Situational picture
Combating the grey economy reduces many types of crime
Publication date: 20 May 2025
The grey economy and economic crime result in significant losses to society. Besides preventing economic losses, the effort to combat the grey economy promotes a fair labour market, affects security in many ways and also reduces other crime. In fact, authorities have detected an increasing number of offences in their supervision of business activities. In addition to the most common financial crimes, supervision has discovered smuggling, rationing offences, money laundering, labour exploitation, fraud related to social security and food products, consumer fraud and identity fraud.
The authorities combatting the grey economy and economic crime conducted a survey at the beginning of 2025 to identify changes in the operating environment. The survey examined the observations made by public authorities and organisations on changes in the operating environment related to the grey economy, financial crime and its prevention, and their views and predicted threats of future changes. The situational picture on the current phenomena comprises several subareas to provide a comprehensive insight into the current and near-future operating environment of the authorities combatting the grey economy and economic crime.
Criminal business activity is often invisible from the outside
A company engaging in the grey economy or criminal activity can be seemingly fulfilling all its official obligations so that its activities appear as legitimate as possible. Especially short-lived companies are often used as shell companies for fraud. A company’s chosen line of business or the business activities reported to the public authorities may be completely fabricated. Fully fictitious wages can also be notified to the Incomes Register. With digitalisation, the offenders might have no other contact with Finland than the money that goes abroad from here. One way that criminals have used artificial intelligence is preparing forged business plans and documents. The activity also involves organised crime.
Using companies as instruments of crime distorts the data content of official registers. The actual persons in charge of a company are obfuscated in official registers with strawmen who do not have a past record of neglecting official obligations, which would increase the risk of grey economy for the company as well. The actual responsible person acting in the background may be linked to several companies engaged in criminal activity. Criminal activity can also be carried out under the guise of associations, foundations or cooperatives. The share of foreign companies in the operations of the grey economy and economic crime is also growing. Establishing foreign companies online is easy and does not even require visiting the target country. There are more and more services that are offered for the establishment of such companies, and the marketing for these kinds of companies highlights the possibility of avoiding tax payments to Finland.
In the criminal service industry, criminal actors sell ready-made custom services or tools to other criminals for carrying out various crimes. The underlying aim is to achieve economic gain and to assist in hiding income, funds and actual actors. The authorities combatting the grey economy see a future threat in criminals using companies to infiltrate the structures of lawful business activity with the aim of weakening national security.
Bogus and forced self-employment is a dishonest competitive tool in the market
In bogus and forced self-employment, work is shifted to entrepreneurship to achieve economic gain. Bogus and forced self-employment is used to circumvent the legislative obligations related to labour, social welfare and taxation and shifts responsibility away from the actual employer. Bogus and forced self-employment is used to avoid employers’ responsibilities, for example paying supplements and holiday pay. In addition, the employer avoids giving paid leave, arranging occupational health care and paying various insurance premiums. This phenomenon is common in Europe and in Finland.
Foreign workers who often have poorer language skills and are not aware of their rights and the obligations of business activity are at a higher risk of ending up in bogus or forced self-employment. There are some companies in the market that do not employ light entrepreneurs per se, but subcontractors can present individuals acting as light entrepreneurs as their employees. Public authorities have increased joint control in new business sectors, and there was an increase in cases related to human trafficking in the previous year. In these cases, it is typical that an employee has to pay an entry fee for their job. In addition, public authorities have found labour exploitation cases where workers have unclear debt situations abroad and companies that use large amounts of cash in their operations.
Non-compliance with restrictions on residence permits
Some of the workers arriving in Finland find employment in companies and professional fields that do not match the ones stipulated in their residence permits. After receiving a residence permit, an employee’s employment contract might be converted into a self-employment contract, and foreign workers do not always understand the subsequent obligations or the rights they have lost due to the change. Employees can also be reported to the public authorities as light entrepreneurs through invoicing service companies, even if their wages are paid by the employer when looking at the actual circumstances and the residence permit. The requirement of a residence permit and having the job specified in the permit leads to the foreign worker being dependent on the employer.
Abuses related to foreign employees are detected in Finnish and foreign companies operating in Finland and in foreign companies posting workers to Finland. Foreign labour is common in labour-intensive sectors, such as restaurants, construction, cleaning, beauty and transport, and in agriculture and other seasonal work, which also increases the risk of abuse in these sectors. In addition to bogus or forced self-employment, labour exploitation involves undeclared pay, social security fraud, off-the-books sales and undeclared rental income, underpaid wages and even human trafficking.
At the moment, the income requirement for an entrepreneur’s residence permit is lower than for an employed person’s residence permit, which causes a risk of workers applying for an entrepreneur’s permit without understanding the impacts. The weakened position of foreign entrepreneurs may also be reflected as poor contractual terms with clients. The pricing of their contracts may match an employee’s wage level, meaning that the business activities are not profitable and do not comply with the rules of fair work, and it will not even be possible to pay all the statutory fees from the trade income. Working completely without the right to work has been observed less often than before to some extent, at least in large workplaces, thanks to factors such as work permits enabled by temporary protection. However, there are still foreign workers who apply for a tax card without having the right to work.
Social security abuse observations have increased
During the previous year, public authorities have observed more systematic and extensive social security fraud than before. Such fraud is detected, for example, when supervising small labour-intensive companies with signs of the grey economy. Some factors causing challenges in supervision include the amount of undeclared wages paid to family members in family businesses and unemployment benefits received while working. Subsidies connected to housing, domicile and staying abroad have also been featured in cases of social security fraud. Fraud also involves over-reporting wages to the Incomes Register, which is then later used to apply for allowances, subsidies and loans.
The ease of using services online makes it difficult to verify residence in Finland, and the risk of identity fraud is also increased. The identities and personal identity codes of persons who have left Finland can be used to apply for unjustified subsidies. It has already been observed in Sweden that organised crime makes extensive use of social security. Improving the exchange of information between the social security institutions of EU countries would improve the possibilities of preventing fraud.
Several types of abuse in the restaurant and food sector
Supervision discovers much undeclared work and under-the-counter sales in the restaurant sector, and observations of bogus self-employment related to employees have been on the rise. There are also restaurants operating as general partnerships that can momentarily involve several partners who are soon replaced by new ones. According to the observations, there are restaurants in Finland that have no other official employees in addition to the entrepreneur, which is impossible considering the restaurant’s opening hours. Online virtual restaurants that only deliver food through courier services can change rapidly or have several business IDs. With no fixed point of sale, it is difficult or even impossible to supervise virtual restaurants.
