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The coronavirus situation, congestion in investigation proceedings and a backlog of court cases added to the challenges of the authorities in their fight against the shadow economy. Economic crime cases reported to the police increased from the previous year, and the Finnish Tax Administration levied taxes of more than EUR 80 million on the basis of shadow economy audits. This information is indicated in the 2020 shadow economy prevention statistics published today.

The coronavirus situation made last year challenging for the authorities that combat the shadow economy. Despite all the challenges, the authorities were able to react to the new situation and find new ways for combating the shadow economy, such as remote audits. Due to the COVID-19 situation, more focus was placed on such previous measures as the exchange of information between the authorities and the analysis of information.

“The coronavirus crisis forced us to use information provided by other government agencies even more effectively in combating the shadow economy. Information was exchanged effectively, for example, in monitoring coronavirus subsidies granted for companies and compliance with the Act on the Contractor’s Obligations and Liability when Work is Contracted Out. Less physical supervisory work was carried out last year, while thorough background work ensured that it was targeted better than before”, says Janne Marttinen, Head of the Grey Economy Information Unit at the Finnish Tax Administration.

Congestion in the preliminary investigation of more aggravated misuse also presented challenges in combating the shadow economy. Courts are also facing a difficult situation: the processing times of shadow economy cases have increased.

Examples of results of shadow economy prevention in 2020

Economic crime cases reported to the police increased by 15 per cent from the previous year
Last year, the Police of Finland recorded a total of 2,251 new economic crimes. The number of unresolved economic crime cases has increased for the past two years. For example, aggravated tax fraud and various forms of bribery and fraud increased last year. No new types of economic crime have been discovered during the coronavirus pandemic.

Non-Finnish employees without a right to work found in 79 workplaces

Last year, the Regional State Administrative Agency for Southern Finland found at least one non-Finnish employee who did not have the right to carry out the work in question in Finland in 79 workplaces. In 37 per cent of all audits regarding the right to work, a non-Finnish employee was working without the required work permit.  In 2019, non-Finnish employees working without a proper permit were found in 20 per cent of the audited workplaces.

The Tax Administration levied VAT of EUR 26.1 million based on shadow economy audits

Last year, the Finnish Tax Administration conducted 547 audits related to the shadow economy. On the basis of the audits, EUR 26.1 million in VAT and EUR 22.3 million in employer contributions were levied, plus punitive tax increases. During the audits, the Tax Administration discovered undeclared income of EUR 119.5 million in total, on which taxes of EUR 31.2 million were levied. Of its shadow economy audits, the Tax Administration conducted 11 per cent in cooperation with the Police of Finland and Finnish Customs.

Kela reported 1,218 cases of suspected misuse of benefits to the police

In 2020, the Social Insurance Institution of Finland (Kela) submitted 1,218 crime reports to the police regarding suspected misuse of benefits. Kela suspects misuse if a customer has given false information or has knowingly withheld information affecting a benefit. The total value of the misuse cases resulting in a request for police investigation was EUR 8.1 million.

Finnish Customs investigated 917 tax fraud cases

Last year, Finnish Customs discovered 917 tax fraud cases, of which 98 involved aggravated tax fraud. The number of tax fraud cases decreased from the previous year, with minor tax fraud decreasing the most. Passenger volumes collapsed in 2020 due to the coronavirus pandemic, and supervision focused on commercial freight and goods transport. The decreased passenger volumes were reflected in fewer summary penal orders due to tax fraud, for example.

Coming in 2021: monitoring of coronavirus subsidies 

A total of EUR 2.1 billion have been distributed in coronavirus subsidies since last March.

“There are signs that these subsidies have also attracted self-employed persons with not so good intentions. Monitoring the use of coronavirus subsidies is one of the key themes in shadow economy prevention this year.  We will also monitor misuse related to bankruptcies. The pandemic may have diverse impact on manifestations of the shadow economy and economic crime”, Marttinen says.

The first results of the monitoring of coronavirus subsidies can be expected this autumn. Whether the coronavirus crisis increases the shadow economy can be determined in the next few years.

Source: Grey Economy Information Unit - Tax Administration

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