A feeling that FIU analyst Rilana* recognizes. Now that a major case she worked on has been heard in court, she looks back and walks us through the steps of her analysis.

About this case

Last year, the District Court of Amsterdam sentenced a man to five years in prison for large-scale tax fraud using fake invoices. The man was at the centre of a network of straw owners and a fictitious clothing trade. Through this ‘fake invoice factory’, tens of millions of euros in tax fraud were committed. Reports of unusual transactions and financial intelligence from FIU-the Netherlands made a significant contribution to the criminal investigation known as ‘Kapra’.

The investigation conducted by the Dutch Fiscal Information and Investigation Service (FIOD) was divided into two parts: Kapra and Kapra Annex**. The main and co-suspects made extensive use  of fake invoices in their tax filings. According to the court, fraud amounting to at least €40 million was committedin the Kapra case alone, resulting in tax losses of €10 to €13 million. In Kapra Annex, an additional €11.4 million in fraud was identified, with at least €2 million in tax losses.

Tax audit

For FIU-the Netherlands, the case began with a signal from the FIOD, analyst Rilana explains: “While auditing several companies in the clothing sector, a tax inspector found a number of irregularities. At one specific company, the inspector noticed that transactions were largely conducted in cash, much of the income was withdrawn from the business, and fake invoices had been issued. The inspector also concluded that income had deliberately been underreported in tax returns. In addition, it turned out that several companies in the same sector were linked to the same addresses and individuals. These companies all operated in a similar way and used the same accountant, who later turned out to be the main suspect in this case.”

Large cash withdrawals

Following the signal from the FIOD, FIU-the Netherlands searched its own database for reports of related unusual transactions. Rilana explains: “Different banks independently reported on the same individuals and companies. What stood out was the very large amounts of cash being withdrawn from business accounts, running into the millions. Income from the clothing trade was immediately withdrawn in cash. When banks asked about the origin of the funds, account holders were unable or unwilling to provide a satisfactory explanation. Another striking detail was the bank transfers to one and the same individual, the accountant mentioned earlier. In addition, there were several reports from money transfer offices concerning international transfers from the Netherlands to other countries.”

Analysis of unusual transactions

Rilana continued her investigation: “The reports already contained a lot of information, which was very helpful. I requested bank statements from several reporting entities to trace the flow of funds. I also obtained tax data to compare turnover with actual bank activity. It became clear that the account activity did not match the declared business operations, just like the banks had reported. I also checked whether the individuals involved appeared in police systems. Indeed, some had previously been linked to money laundering, underground banking, invoice fraud, and tax evasion.”

“What also stood out,” Rilana continues, “was that the accountant was involved in all these clothing businesses. He was authorized on many of the business accounts and, in some cases, even served as a co-director. He kept reappearing throughout the analysis.”

Declaration of suspicion

The information uncovered during the analysis was sufficient to classify the reported transactions as suspicious. Therefore, the case file was then shared with the FIOD. “They used FIU intelligence in the early stages of their Kapra investigation. The combination of the information already held by the FIOD and the additional FIU data led to a ‘reasonable suspicion of a criminal offense’. This helped law enforcement designate the accountant as a suspect. An important fact, because a concrete suspicion is required in order to use special investigative powers such as requesting data, conducting surveillance, or intercepting communications. Our suspicious transaction reports can therefore help law enforcement reach that threshold, allowing an investigation to move into its operational phase.”

Large-scale tax fraud and money laundering

According to the court, the suspect operated a ‘fake invoice factory’ for clothing traders. One of the fraud schemes worked as follows: traders purchased clothing abroad without VAT, but received fake Dutch invoices, including VAT, via the suspect’s shell companies. In reality, these shell companies supplied nothing. This allowed traders to wrongfully reclaim VAT. Through this scheme, the suspect received millions of euros in his bank accounts, most of which he returned in cash to the clothing traders. He charged a commission of 7 to 8 percent for his services. The court convicted the suspect of forgery and tax fraud and ruled that he had laundered approximately €1.5 million by concealing financial flows and spending the money on assets such as cars and a home.

Read the full ruling in this case here. (Dutch)

* Rilana is a fictional name.

** After his arrest in the Kapra investigation, the main suspect continued committing criminal offenses. For this reason, the FIOD split the investigation into two parts: Kapra and Kapra Annex.