During the previous year, supervision of the restaurant sector observed extensive selling and buying of expired food products. When food business operators get scammed, it is rare for them to consider themselves an injured party, for example to avoid reputational damage to their establishment. There have also been cases of knowingly buying inedible foodstuffs, either to use at a restaurant or to sell to consumers in a retail store.
There has been an observed increase in private individuals importing food products for commercial purposes. After all, food, soft drinks and energy drinks are considerably cheaper in many other European countries than in Finland. Transport vehicles returning empty to Finland are used for transporting privately imported food products, even though the products will actually be used for commercial purposes. Restaurant and food industry companies have also imported food products to Finland with falsified and incomplete documents, and those food products often fail to meet the requirements of Finnish legislation.
Online observations and suspected offences related to illegal food products have increased. These observations usually concern sales on social media platforms where the products have been manufactured outside the scope of food control. For example, meat from farmed animals slaughtered undeclared, such as sheep, horse, cattle and reindeer, has been found to have been sold to the food chain around Finland. Observations also include non-registered wholesale with sales volumes that are higher compared to individual sales.
Competence development in the supervision of distance selling and a growing rate denunciation report have increased the number of observations and made supervision more efficient. International cooperation has also increased knowledge of different methods and phenomena of food fraud. Extending the penalty fee and compliance reports to new sectors of the food supply chain would enhance supervision and also combat multisectoral crime. However, the sanctions for food fraud are often minor in relation to the harm they cause. In the future, climate change will be one cause of more and more supply issues for raw materials, which will increase the risk of different kinds of counterfeiting. The risk of cyberattacks targeting actors in the food chain and food production has also increased.
Grey economy and safety risks in the transport sector
Prevention authorities have observed an increase in violations related to driving time and rest periods in the transport sector, and there is also a trend of not paying overtime increases to employees. There are cases where employees and vehicles may be shared between companies, so it is not always clear who is responsible for recording the driving and rest period data. Reducing the supervision of passenger traffic increases safety risks if the condition of the equipment, and workers’ driving times are not getting checked.
In tourism, foreign drivers and vehicles rented from abroad pose a wide range of risks in the transport sector. Neglect has been observed in employers’ obligations, such as the processing of employment contracts, records of working hours and driving logs. Minibuses are rented to transport tourists from countries without car tax. Car tax should be paid for vehicles in commercial use in Finland.
In the previous year, field supervision of taxi services was not organised as extensively as in the year before that, but supervision was centralised to the largest impact areas according to passengers and transport operators. Supervision of taxi services has found more and more taxi drivers who do not know whether the company has employees, light entrepreneurs or employers. The drivers may not be aware of the employees’ rights guaranteed by Finnish legislation, or entrepreneurs’ statutory obligations. The operation of taxi services also involves many other problems related to the grey economy and errors affecting consumers. The partial reform of taxi legislation is planned to take effect in early 2026, which is expected to affect the supervision of the sector and the amount of imposed sanctions.
High risk of the grey economy in tobacco products and alcohol
In the previous year, prevention authorities observed an uptick in the import of nicotine pouches and electronic cigarette liquids and related sales tax evasion. The fact that selling the flavour liquids used in electronic cigarettes is subject to the excise duty on tobacco in Finland has resulted in a large proportion of the electronic cigarette liquid market operating in the grey economy. The sale of nicotine pouches has brought many new operators to the fast-growing market. Nicotine pouches were made subject to the excise duty on tobacco from the beginning of 2024, and the Tobacco Act limiting the allowed flavours of nicotine pouches may affect the increase in under-the-counter sales. The illicit snuff trade decreased significantly as the legal sales of nicotine pouches partially replaced the use of snuff, but the number of seizures started to increase again in 2024, totalling more than five times that of the previous year.
The smuggling of cigarettes has increased and become more professional. In 2024, more than seven million individual cigarettes were seized, which was the largest number for ten years. Smuggling was mainly detected in shipping within the EU. Illegally imported cigarettes were also uncovered in warehouses located in Finland. Some of the smuggled cigarettes had also been manufactured illegally. Observations on the sales of nicotine products imported into Finland as private imports on social media platforms have also increased from the previous year. The high taxes on tobacco and alcohol products and the price difference with other EU countries may increase the illegal imports and tax-free sales of products. The distance sales of alcohol to Finland also involves violations of official guidance.
Explosive growth of e-commerce creates risks
In 2024, there were 28 million e-commerce shipments that arrived in Finland. The growth of e-commerce poses challenges to the collection of taxes, supervision, product safety and the capacity of information systems. E-commerce and its logistics structures have also been used for other than commercial purposes, for example to circumvent sanctions. In electronic services, the service provider can be anywhere in the world and change its location easily, and value added tax is not always paid according to the country of consumption principle. On digital trading platforms, there has also been a significant increase in the trade of virtual goods, such as items bought and used in games, and the payment of the related VAT to the consumer state is not always handled appropriately. The increase in e-commerce also affects the increase in product safety risks.
In 2024, around 8.5 million import declarations were submitted to customs for shipments from outside the EU, almost 98% of which came from China and more than 90% to private individuals. Import trade involves the risk of customs declarations having incorrect content or missing completely. Goods imported from outside the EU are also circulated through other Member States as undeclared imports through online stores. The number of shipments worth less than EUR 150, ordered from online stores located outside the EU, increased significantly in Finland compared to the previous year. In fact, EU Member States miss out on significant income due to low-value shipments being duty free.
Changing operating models are used to circumvent sanctions
Regulation offences and circumvention of sanctions are detected more effectively than before, even though criminals keep changing their transport channels and operating models as new sanctions provisions are issued. The numbers of basic and aggravated regulation offences have remained high. High-risk sectors include logistics, warehousing and forwarding as well as lines of business that have dealings with Russia. Complex international business networks are used to transport goods to Russia. Seller companies are misled with shell companies and falsified documents. The smuggling of products has partly moved to Finnish ports due to the eastern border being closed, but despite the closed border, goods are also being circumvented to Russia through warehouses in Eastern and Southeast Finland. The goods are often removed from the corporate entity through the Baltic States. Sanctions are circumvented with professional enablers who have knowledge and skills related to public authorities’ activities, money laundering methods and customs procedures.
