[Rivityskohta] 

One Thursday morning, Max, who was staying at his mother’s place, woke up to the sound of the doorbell. Max rolled over, pulled the blanket over his head and wished that whoever was there would take off as soon as possible. To his chagrin, the doorbell soon ran again, and yet again – clearly the visitor was not giving up. Muddled with sleep, Max got up from bed and shuffled to the door. As the door opened, even the last vestiges of his sleep were chased away by the unexpected sight of two police officers. They told Max that they had been trying to reach him for several days without success, and the situation was now such that it would be best for him to come along to the police station with them to clear things up. Several months had passed since the conversation between Max and Tommy, and Max couldn’t help wondering if it had something to do with the police’s sudden visit. 

During questioning, Max was told that he was the responsible person for a limited liability company that had come up in a Tax Administration inspection. The Patent and Registration Office had received a notification of change about an old limited company stating that the 20-year-old Max now owned the entire capital stock. It included, as an attachment, the minutes of an extraordinary shareholders’ meeting, which stated that Max had been selected as a full member of the board. Max was flabbergasted. What limited company and what board were the police even talking about? As far as he knew, he had no part in any company’s operation, especially not in a position of responsibility, and the notification of change sent to the Patent and Registration Office and now held by the police had not been written by him. The police told Max that the person named responsible for the company, who on account of all the documents was without a doubt Max, was responsible for all of the company’s operations and therefore also obligated to manage its accounting and finances in an appropriate manner. Obviously, this had not been done, and the police said that Max was now suspected of swindling value-added tax refunds, meaning, in effect, tax fraud. Max tried to convince the police that he was not the one who had made the notification of change, which stated that he was responsible for the company, but unfortunately for him, the police had evidence to the contrary. The Patent and Registration Office’s service had been accessed using Max’s personal online banking credentials. Nowadays, online banking credentials are akin to a person’s electronic fingerprint, and many services use those credentials namely for verifying a person’s identity. It is not possible to obtain online banking credentials without a strong authentication of the person applying for them, and so the police knew beyond the shadow of a doubt that the credentials must belong to Max. Without irrefutable evidence that other persons were involved, the officials investigating the case had to start with the assumption that the person who had logged into the Patent and Registration Office’s service with the banking credentials to submit the notification of change was none other than Max. By this point, it was becoming clear to Max that he was in real trouble. It dawned on him that the offer to earn “easy money” Tommy had once upon a time made him was a carefully planned ploy and a trap to pin all the repercussions for the criminal activity on him while the true perpetrators would walk away scot-free. Max figured it was best to come clean with the police. 

He said that he had met Tommy in a pub where Tommy had at first repeated his original instructions: open a bank account, don’t use it and, when asked, hand over the banking credentials. Then, Tommy had given further instructions. He had said that the account would receive money once a month and, at those times, he would let Max know about it. Max should then withdraw the money in cash from an ATM and bring it to Tommy. Tommy had also promised that Max would get to keep a certain share each time, earning himself some easy money. The plan had sounded foolproof to Max, and he had never questioned the details, such as where did the money appearing into the bank account come from – he had simply followed the orders like a robot. Max had withdrawn the money once a month, that is, each time the VAT refunds were paid, and he had received a total payment of 1,500 euros for the operation. It may not sound like very much, but to Max, who had been wrestling with financial problems, it was more than enough, especially for such an insignificant amount of work. Now, as he was sitting in police questioning, Max began to see things differently. 

The police questioned Max several times during the following days, and it did not take long for the investigators to realise that Max was no more than a small fry who had been shamelessly exploited. Still, when they asked Max who was the person he had given the banking credentials and handed the money to, he was unable to say much about the matter. For each withdrawal, Max had received a phone call from Tommy telling him to go to a specific place at a certain time. There, an unfamiliar, very ordinary and nondescript man in his forties had been expecting him, and Max had handed over the money he had withdrawn from the account without asking any questions. It had been the same for handing over the banking credentials. The police had their own suspicions about whether Max truly did not know anything more or was he simply refusing to say more about the persons connected to the case for fear of facing a backlash from snitching. Perhaps Max had told them about Tommy when driven into a corner to save his own skin and prove that the plan was not his, but had afterwards weighed his options and concluded that it was better to face a court sentence than to reveal the main perpetrators. This, and the fact that the whole arrangement seemed to be very carefully planned and rather multifaceted, made the police suspect that there was likely some criminal organisation behind it. It would certainly not be the first time for organised crime to pick a victim like Max – a person who is in debt, unsuspecting or otherwise desperate, someone young who knows not what they are getting into and what kind of repercussions their actions may have. Max and other people who have ended up in a similar situation are often called a “front” or a “straw man”. They are indirect representatives who, for example, sign a contract in their own name but for another person, giving that so-called head man all of the control. Fronts often don’t know or take into account that in agreements the responsibility falls primarily on the person who signs the contract, meaning the front themselves. By using go-betweens and “small fries” like Max, criminal organisations aim to cover up the tracks that lead to the actual perpetrators and leaders of the operations. Often this kind activity connected to organised crime has at least three parties involved: the practical operators, the go-betweens and the party who benefits financially, and for the most part the grassroots actors have no idea who is actually leading the operation or benefitting at their expense. It is assumed that this is what happened to Max, as well. In this operation, the heaviest load was shoved on Max’s shoulders, from the practical work of withdrawing and delivering the money to taking all of the responsibility. Tommy is believed to have been the go-between in the plan, the person who operated as the link between Max and, quite likely, organised crime. 

