The Embeddedness of Corporate-Organised Crime in Legal Markets: VAT Carousel Fraud in Retailer Supply Chains

• In Event: Tax fraud and occupational crime

Abstract

Most carousel fraud schemes “only” cause direct financial loss to the states where the VAT is not paid. There is one subset of carousel fraud, however, where the harm is more diffuse and complex. These are the cases where the goods exist, and, after being passed through the carousel, they are resold at greatly discounted prices (financed by parts of the proceeds from the fraud) to consumers. This might happen through the grey market, but the goods could also re-enter legitimate markets by being inserted into the supply chain of retailers. The size of the demand from retailers (especially concerning non-perishable everyday consumption items such as agricultural products, cooking oil, flour, or sugar) not only provides economic incentives to expand the volume of the fraud (thus increase the loss to member states in missing VAT) but can also seriously disrupt and distort retail supplier markets by offering prices producers and honest competitors cannot compete with. This kind of carousel frauds are situated at the intersection of corporate and organised crime: they employ complex corporate structures and involve legitimate business entities, while being perpetrated by organised crime groups.
Based on an empirical study of VAT carousel fraud in retailer supplier markets, the paper aims to arrive at a more theoretical reflection on interconnectedness of organised and corporate crime in complex VAT fraud cases, and on the mechanisms how the market environment shapes carousel fraud, and, in return, how this fraudulent activity shapes legal markets.

Author

• Csaba Győry, ELTE University Faculty of Law, Budapest /Institute of Legal Studies, Centre for Social Sciences, Hungarian Academy of Sciences