The global political situation and the tightening or lifting of sanctions are directly reflected in public authorities’ operating environment. The threshold for evidence of sanctions violations is high, and they do not necessarily result in substantial punishment. Sanctions and their monitoring require domestic and international cooperation between authorities; to conserve resources, it is important to make that cooperation closer to identify sanctioned operators as early as possible. Due to the Sanctions Directive, the Finnish Criminal Code will be supplemented in 2025 with new offences: sanction offence, aggravated sanction offence, negligent sanction offence and sanction violation. In addition, the criminal liability of a legal person will be applied to sanctions.
VAT frauds includes several methods of the grey economy
Value added tax involves several different types of abuse and systematic fraud. The purpose of setting up a company may be to just apply for VAT refunds with unjustified tax returns. In terms of supervision and prevention, new companies’ unjustified initial investments pose a challenge, especially in new or specialised lines of business. In the initial stages of a business, it may be difficult to assess whether there is even any intention to start business activities, at least in the name of that company.
Supervision has also revealed VAT carousel fraud, in which unjustified VAT refunds are sought by cycling goods between two or more EU countries or by creating fake invoicing chains. Globally organised activity has also been observed in the abuse of tax-free activities.
Extensive marginal tax fraud has already been observed in vehicle imports over many years. Vehicles subject to VAT are purchased from other EU countries, to be sold in Finland with marginal tax that is based on falsified documents. This activity can involve several companies and cash money to hinder supervision by the authorities, and the buyers may also be aware of the fraudulent activity. One strategy is to deliberately not pay VAT, which means that vehicles can be sold at a profit but at a lower price than the market level.
The action plan for combating the grey economy and economic crime includes a project to develop provisions on VAT registration to prevent deliberate and systematic grey economy activity related to value added tax. The project examines whether, like some other EU countries, it would be possible and appropriate to add provisions in the Value Added Tax Act on removing registered taxpayers from the register due to abuses of the VAT system.
Virtual banks and currencies are here to stay – also for operators in the grey economy
The ease of using e-services and the opportunities provided by technology have increased the annual use of foreign and new types of banks and financial institutions. There are also more and more mobile banking service providers on the market. The use of virtual banks and cryptocurrencies has increased significantly among grey economy operators both in Finland and internationally. Offences are also associated with informal money transfer systems, which have been used to transfer illegally acquired funds abroad. Cash money is still being used, but it has been partially replaced by foreign payment cards or money transfers in various applications. Income from business activities might not even pass through a company’s official accounts, since the income may have been directed to virtual accounts operated in the background.
The supervision of international fund transfers is slower than that of traditional Finnish banks. Tracing, freezing and seizing criminal proceeds is more challenging. To combat the grey economy, it is very important that both domestic and international laws and agreements concerning the exchange of information are up to date and that there is enough timely information being exchanged between public authorities. Prevention authorities are in favour of having at least EU-level provisions on the right of supervisory authorities to directly query foreign financial institutions.
Increase in the number of bankruptcies affects the increase in financial crime
Companies’ payment difficulties are one factor promoting deliberate reluctance to manage statutory obligations and payments. There has been a significant increase in the number of bankruptcies, suspected accounting offences related to bankruptcy proceedings, and dishonesty offences by debtors. Signs of grey economy activity are often observed in short lifecycle companies going bankrupt and in longer-term companies that have neglected to comply with their reporting obligations, especially in the year before bankruptcy.
Grey economy companies’ bankruptcies may also involve the acquisition of a company on the verge of bankruptcy. Observations indicating money laundering have been made in the acquisition of such companies, where funds have been directed to the debtor company’s account from parties that are completely unknown to the actual debtor. The funds have then been transferred from the debtor company’s account to a foreign account.
Bankruptcy proceedings often take a long time, and one risk is the public authorities’ limited resources. The proposal for a directive to harmonise insolvency law in the EU would weaken the investigation of financial crime related to bankruptcy if the proposal were implemented in a way where micro-enterprises’ bankruptcies would no longer have an estate administrator. As it is, a large proportion of bankruptcies occurs specifically in micro-enterprises with a turnover of less than EUR 700,000 or with less than ten individual employees on average.
Savings targeted at public authorities have many kinds of impacts on prevention work
Economic crimes are reported by several prevention authorities, and savings aimed at one public authority are reflected in the work of other public authorities. The tightened financial situation has been reflected in the cooperation between authorities becoming intermittently and partially slowed down or reduced. The number of tasks has increased in many organisations, even though resources have decreased. Because public authorities have insufficient resources, processing times are often long. The lengthening of investigation periods impacts things such as the recovery of criminal proceeds and the possibility of investigating cases. At the same time, real-time investigations are becoming more complex due to legality requirements, criminal cases are expiring, and administrative adjustment periods are becoming shorter.
The prioritisation of investigations and supervision due to changes in the operating environment ties up resources, which is also reflected in other work. Not all public authorities have been able to participate in joint supervision. On the other hand, joint supervision has been added for new sectors, and new public authorities have also participated in the supervision. With some public authorities, the disclosure of data between public authorities is inefficient or impossible in the absence of legislation that would enable sharing the data. The possibility of exchanging information between public authorities would be a cost-effective way to combat the grey economy more effectively. For some public authorities, the increased use of penalty fees has reduced the need for cooperation between authorities and the initiation of criminal proceedings, making it an even more effective prevention measure in some situations.
The strategy for combating the grey economy and economic crime responds to changes in the operating environment
The strategy and action plan for combating the grey economy and economic crime are used to respond to changes in the operating environment and develop cooperation between authorities. The action plan against labour exploitation, the action plan against organised crime and the action plan against corruption also support the fight against the grey economy. There are several projects under way to improve the exchange of information between public authorities. The risks of the grey economy and economic crime and the supervision by authorities should be taken into account in all legislative development work. In an increasingly tense situation for global relations and trade politics, new laws and customs duties may enter into force quickly. Rapid changes in the international operating environment are therefore vulnerable to the increase of various abuses and harmful phenomena.
Read more about observations:
New ways of working have significantly affected the supervision of the shadow economy and economic crime
Publication date 20 May 2024
The shadow economy and economic crime result in significant losses of income for Finnish society every year. The authorities combatting the shadow economy and economic crime consider the changed ways of working and the platform economy to have had a significant impact on supervisory activities. In supervision, data volumes have grown and especially the provision of false information for the authorities has increased. The role of the authorities is changing not only in advice, guidance, supervision and fiscal activities but also in tasks related to internal security. Criminal activities are often snuck into societal structures by pursuing them through legal business operations, for example.
