Blümel: Explosion in numbers of dummy companies in Vienna Minister orders special unit to be set up to investigate dummy companies
“That fraud doesn’t stop for lockdown we know all too well, from the work done on fighting fraud by the customs and tax investigation units as well as the Financial Police: they have had their work cut out for them during the pandemic, too. But the number of cases of dummy companies currently committing social fraud - particularly in Vienna - is extremely worrying,” said Finance Minister Gernot Blümel in his opening remarks at a press conference co-chaired with the Head of the Financial Police, Wilfried Lehner.
The Financial Police has observed a disturbing, ongoing trend in Vienna: normally between 50 and 100 dummy companies are identified across the country in a whole year - but in the first quarter of 2021 alone, some 55 dummy companies have been detected and identified as legal entities throughout Austria. 46 of these dummy companies are located in Vienna.
Wilfried Lehner, Head of the Financial Police, commented: “In addition to these companies, the Financial Police in Vienna are working on the cases of 61 further companies and/or groups of companies that are suspected of being dummy companies. The dummy companies that we have uncovered are in the main supplying workers for the construction sector. The sooner we remove these organisations from the market, the smaller the amount of damage done.”
“A single dummy company can turn over up to 30 million euros - so the state sustains substantial losses as a result of the payroll taxes and social insurance contributions that have not been paid,” said Finance Minister Gernot Blümel.
How dummy companies perpetrate social fraud
Whereas the “classic” model that used to be encountered - primarily in construction - involved simply employing people without having registered them, the model of fraud now used to save on wage costs has changed: dummy companies now have groups of companies clustered around them, which makes detecting them harder.
In order to top up illicit wages, both the records of hours worked and wage categorisations are manipulated. But as the bogus payroll accounting does not cover the actual expenditure on wages, there is then a huge requirement for illicit funds. The cash requirement is covered by fake expenditures with service providers. To do this, fake and cover-up invoices are bought in and put through the accounts. These fake and cover-up invoices are delivered by criminal ringleaders who create and acquire shell companies to give the appearance of having a corporate structure and business activities that are common for that sector.
In order to make it harder for the authorities to find and expose them, it is increasingly the case that they are fronted by businesses that do have their workers - or at least some of them - properly registered, and which are therefore not immediately identifiable as dummy companies.
Sales invoices are issued using the dummy businesses, the invoice amounts are transferred by the company buying in the invoices, then transferred onto sub-dummy companies - making them harder to trace - and then withdrawn as cash sums at the end of this chain. The cash is subsequently passed back to the company that first transferred the sum and is now available as “laundered money” for it to use. The money is not just used to pay workers’ wages, but also for other criminal schemes such as payments of bribes, tax/contribution-free draw-offs for the ringleaders, credit fraud etc.
Early warning system for the Financial Police and ÖGK national health insurance organisation; legal consequences for fraudsters
In collaboration with the ÖGK, the Financial Police have set up an early warning system to root out dummy companies swiftly. Dummy companies that are legal entities will lose their VAT number and will be deleted from the Commercial Register; and criminal proceedings will be initiated against them on the grounds of social fraud. The dummy companies’ customers will be investigated for potential contraventions of tax law. And the names of any dummy companies will be published in a list on the BMF’s website so as to make it impossible to use them again. The list can be viewed at https://service.bmf.gv.at/service/allg/lsu/ (Link in German).