Criminal gangs drain up to €32.8bn from the EU budget each year by exploiting one flaw: they run a single market while the authorities chasing them stay split into 27 systems. Goods and cash cross borders in days; the paperwork can take years. Investigators admit they are sometimes flying blind.
EU officials and tax experts told a hearing at the European Parliament this week that criminal networks are outpacing the defences meant to catch them. Organised crime groups exploit gaps between the EU’s tax, customs and law-enforcement authorities, moving shell companies and money before national authorities can piece together the full picture. “Stopping fraud is one thing, preventing fraud should be the real priority,” said Pablo Tedo Murua of the European Anti-Fraud Office (OLAF).
VAT fraud is not a new problem. Tax authorities have known about missing trader and carousel fraud for decades. In this scheme, companies disappear without paying VAT while goods keep moving through chains of businesses across several countries.
What has changed is the way criminal networks combine different parts of the EU economy. Marie Lamensch, a professor of taxation at the Université catholique de Louvain (UC Louvain), says organised crime no longer exploits one tax rule at a time.
“Organised crime no longer exploits one tax rule in isolation. It combines VAT, customs, logistics, shell companies, digital marketplaces, payment flows, false documents across several Member States,” she said at a European Parliament hearing on the EU’s anti-fraud architecture.
A cross-border business model
A recent case in Czechia illustrates how such schemes can work. In August, the European Public Prosecutor’s Office (EPPO) indicted five people and a company over an alleged VAT fraud scheme involving more than €17.4m in unpaid VAT on goods imported from China. Czech companies allegedly brought the goods into the EU and declared them as supplies to companies in other member states that did not actually exist. Instead, the companies sent the goods to logistics centres used by e-commerce platforms, which sold them on to consumers across the EU.
The defendants allegedly failed to declare or pay the VAT due on the imports. Prosecutors also charged four of the defendants and the company with operating as an organised criminal group.
Ms Lamensch points to a similar pattern in a recent joint investigation involving OLAF and EPPO, in which textiles, footwear, and electric bikes entered the EU through Poland and Belarus. Investigators found false transit confirmations, fabricated transport documents and abuse of the customs procedure known as Procedure 42, which allows goods to enter one member state without import VAT when they are destined for another.
OLAF estimated the scheme caused around €180m in customs duties and €79m in VAT to be evaded. “This is not opportunistic noncompliance, it is organized supply chain engineering,” Ms Lamensch said.
The gap between one market and 27 systems
The EU’s single market makes it relatively easy for legitimate businesses to move goods across borders. The same interconnectedness can also make it easier for criminal networks to shift operations between jurisdictions.
Criminal organizations exploit an asymmetry. — Pablo Tedo Murua, European Anti-Fraud Office (OLAF)
Pablo Tedo Murua of OLAF described the problem as a structural mismatch. “Criminal organizations exploit an asymmetry,” he said. “They operate in one integrated economic space, while detection, control and investigation often remains fragmented along national lines. We cannot allow that asymmetry to continue.”
Customs and tax authorities have traditionally operated through national systems, even though the trade they monitor is increasingly cross-border. Customs data is currently held in more than 100 different systems across the EU, while VAT information is spread between national tax administrations and EU-level databases.
That fragmentation can make it difficult to connect the different parts of a fraud scheme. A customs authority may see how goods entered the EU, a tax authority may have information about a company receiving them, and another authority may hold payment or criminal intelligence. The challenge is bringing those pieces together quickly enough to act.
“Sharing data is just exchange of information,” said Constantino Lanza, Deputy Head of Unit, TAXUD Unit B.4 (Taxation systems and Digital governance), European Commission. “What is important is also coordinating actions.”
The scale of the problem is substantial. The European Commission estimates that missing trader and carousel fraud costs member states and the EU budget between €12.5bn and €32.8bn a year.
The wider VAT compliance gap is considerably larger. The Commission estimates that €121bn in VAT went uncollected across the EU in 2023. That figure includes errors, non-payment and other lapses that do not necessarily involve wrongdoing.
Catching fraud after it happens
The EU already has a growing network of tools for detecting fraud. Eurofisc allows national tax authorities to exchange and analyse information on suspected cross-border VAT fraud. EPPO investigates and prosecutes crimes affecting the EU’s financial interests, while OLAF investigates fraud and irregularities and has particular expertise in customs.
Eurofisc identified more than 6,000 suspected fraudsters in 2024 and uncovered €13.8bn in fraudulent or suspicious transactions, according to the Commission. But Ms Lamensch argues that the EU has focused too heavily on detection and prosecution.
“Detection and prosecution are by definition the cure. They intervene when the vulnerability already exists and frequently after the revenue has already been lost,” she said.
Recovery can be particularly difficult. Criminal networks can use disposable companies, move funds rapidly and spread transactions across several jurisdictions. Even when investigators identify the people responsible, recovering the money can take years.
Andrea Venegoni, a European Prosecutor at EPPO, said the office investigated VAT fraud involving an estimated €45bn in 2025. EPPO obtained freezing orders covering €1.13bn that year.
Freezing assets early is crucial because recovering money after a conviction can be much harder. Mr Venegoni said differences between national procedures and a lack of resources make it hard to execute judgments and recover assets across borders.
The problem therefore extends beyond finding fraudsters. Authorities also need to be able to secure the assets before they disappear.
Prevention versus detection
Ms Lamensch therefore argues that authorities should examine whether EU rules themselves create opportunities that organised crime can repeatedly exploit. She points to long-standing vulnerabilities involving customs procedures, e-commerce and the way VAT is collected.
“If a fraud pattern persist for decades, despite audits, investigation and prosecution, we should not conclude only that enforcement must improve,” she said. “We should also ask whether the rules themselves continue to create a repeatable and scalable opportunity for organized crime.”
One example is the treatment of VAT in cross-border transactions. Another is the low-value e-commerce market. Huge numbers of small consignments enter the EU, and authorities have to spot suspicious transactions among legitimate trade.
Mr Tedo Murua also argued that prevention should be the priority. That could mean testing new EU legislation against known fraud models before the rules take effect. Ms Lamensch also raised more structural ideas such as split payments or a virtual VAT currency for business-to-business transactions. She acknowledged that these would raise significant technical and administrative questions.
More data, but not yet in real time
OLAF wants criminal authorities involved earlier in investigations, rather than after years of administrative work. Mr Tedo Murua said the agency wants to act closer to real time. That means bringing in EPPO as soon as there are signs of criminal activity, so administrative and criminal action can happen while goods are still moving.
The capacity to do that remains limited for now. OLAF’s customs team has around 20 investigators. Mr Tedo Murua described that as reasonable in absolute terms, but insufficient given the scale of the challenge. “If because we don’t have the tools or the visibility, we don’t discover fraud, then we proclaim that there is no problem and then we go on,” he said.
The EU is already moving towards greater data sharing. In July, the Council formally adopted new rules giving EPPO and OLAF more direct access to VAT information, following a provisional political agreement reached in May. The rules cover cross-border transaction data held through Eurofisc. That should reduce the need for slow bilateral requests between national authorities.
On VAT data at the moment we are literally blind. — Pablo Tedo Murua, European Anti-Fraud Office (OLAF)
But the new system is not operational yet. During the Parliament hearing, OLAF said the new access to VAT data still required substantial technical work. “On VAT data at the moment we are literally blind,” Mr Tedo Murua said, while noting that cooperation with Eurofisc was improving.
The Commission expects most of this access, including to the payment information system, to become available to EPPO and OLAF from August 2027. Access to the VAT Information System itself, however, is delayed until July 2030.