The authorities combatting the shadow economy and economic crime conducted a survey at the beginning of 2024 to identify changes in the operating environment. The survey was conducted for various authorities and organisations to collect their views and observations of changes in the operating environment regarding the shadow economy and economic crime, as well as their prevention. The situational picture on the current phenomena comprises several subareas and combines the views of different authorities to provide a comprehensive insight into the current and near-future operating environment of the authorities combatting the shadow economy and economic crime.
New ways of working have changed supervision
In labour markets, the shift away from employment relationships to various forms of entrepreneurship is still intensifying, while abuse associated with these new ways of working have increased. The information required to investigate the shadow economy and economic crime is becoming even more fragmented which ties more resources during investigations. It has become more difficult to identify responsibilities because work may involve several contracting parties. In business activities, withholding from compensation for work and enforcement proceedings are evaded by paying compensation in the form of profit shares or loans to the worker. Cooperation agreements between companies and workers are also transferred and sold forward. If agreements are sold outside official activities, tax and social insurance regarding work reported to the authorities will be targeted incorrectly.
The supervisory authorities consider the neglect of statutory obligations to have increased in companies. These include neglect in financial statements and accounting records, the lack of information about beneficiaries, and the provision of false financial information in various contexts. Furthermore, the boundaries of regulations on activities subject to a licence and the conditions imposed by the authorities are stretched. For example, it has been discovered that serving activities have been carried out with the licence of another business. These activities are considered to be carried out intentionally so that the risk of being caught and the limit at which the authorities start to act are also probed. The supervisory authorities have also discovered cases in which the necessity of the authorities has been questioned through the behaviour of customers towards the authorities.
Information and its reliability – false information threatens societal functions
The challenges presented by digitalisation, automation and the reliability of electronic identification have increased, resulting in more opportunities for abuse in public and private services. Documents are increasingly processed in electronic format which makes it even more difficult to identify fakes. The use of AI and other similar applications in the shadow economy and criminal activities will present a challenge to all authorities. AI can be used not only to produce fakes but also to identify various loopholes and any blind spots in law.
Inaccurate information provided for the authorities may become official information in the registers of the authorities. The impact of false information multiplies when it is shared with others. For example, false information can be seen as the reporting of unfounded data to the Incomes Register. Companies also falsely correct and cancel information submitted to registers. Companies may intentionally submit large numbers of unnecessary reports that cause congestion for the authorities, potentially weakening supervisory activities.
International factors have an impact on the supervisory environment
International political and environmental changes present new situations to the authorities. Wars and conflicts, inflation and climate change have an impact on trade carried out by companies, transport flows, and the movement of people. These changes also affect the operating areas and methods of criminals. For example, the decreased availability of raw materials increases the risk of evading regulations and making product forgeries. The grey area between legal and illegal activities is also growing. The supervisory authorities must be able, at all times, to respond to the growing number of assignments due to changes in the operating environment.
Changes in payments and logistics, combined with the increase in e-commerce, require constant responses from the authorities. The use of international e-banking services, payment terminals, payment cards and virtual currencies has increased further. In abuse situations, funds are circulated through various payment services to make their tracking more difficult. In virtual currencies, such services are used to disguise the origin and destination of assets. When companies are established and bank accounts are opened in other countries, professional assistants who provide customised services for their customers are used. These professional assistants are specialised in the use of new payment methods in hiding income and assets. The internationalisation of trading and payments often calls for cooperation between the authorities of different countries. The national and international exchange of information has increased which in turn has improved the efficiency of supervision.
Labour exploitation is also part of the shadow economy
Labour exploitation causes distortion in labour markets and gives an unfounded competitive edge to certain companies. A company’s earning model may be based on the exploitation of employees through the non-payment of appropriate compensation to them. The need for foreign employees increases the risk of an increase in labour exploitation. Risks are also increased by the need for a flexible and temporary workforce, the outsourcing of services and long subcontracting chains. Labour exploitation has especially been discovered not only in seasonal work in agriculture, construction and industries but also in the restaurant, cleaning and wellness sectors. Forced and bogus self-employment and unclear legal relationships have also expanded to new sectors.
According to the authorities’ findings, shell companies have been established in the EU Member State to transfer foreign employees to other countries, including Finland, in their name. Straw buyers have been registered to work behind these companies, and many-tiered subcontracting chains are used in their activities. Employment agencies trick employees with false employment contracts that are either completely fake or copied from originals. A promised study place may also have been paid for in advance, but when arriving in Finland, students have discovered that their tuition fees have not been paid. The establishment of activities abroad or several countries makes official supervision more difficult. Various social media platforms enable exploitation, and they may even have been used to collect material to coerce victims.
Promoting labour immigration calls for the preventive and effective combating of foreign labour exploitation. The new cooperation model for the prevention and supervision of the exploitation of migrant workers approved on 15 February 2024 tackles this phenomenon through legal amendments and intensified cooperation between the authorities. The measures seek to prevent abuse in labour markets by focusing on advisory services and providing more information at different stages of international recruitment.
Sanctions monitoring keeps the authorities busy
Sanctions have an impact on several authorities and have resulted in new monitoring activities. Situations where sanctions are evaded involve various international activities and new ways of crime. According to findings, activities have been more complex and partly more systematic. When evading sanctions, countries with which official cooperation is slow or ineffective are used in money transfers. Transport, logistics and forwarding are high-risk sectors from the perspective of sanctions. Information exchange between the authorities has increased, also internationally, which means that the ways of evading sanctions and cases involving such evasion can be identified better than before.
In food chain abuse, activities are often carried out outside registers
In the supervision of the food chain, it has been discovered that implausible numbers of production animals have been reported as missing or slaughtered for personal use. The sale of illegal products in marketplaces and markets has been a more distinguishable phenomenon in the authorities’ supervisory activities. In the cross-border transport of goods, there are more and more suspicions of the illegal import of meat or imports without the documents required. Trade associated with the food chain is a global activity, with Finnish parties to the food chain buying various counterfeit foods or illegally made products, also without knowing it. The general price level offers hints of whether all legal provisions have been complied with in the making, farming or trading of a product or ingredient. Shadow economy operators often carry out their activities outside official registers or use companies with a short lifecycle. Demand for meat and the decreasing number of hunting licences may increase the amount of non-registered activities. There are more risks in situations where a single party covers the entire food chain from production to end products.
