Professional exploitation of companies is a fraud offence
As a phenomenon, the professional exploitation of companies in order to commit fraud takes many forms, particularly in the case of financial crime. It typically involves the use of incorporated companies as “tools” to commit various kinds of fraud. Digitalisation has further facilitated the professional exploitation of companies, as it is quick and easy to, for instance, set up companies and change business information electronically. Fraudsters often designate a “front man” as the responsible officer of the company. These front men operate under their own names, but work covertly on behalf of someone else.
The same companies often carry out many kinds of fraud involving orders and VAT returns, for instance, and may also apply for groundless refunds of employer contributions. The public authorities have also been informed of the use of the Incomes Register in benefit and loan fraud and money laundering. Cases of corporate identity theft have also been detected – that is, fraudsters have misused the business ID and status of an honest company to commit such offences. One well-established form of professional exploitation of companies involves the acquisition of a company with the intent of covering up or committing a fraud. In such cases, companies that have tax debt or are otherwise in trouble are sold with a view to winding down their operations. The fraudsters may use such companies to keep sales income off the books and as tools for committing various kinds of fraud.
Professional frauds are international operations
Cases of VAT fraud related to professional frauds appear in various fields of business and companies of different sizes. It has been detected that foreign companies, whose responsible persons are also foreign citizens, have been increasingly used for fraudulent activities in Finland. Fraudulent activities are also often managed from abroad. Some fields of business and product groups are particularly vulnerable to fraud. Fraud is more common in labour-intensive fields of business with small capital requirements.
Fraudulent orders are a topical and acute phenomenon that has grown strongly in recent years particularly as a result of the rise in online sales. Internationally, observations have also been made of a phenomenon in which social media platforms are utilised in arranged VAT refund frauds. Thousands of individuals may have been involved in the arrangements.
Criminal exploitation of companies causes losses to both companies and the state
For instance, VAT return fraud causes tax losses for the public economy. Tax losses represent lost income for funding society and indirectly add to the tax burden of honest companies. From the perspective of companies, fraud hinders competitive neutrality, such as when a fraudulent actor wins a competitive tender for a construction contract. Criminal activity may undermine trust in public authorities and society in general.
Problems also arise in cases of identity theft, such as when a stolen identity is used to place fraudulent orders, for instance. In such cases, the companies that have become victims of a fraud will not receive payment for the goods they have supplied. Financial fraud causes losses to financial firms and other providers of finance. From the perspective of buyers, fraudulent corporate activities may involve an individual ordering and paying for goods, but never receiving them. At the same time, damage may also be caused to the public sector when, for example, in addition to fraudulent order activities, fraudsters apply for groundless VAT refunds.
In recent years, there has been a clear increase in the professional exploitation of companies to commit fraud, causing widespread damage to both companies and society. The scope of this phenomenon has not been measured in euro terms, and no statistical information is available on it.
Combating professional fraud requires effective risk management
The authorities seek to prevent fraud involving the exploitation of companies by publishing information on cases and phenomena. A key preventative action comprises ensuring and monitoring that registers are up to date and contain the correct information (for instance, the Trade Register, VAT Register, Prepayment Register, Incomes Register). Register maintenance includes activities such as removing information from the register, preventing access to it and requests for information.
Criminal actors are detected in the Tax Administration’s risk management and in connection with various control measures, such as tax inspections and monitoring visits. The police and Finnish Customs also become aware of risky actors through criminal investigations and new crime reports. The authorities' participation in the exchange of information in both Finland and internationally is an important part of crime prevention efforts. The investigation of professional fraud offences emphasises rapid and efficient preliminary investigations, and the wide-ranging use of coercive measures in support of investigations.
In Finland, the effectiveness of prevention could be enhanced by means such as enabling an authority to disclose information on stolen and misused identities to other authorities.
Continuous development is the key means of protecting against fraud offences
Crimes committed in the name of companies or based on the abuse of company information target the government in particular. In addition to risk management and its development, public authorities must identify their own vulnerabilities as controllers. When protecting against fraud, efficient processes and information exchange between the authorities play a key role. Steps are being taken to further develop information exchange between authorities, both in Finland and internationally.
Companies should regularly check whether the information on the company in different information systems (incl. the Trade Register) is correct and unchanged. A company should always contact the authorities if it has reason to suspect that a crime has been committed. It is very important that private individuals protect their own personal information, such as their personal identity number and banking codes.
See the Internet site of the Finnish Patent and Registration Office [.fi]› for useful instructions on how to protect yourself against fraud, such as corporate hijacking and fraud notifications, and on how to check your personal information in the Trade Register.