Unfortunately for Max, even after the police could prove that there was a machinery much larger than him running the operation in the background, this did not free Max from responsibility. He himself had opened the bank account, handed the banking credentials forward, and kept a total of 1,500 euros from the money he had withdrawn. For these things, Max would now have to face consequences.[Rivityskohta] 

After the investigation carried out by the police, the case was transferred to the prosecutor for the consideration of charges, from which it could then be taken to the district court if the prosecutor deemed it appropriate. In cases similar to Max’s, the charge can be, for example, aiding and abetting tax fraud or money laundering. Usually, if a person is found guilty, they are liable to pay compensation for damages to the Tax Administration or to return the gained tax benefit to the state, with the claim for compensation being based on the actual amount of tax that has been avoided through the act. The liability for the payments falls on the person who exercises control in the company, and in this case that person was Max, at least according to the documents.

The district court stated that Max’s actions filled the criteria for deliberate money laundering and he was found guilty. Money laundering crimes are always proceeded by another crime through which the assets have been illegally obtained, and whoever accepts, uses, channels or holds criminally obtained assets or benefits derived from them is guilty of money laundering. In Max’s case, it was clear that, although the young man was not the brain of the VAT fudging operation, he had received, channelled and used money derived from tax fraud, which made him guilty. Max was sentenced to five months of conditional imprisonment, and in addition he had to pay the Tax Administration 1,500 euros as crime-based compensation for damages. This kind of compensation can be claimed for 20 years from the time of verdict in situations where the liable person has been punished by imprisonment. As this condition holds true for Max, the money he gained through criminal activity will continue to haunt him until his forties, unless he manages to pay the compensation to the Tax Administration before then. Max indeed received his punishment despite the police knowing that he was not the party who had organised the operation. His situation could have been even worse if the police had not got wind of the main perpetrators – after all, it was Max’s name in the company’s documents. In handing out the banking credentials, Max could never have imagined what kind of consequences that one act, which seemed so insignificant to him, could have. After the verdict had been read, the question echoed in his mind, 

“What harm can possibly come out of simply opening a bank account?” 

Max shook his head and answered himself, 

“Quite a lot.”

Despite the fact that the Tax Administration has several monitoring tools and VAT refunds, among others, are monitored daily, unfortunately the system isn’t watertight. While VAT fraud prevention is these days fairly effective, Finland still loses about 30 million euros per year because of them. Occasionally, the victims of VAT fraud include fair and honest entrepreneurs who, without their knowledge, make deals with VAT fraudsters who engage in the shadow economy. In situations where the other party does not account for their VAT properly, the honest entrepreneur can end up paying the other party’s VAT as well, which means in practice that they lose the VAT reduction from the product or service they have purchased. On the Tax Administration’s website, you can find a list of signs that should set the alarm bells ringing.  

Max’s case is a good example of how the simple act of handing your bank account and online banking credentials to another person and withdrawing money can lead to a criminal verdict even if you are not an actual active participant in the fraud. When you hand over your account, bank card or credentials to another person, you can never be quite certain what that person will do with them, or to what end will they be used. Passing on your online banking credentials holds a particular risk, because they are, in practice, electronic proof of your identity, and therefore everything someone does with your credentials is linked to you, and you will be the one who is held accountable for their actions. The concept of “easy money” does not exist in reality, and if an offer sounds too good to be true, it more than likely is. It is also good to remember that trials for economic offences can last up to several years. Processing times for these kind of non-urgent cases have been long for some time now, and they have recently only grown longer. If the case may keep dragging on for a very long time, it is difficult to plan for the future both mentally and in practice. Will you be facing a prison sentence, and if so, when? Can the verdict become a hinder to job seeking or, say, getting into a place of study? And what kind of mental stress and anxiety will be caused by waiting for proceedings that are left pending? Life will be much easier if you make sure that you, and only you, can access your own personal and confidential information, and that you always take care to know for certain what kind of a paper you are signing your name into. 

Never pass on your online banking credentials or your bank account. If you have given your online banking credentials to someone, it is imperative to close the account and disable the credentials immediately. If you notice that your name has been signed as a responsible person or a board member in a company without your knowledge, please contact the Patent and Registration Office and the Tax Administration to clarify the matter.