Organised crime exploits the structures of society
The role of networked and organised international crime is growing in Finland. Such activities involve economic crime, money laundering and the abuse of social security in addition to the illegal importing and trading of prohibited substances. The ways of organised international crime have become even more serious, including the infiltration of individuals in organisations critical for society. Criminal activities are often snuck into societal structures by pursuing them through legal business operations. Criminals are increasingly using advanced technologies and ways that increase anonymity which presents challenges in the prevention and investigation of crime.
The authorities combatting the shadow economy consider the abuse of structures to present a threat to welfare in society. The updating of the strategy for combatting organised national crime is estimated to have a positive impact on the development of information exchange and administrative crime prevention. The authorities seek to take administrative measures to prevent the conditions of serious and organised crime.
Cooperation between the authorities is organised and combatting produces successes
The authorities have various duties that require official cooperation. Information is exchanged regularly in operations and strategic activities. The establishment of national and regional cooperation networks between the authorities has improved information exchange and expanded the authorities’ skills which in turn has improved the quality and efficiency of activities. As a result of projects under the action programme to tackle the shadow economy and economic crime, the increased use of obligation compliance reports and cooperation in producing the situational picture, awareness of the benefits and necessity of cooperation between various authorities has also increased. The high availability of financial information about companies and the individuals behind them, straightforward communication channels and electronic services in information exchange between the authorities help combat the shadow economy.
According to the supervisory authorities, findings of certain conventional shadow economy methods decreased last year. For example, no new extensive shadow economy cases that are often commonplace in the construction sector were discovered. The supervisory authorities consider real-time field supervision to have had a positive and preventive impact on the combatting of the shadow economy. In sectors in which cash is used, receipts are offered more frequently and contain fewer errors. The merger of up-to-date information in official registers promotes supervision.
Joint projects of the authorities need to be continued
The action programme to tackle the shadow economy and economic crime has set the strategic course for combatting and distributed responsibilities for activities. Joint projects have enabled the effective dismantling of any obstacles and hindrances in the way of official cooperation. When cooperation is advanced systematically, the expertise of all relevant parties can be used. Legal amendments call for the development of information exchange and cooperation between the authorities. Then again, the development of cooperation requires legal amendments. For example, restrictions on spontaneous information exchange prevent information from being disclosed between the authorities without a request which makes official cooperation more difficult.
Combatting the shadow economy and financial crime requires concrete action. The authorities are engaged in development activities regarding the needs for combatting. In operations, the authorities allocate resources appropriately and are also considering alternative ways in which close cooperation between the authorities is a valuable asset. Changes require continuous monitoring, supervision, training and information sharing from the authorities. Projects for the prevention of the shadow economy and economic crime enable closer cooperation between the authorities and its development at a concrete level. If it were not for prior joint projects, certain shadow economy and economic crime phenomena or new combatting methods might have remained unidentified. Risks also extend to such authorities that are not primarily engaged in crime prevention.
Economic stagnation and inflation increase the shadow economy
A weaker financial situation causes the risk of increased abuse and crime. Raw material prices have risen and companies’ abilities to obtain external funding have decreased. This may also expose law-abiding companies to engage in business with shadow economy operators, or companies may independently enter the shadow economy. A tight financial situation may tempt to use undeclared labour or abuse pay security. The financial situation in society also has an impact on the amount of bankruptcy crime in which companies intentionally leave their official obligations unfulfilled. Selling a company on the verge of bankruptcy often makes it slower to identify the actual fraudsters and for the authorities to track illegal funds. When business activities are discontinued, the aim of the fraudulent acquisition of a company on the verge of bankruptcy may be to destroy accounting records and to obtain unfounded VAT refunds, for example.
In business activities, the requirement for financial reliability is linked to the identification of shadow economy operators and the safety of consumer products. Often, the weak financial situation of operators is likely to lead to non-compliance with other business requirements. Extending the requirement for financial reliability to new provisions or licence conditions would simplify and improve official supervision. In a tighter financial situation, the importance of combatting the shadow economy should be emphasised if the aim is to ensure healthy competition between companies and a fair labour market.
Read more about the observations:
20.5.2024 Observations of the shadow economy and economic crime environment 2023 (PDF 368 kB)
Authorities consider the shadow economy and economic crime to have become more professional and international
Publication date 23 May 2023
The shadow economy and economic crime result in significant losses to Finnish society every year. The economic uncertainty, inflation and rising interests in Europe may increase bankruptcies and the shadow economy, or at least lower the threshold to slipping into the grey area. The authorities combatting the shadow economy and financial crime have found that illegal activities have become more international and professional. Examples of organised and planned shadow economy activities are the participation of several operators in extensive and varied criminal activities, and the use of shell companies and straw buyers to deceive authorities.
The authorities combatting the shadow economy and financial crime conducted a survey at the beginning of 2023 to identify changes in the operating environment. The survey collected the authorities’ views and observations of changes in the operating environment regarding the shadow economy and financial crime, as well as their prevention. The situational picture on the current phenomena comprises several subareas and combines the views of different authorities to provide a comprehensive insight into the current and near-future operating environment of the authorities combatting the shadow economy and financial crime.
The shadow economy is often international
The operating environment of shadow economy activities and economic crime is international even if the related business activities are only carried out in Finland. Such international activities are related to the free movement of capital or international transactions, virtual currencies, or other electronic forms of payment. Assets are transferred across borders through cash withdrawals, third-party individuals, and company bank accounts. Opening bank accounts outside Finland or wallets for virtual currencies and using these is fast and simple, whereas receiving comparison data or carrying out recoveries is often slow or impossible for the authorities. These international activities may not even seem international on the outside, since companies registered outside Finland recruit customer service employees who speak Finnish. International monetary transactions and non-Finnish companies are also used for debtor offences and money laundering, for example.
