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Italy: EPPO uncovers Chinese underground banking network suspected of €113 million VAT fraud

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Chinese underground banking system

(Luxembourg, 25 October 2024) – A coordinated sting by the European Public Prosecutor’s Office (EPPO) in Bologna and Milan (Italy) today dismantled a criminal gang, alleged to have evaded the payment of €113 million in VAT, while using a Chinese underground banking network for money laundering.

Searches were carried out today in 20 cities in the regions of Marche, Emilia Romagna, Puglia, Veneto, Toscana, Lombardia, Abruzzo, Campania, Piemonte and Lazio, in Italy. 

Seven suspects were arrested, including two alleged ringleaders, who will remain in prison. Five suspects were placed under house arrest with electronic bracelet. In addition, two other suspects will have to report regularly to the police. They are suspected of VAT fraud, criminal association and money laundering. 

The investigation identified a complex scheme of international tax fraud, carried out through numerous ghost companies (“missing traders”), which imported hundreds of containers of clothing and accessories from China to Italy, using triangulations with Bulgaria and Greece, to hide the origin of the goods. It is understood that the criminal scheme had a turnover of at least €500 million, while evading the payment of VAT and custom duties. 

Based on the evidence, the illicit profits were laundered using a Chinese underground banking network with clandestine branches in the region of Marche (central Italy). The transfer of illicit funds abroad occurred through shell companies and false invoices, in order to circumvent anti-money laundering measures. The money passed through many European countries, including Bulgaria, Denmark, Estonia, France, Ireland, Germany, Greece, Spain and the UK, before arriving to China. The evidence shows that some of the money returned via banking to Italy, where the organisation invested it in legitimate commercial businesses.

During the searches, extensive documentation was seized. A freezing order of €116 million was also executed against 33 suspects. Five Chinese restaurants and one shopping centre were seized, as well as one house and one apartment belonging to the suspects. Police officers also seized eight high-end cars. Several bank accounts were frozen.

Today’s searches were conducted by the Italian Financial Police (Guardia di Finanza - GDF) of Ancona, with the cooperation of other GDF Commands operating where the investigative measures were carried out. The investigation also counted on the support of the Italian Financial Police of Milan (Nucleo di Polizia Economico-Finanziaria di Milano), as well as Bulgaria’s National Revenue Agency (НАП), Germany’s State Criminal Police Office (Landeskriminalamt) from Hesse and Greece’s General Directorate of Financial and Economic Crime Unit (ΣΔΟΕ).

All persons concerned are presumed to be innocent until proven guilty in the competent Italian courts of law.

The EPPO is the independent public prosecution office of the European Union. It is responsible for investigating, prosecuting and bringing to judgment crimes against the financial interests of the EU.