Authorities have encountered professional facilitation of illegal entry and labour exploitation
In their supervisory activities, the prevention authorities have encountered the professional facilitation of illegal entry into Finland and abuse related to workers’ rights. Individuals who enter Finland for work or the parties pretending to be their employers have provided the authorities with different types of information when the entry into Finland is registered with the aim of expediting the granting of a personal identity code or residence permit. For example, workers from outside Finland have bought small shares of their employer organisation to seemingly prove their status as entrepreneurs, whereas to other authorities, the same individuals have stated that they are only employees. A residence permit for an employed person may also be replaced with a residence permit for an entrepreneur to save costs, but it may also be done with the intent to disguise an employment contract as a commission agreement. Workers entering Finland may also be paid more on the surface to ensure they are granted a residence permit, while the worker has agreed to return a share of the pay to the employer. Such activities may also include undeclared work and abuse of social benefits.
Russia’s invasion of Ukraine has increased the number of people entering Finland entitled to temporary protection. Those under temporary protection may have a higher risk of falling victim to labour exploitation, since the residence permit application process does not include examining the terms and conditions of employment. Signs of abuse have already been observed in the employment of such individuals. In particular, seasonal workers are recruited from countries where workers are less aware of their rights than European workers on average. These jobs are often subject to a fee, which means the workers pay the employer for being recruited in their country of origin. The seasonal work of workers from outside Finland is often associated with offences related to shift work, working hours and pay. Reports on work discrimination have also been on the rise.
The supervision of authorities and increased awareness have resulted in an increase in the discovered cases and police reports. As labour immigration increases, the risks associated with employment also increase; the authorities should therefore be provided with the necessary means to prevent illegal activities, carry out effective supervision, and exchange information. In the authorities’ view, the correct and current content of official registers is the basis for the effective targeting of prevention measures and information-based leadership.
Invoicing services have been misused and used for shadow economy activities in many ways
In the past year, the number of employed people who become ‘light entrepreneurs’ or self-employed increased, and so did the issues related to this. The supervisory authorities have found that individuals using invoicing services to invoice their work now come from a wider range of nationalities and they do not always even speak any Finnish. These individuals are vulnerable to becoming victims of abuse such as bogus or forced self-employment. The risks are particularly high in cases where the initiative for the employee to become self-employed comes from the party that commissions the work. The price of work can be lowered by outsourcing the mandatory employer’s contributions to the person that carries out the work. This means the person carrying out the work also receives more money, if they never even intended to pay the statutory contributions. Misuse has been observed in the construction and shipbuilding sectors, for example, but the phenomenon has extended to the cleaning and home care industries as well
In addition to the invoicing services already on the market, new invoicing service companies have been established that do not report their actual line of business during registration to avoid the supervision of authorities, for example. The authorities have found that some invoicing services do not use strong authentication to verify the identity of their customers, which means that the taxation of work invoiced through the service can be intentionally targeted at the wrong person, and the monetary compensation for the work may be paid to a party other than the individual that carried out the work. There have also been observations of professional facilitation, where a third party refers, helps and guides workers from outside Finland to become light entrepreneurs and to use invoicing services. The third party is compensated for this by the company that used the third party’s service. In the most serious cases, human trafficking and extortionate work discrimination have also been suspected.
Authorities have discovered a lot of deficiencies in company accounting – accounting crime is on the rise
The prevention authorities have increasingly found that companies do not take care of their accounting as required by law, that their accounting is materially deficient, or that accounts are made only after the authorities request to see them. Neglect of accounting responsibilities by Finnish limited liability companies subject to the obligation to have an audit carried out has become relatively common. Deficiencies in accounting can hinder, slow down or prevent investigating the company’s financial situation. For example, the authorities view acquiring access to accounting data saved in a cloud service challenging in situations where the party subject the obligation to keep accounting records has not paid the fees for the use of the cloud service. The increase in the findings made during supervision, e.g. unjustified withdrawals of a limited liability company’s assets, were assessed to be a result of less strict accounting supervision and companies’ inability to ensure that the obligations a limited liability company is subject to are met.
Misuse of shareholder wage income has increased and avoiding debtor’s obligations has become more international
The risk of leaving the wages and income of shareholders and full-time self-employed individuals undeclared has increased. The authorities also assess that the number of one-person limited liability companies has increased. Misuse related to shareholder wage income has increased and according to the observations, some shareholders recorded their wages as shareholder loans in the company’s accounting or made other entries that were not factual. The authorities have also encountered shareholders who withdraw money for the cash register throughout the year and only correct the amounts as wages at the end of the year. In some one-person limited liability companies and general or limited partnerships, the company account is also used for the individual’s private expenses and living expenses are recorded as entertainment expenses. Disguised dividends are often comparable to undeclared wages paid to the shareholder rather than actual dividend. Partners of general and limited partnerships and self-employed individuals making withdrawals from their company’s account and shareholders who do not withdraw wages also make recovery harder, because no wage income eligible for enforcement is paid.
The avoidance of debtor obligations has become more international, as transactions go through non-Finnish banks and other money transfer services from which acquiring information is more difficult. Employees with debts may acquire non-Finnish companies and become self-employed to avoid enforcement. This way the debtors can keep working for their previous employer, but instead of pay, they issue invoices for non-wage compensation for work. In situations involving misuse, the debtor can withdraw wages from their company only to the amount of the portion protected from enforcement and then invoice large reimbursements for expenses from their company. Paid advance wages can later be corrected to be reimbursements of expenses and if necessary, the company can grant loans. In the payment-free months of enforcement, significantly larger wages or bonuses may be withdrawn.
In situations involving misuse by a debtor, it has been observed that wages are reported to the Incomes Register late and that the reports are corrected or deleted entirely. Withholding taxes from an entrepreneur’s wages may be carried out with a percentage that is too low, which results in intentionally incurred additional debt. Percentages that are too high are used to artificially to make the individual ineligible for enforcement. In a limited partnership, profit shares paid to limited partners do not need to be reported to the Incomes Register, which means that the authorities do not have real-time access to the actual amount of income received.
Cash and straw buyers are still popular tools in the shadow economy
Banks have made their practices for accepting cash stricter, and the authorities have found that this has increased the transport of cash away from Finland. Not all limited liability companies have a bank account; instead, they carry out their activities with cash and through the bank accounts of shareholders and other parties. Some employees have a condition in their employment contract that they must let the employer use their personal bank account, which has then been used to disguise the economic operator and its activities. The use of cash is seen in the shadow economy as missing cash transactions, wages paid in cash and left undeclared, and disguised dividend paid in cash. Cash is still extensively used in many lines of business although its use is declining in some industries. With the increase in alternative electric payment methods, the shadow economy activities previously handled in cash have partly been transferred to these new services.
In international activities, the significant use of cash and signs of money laundering have been observed. If the identification in accordance with the Act on Preventing Money Laundering and Terrorist Financing of a customer using cash is not carried out properly, it is possible that the accounting records and data reported to the authorities also include assets acquired illegally. After the relevant sanctions entered into force, an increase in transporting euros in cash from Finland and other EU Member States to Russia has been observed at the eastern borders. Cases involving smuggling of cash have also increased.
Straw buyers are used in shadow economy activities and financial crimes in several ways, and both private individuals and companies act as straw buyers. Companies with debt or who have neglected their statutory duties often continue their operations under a new company with an employee or similar of the previous operator serving as the responsible person. The moveable property of companies with payment difficulties can be sold through an ostensibly legal transaction to a completely new external party through a straw buyer. Straw buyers also offer their services on their own initiative and collect a fee for them.
Crime in the food chain is diverse and includes security risks
In the weak economic situation and as the price of raw materials rises, the amount of forged food products and products manufactured or transported in inappropriate conditions are expected to increase. Already, forbidden additives, inaccurate labelling and designations of origin, and issues in the microbiological quality of products have been found in supervision. Activities not covered by the supervision of authorities have also increased, or at the least, operators engaging in such activities are more often recognised. Food products produced outside the scope of supervision of the authorities are sold to gain financial benefit and used to avoid other fees related to food control. In addition to the economic impact, food control has a social impact by ensuring consumer safety and preventing the spread of animal diseases. Citizens have also reported their suspicions of illegal activities more than previously. Food crime was found in the bakery industry more in the last year than in the previous year, and it was still also found in the meat, fish and fresh produce industries. Applying for subsidies for farmers on false grounds is also a form of food crime. In addition to food and subsidy fraud, labour exploitation serves as an example of the diversity of crime in the food chain.
Authorities busy with ensuring compliance with sanctions and regulation offences
The operating environment is continuously changing due to the current security situation in Europe, which particularly affects national security of supply and securing cross-border goods transport. Traffic from the eastern border and risks associated with trade in the east have decreased, but supervising compliance with export and import sanctions and regulation offences have significantly increased. There have been many attempts to circumvent sanctions. Operators placed on sanctions lists have made arrangements to disguise who is in control and who the owners are. Companies and private individuals also try to hide their connections to Russia. Sanctions are circumvented by exporting goods to countries that are friendly with Russia or by taking advantage of the fact that transit through Russia is still allowed. Exports from Finland to some of Russia’s neighbouring countries in the south increased significantly in 2022. Private individuals smuggle forbidden goods to Russia by concealing them in their vehicles. Attempts have been made to smuggle larger batches under incorrect headings, or with incorrect customs declarations or forged certificates of origin. Transports subject to sanctions have included electronics, seafaring supplies, boats, drones, and spare parts for devices, among others. In passenger traffic control, luxury products, cash, cigarettes, and alcohol have been found.
What threats do the authorities combatting the shadow economy and economic crime see in their operating environment?
The authorities combatting the shadow economy and economic crime view that the uncertain economic situation, rising costs, and the looming recession increase the risks associated with the shadow economy. The security situation in Europe will also be reflected in the authorities’ operating environment in the coming years as new phenomena occur and old phenomena become more prevalent. If the situation is prolonged, it may lead to an increase in regulation offences and different offences involving smuggling. The authorities must be able to react to the changes in their operating environment; the Action Plan against the Shadow Economy and Economic Crime contributes to this, for example.
The prevention authorities expect that with increasing immigration and labour exploitation, undeclared work will also increase and go increasingly undetected, especially in low-paid fields. Undeclared work reduces the amount received from both companies and employees in the form of taxes and pension and social insurance contributions. In addition to the social impact, undeclared work distorts competition between companies, and labour exploitation creates a second labour market. Undeclared work is detrimental to the safety of both customers and employees, and to the integration of workers arriving from outside Finland. Technological advancements increase opportunities for leaving work undeclared by taking advantage of international payment platforms and applications, for example. Those in vulnerable positions in the labour market can also be forced to become entrepreneurs, and the number of detected cases involving bogus or forced self-employment has been increasing.
The social role of the authorities is changing, and lines must be drawn between guidance, customer service, access to information, and supervision. In a challenging competition situation, even honest operators may leave their statutory obligations unfulfilled. Making running a business easier and promoting the growth of companies simultaneously increases the need for supervision and the number of measures needed in supervision. Maintaining the welfare state requires credible supervision and sufficient resources for holding misusers accountable. The authorities combatting the shadow economy and economic crime must already prioritise what measures they take, even though the results of their supervision demonstrate the necessity of their activities.
Read more about the observations:
Changes in the operating environment are identified quickly in combating the shadow economy and financial crime
Publication date 16 May 2022
The war in Ukraine and the resulting flow of refugees may increase the already existing cases of work-related abuse, including labour exploitation, the use of undeclared workers and even human trafficking. The authorities combating the shadow economy estimate that people in a weaker position are always at risk of abuse. International sanctions give the authorities more supervisory duties and obligate all parties.
The authorities combating the shadow economy and financial crime conducted a survey at the beginning of 2022 to identify changes in the operating environment. The survey requested the authorities to provide their views and observations of changes in the operating environment regarding the shadow economy and financial crime, as well as their prevention. An overview of current phenomena is a sum of many parts, combining the views of different authorities. Any weak signals identified may be an indication of a single phenomenon raising its head or the first symptom of a change that may be significant in the future or mean that a previously existing phenomenon has taken new forms.
The amount of light entrepreneurship and self-employment increasing, often showing signs of work carried out in an employment relationship
The authorities have seen that some employers have used light entrepreneurship to outsource their obligations to employees, especially among the foreign workforce. In these situations, the actual conditions of the worker, acting as a self-employed person or light entrepreneur, meet the characteristics of an employment relationship. The worker may receive work locations, working hours, tools and other work equipment required from a principal customer acting in the role of an employer at a worksite. The worker often has no other principal customers, and they act under the principal customer’s supervisory rights.
The worker may not always know that they are actually a self-employed individual or want to be one. Some workers may be under the impression that they have signed a new employment contract, although what they actually signed was a self-employed individual’s assignment agreement. Such workers who are forced into self-employment do not usually have the required linguistic skills. The worker may also have been reported as a self-employed individual retroactively, in which case the employer may aim to have the employees’ pension contributions refunded. Bogus and forced self-employment has especially been discovered not only in the construction sector, but also in transport.
Labour exploitation increasingly subject to cooperation between the authorities
In addition to labour exploitation, the exploitation of foreign employees may also involve human trafficking, extortionate work discrimination and protection racket cases. Through the residence permit process tied to the employer, employers may have affected employees’ rights. Such an employer usually also exploits foreign employees’ insufficient linguistic skills and ignorance of Finnish law. Employees’ wages may have been recovered or forwarded to the bank account of a supervisor or shareholder through invoicing service companies. Cases of abuse involving labour exploitation are often discovered not only in seasonal work, but also in long-term employment relationships.
Abuse cases have increasingly become hot topics in public debate. Employees subject to abuse have had the courage to talk about their situation once visible measures have been taken. Victims of exploitation may not always know that they are subject to crime, or they may not want or have the courage to help investigate the case. Labour exploitation is increasingly subject to cooperation between the authorities, and the authorities are also able to better identify it, while prevention also calls for more cooperation and more exchange of information. At best, new forms of working provide many with new opportunities for working, but, in addition to their positive impact on employment, they may also involve various negative phenomena.
The impact of the war in Ukraine is already reflected in the authorities’ activities
The authorities are monitoring the development of the international refugee situation. The growing flow of refugees is providing the Finnish labour market with many new employees in different sectors. Refugees may have an urgent need to obtain income, also making them specifically susceptible to exploitation. Such employees particularly enter sectors where Finnish skills are unnecessary, including agriculture, accommodation and construction. The work offered may be short-term or seasonal work, for which the threshold for using undeclared foreign employees is low. There may also be professional criminals from various countries. In addition to employee exploitation and undeclared work, there is also the growing risk of different fundraising and other financial support fraud targeted at refugees.
The sanctions imposed on Russia as a result of the war have expanded, and suspected criminal cases related to the sanctions may increase. Evading sanctions directed at goods, people and transport may give rise to new types of crime. Supervising the sanctions calls for significant resources from the authorities. According to the authorities’ estimates, goods subject to sanctions may also be smuggled into Russia, and sanctions related to money transfers may be evaded using virtual currencies. Assets and funds subject to sanctions may also be maintained and imported into Europe through front men. Forged documents and receipts intended for evading sanctions have already been identified.
The war has had a significant impact on imports and prices of raw materials and foodstuffs. Low-quality or forged foodstuffs may be placed on the market to replace any deficiencies in food imports due to the war. Any rapid increase in the general price level and the prices of energy, fuels and raw materials may increase the shadow economy and financial crime to reduce other business expenses. According to the authorities’ estimates, the decline in the Russian economy will have a variety impacts on crime in the border region, for example.
An increase in virtual currencies and online payment platforms involves risks
The virtual currency market has increased during the coronavirus pandemic. According to the authorities’ findings, the use of foreign virtual banks for the transfer of funds has increased. A single party may have up two 200 different virtual currencies. Virtual currencies are only transferred between the parties to the transfer which means that transactions are more difficult to trace than in conventional money transfers. Access to data requires international data requests, as funds are increasingly held in international bank accounts or in foreign virtual banks. Virtual currencies can be used to conceal assets and apply for social benefits higher than to which the applicant would be entitled based on their real assets.
In the platform economy, the provision of user-friendly online solutions requires that the same obligations are complied with as in any other business activity—submitting appropriate permits and reports to the authorities. On an international scale, there are signs that some companies try to evade national and international laws by only operating online. This practice may spread in the near future. The labour law position of those working via online platforms may also be unclear as the work is not tied to any fixed location or equipment. As online shopping increases, the number of foreign payment transfer service providers and various money transfer platforms will also increase, reducing the authorities’ access to information.
Offences in the food chain identified better than before
Various offences have been identified in the food chain, relating to health, marketing, registrations, industrial rights, fraud, environmental pollution and aid fraud. Food crime presents a direct risk at people’s health and safety. Food crime often involves small sanctions and a low risk of getting caught. While the identification of offences in the food chain has improved through increased training and awareness, the settlement of cases often calls for extensive international investigations and cooperation between the authorities.
According to observations, professional food preparation completely outside the scope of food control has increased during the pandemic. Often, food is also prepared in facilities unfit for the purpose. Meals prepared outside the scope of food control are delivered for retail sale, and their volumes can be significant. These activities may involve the use of undeclared employees and neglected employer obligations. Buyers of products can rarely identify food crime.
Smuggling and sales of related products have become more professional
The decrease in passenger volumes has affected the smuggling of highly taxed products, and the import and sale of products has extensively gone online. Large volumes of alcoholic beverages are being ordered online from Central Europe, among other places, for further distribution in Finland. In illegal importing, criminals have especially used commercial goods transports, postal and courier services. Smuggling operations also involve Finnish companies that distribute goods from Finland and the EU to the black market in third countries. The wealth of the individuals behind these companies may have come from income whose origin cannot be reliably identified, untaxed income or criminal activities.
Snus smuggling and sales of related products have become more professional, and the parties involved often play highly specific roles in smuggling chains. Operations have also been run from other countries where part of the criminal proceeds obtained from snus sales has ended up. Larger amounts of illegal snus imports have been identified along the land border between Finland and Sweden and in ferry traffic. Snus has especially been sold in encrypted snus groups and other groups on the public Internet. Snus operations also involve tax offences and illegal imports.
Changes in the operating environment also offer new opportunities for organised crime
The authorities have identified that the risk of organised crime being involved in benefit-related abuse has increased during the pandemic. There are also signs that organised crime has found its way to key procurement chains, in which buyers often need to receive their goods urgently. Operations are often international and networked.
Organised crime is broadly involved in various business activities. Criminals infiltrate reputable companies and exploit the distribution channels to import forged or unfit products into the EU market. Small transport volumes reduce the risk of getting caught. Criminals use specialists in different fields and exploit shell companies. In addition, they use invented invoicing chains and circulate goods and declaration documents. Criminals aim to avoid official obligations associated with business activities and to use business activities for money laundering purposes. High proceeds from environmental crime, the low risk of getting caught and mild consequences also attract organised crime.
Toimintaympäristön muutoskyselyn havaintoja 16.05.2022 (PDF 383 kB)