ECONOMIC CRIME REPORT

Report no. 2004:1

Supervision

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Crime reports byagencies

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Conviction and sanction

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Combating Economic Crime – Flowchart

Economic Crime Report

Swedish National Economic Crimes BureauReference no. 900 2003/0426ISSN: 1404-3521Graphic production: Ord&Form AB, UppsalaPrinters: Elanders Gotab, 2004Translation: Stockholms Tolkförmedling AB

GovernmentSwedish Ministry of Justice103 33 Stockholm

Economic Crime ReportPursuant to Section 13 of the ordinance on the co-operation of govern-ment authorities against economic crime (1997:899), I am hereby sub-mitting this report. Reviewing the past three years, the report describes how economic crime has changed and presents the measures that have been taken within the framework of the interagency cooperative effort governed by the ordinance. Also included is a proposed course of action for combating economic crime and for interagency cooperation to deal with the problem over the next three years.

The Swedish Economic Crimes Council prepared the report in collab-oration with the Swedish National Economic Crimes Bureau (EBM),the Offi ce of the Prosecutor-General (RÅ), the Swedish National PoliceBoard (RPS), Swedish Customs, the Swedish National Council for Crime Prevention (BRÅ), Finansinspektionen (the Swedish Financial Supervi-sory Authority), the Swedish Tax Agency (SKV), and the Swedish Com-panies Registration Offi ce. A task force composed of representatives from the agencies of the Swedish Economic Crimes Council put together the extensive documentation included in the report.

I would like to take this opportunity to make the following additionswith respect to EBM.

During the past six years, EBM has worked on establishing appropriateworking methods, as well as combating economic crime more effi ciently and productively. Key to that effort has been the encouragement of greater interagency cooperation in order to fi ght such offences in the coordinated manner detailed by this report.

EBM is about to enter a comprehensive development phase, the purposeof which will be to improve upon its working methods, organization,direction and management. The initiative will also evaluate the impact that the agency has exerted in past years on the scope, structure and dan-gerousness of economic crime.

During the fi rst step in this process, managers and experts at EBM have summarized the results achieved over the fi rst six years and laid the groundwork for the upcoming development effort. From now on, thefocus will be on both an internal and external perspective for combatingeconomic crime. EBM will solicit the viewpoints of the agencies of the Swedish Economic Crimes Council, courts, receivers in bankruptcy and the like regarding how well it has met its responsibility to effectively fi ght such crime during its fi rst few years. An integral part of the development process will be an in-depth analysis of the impact that EBM’s activities have had in relation to the overarching goals of the effort to oppose these offences.

In accordance with plans for examining the work of EBM, I will have the opportunity this autumn to submit a report to the Government abouthow to more effectively combat economic crime and how to improve the agency as the heart of that enterprise. I am already clear that the spotlight must be on strengthening the agency in dealing with the most seriousoffences, often with the aid of totally new intelligence operations. The focus must also be on designing a fundamental prevention effort aimed at reducing crime over the long run. In order to accomplish that, a stra-tegic review and in-depth analysis should be followed by an initiative to make EBM more effi cient with an emphasis on substantially expanding crime reduction activities both quantitatively and qualitatively starting this year.

I anticipate that most of the measures that will be proposed can be imple-mented without any special action on the part of the Government, i.e., within the framework of EBM’s mandate and responsibilities. Other proposed measures, such as legislative amendments in certain areas, may require such action.

Gudrun Antemar

Cc: Offi ce of the Prosecutor-General, Swedish National Police Board, Swedish Cus-toms, Swedish National Council for Crime Prevention, Finansinspektionen, Swedish Tax Agency, Swedish Patent and Registration Offi ce

Economic Crime andEfforts to Combat It

1

Introduction

Pursuant to the ordinance on the co-operation of government authori-ties against economic crime (1997:899), the Swedish National EconomicCrimes Bureau (EBM) is to put together a report for the Governmentonce every three years on economic crime and efforts to combat it. The report, to be prepared by the Swedish Economic Crimes Council andsubmitted to the Government by 15 May, is to describe how economiccrime has changed and present the measures that have been taken within the framework of the interagency cooperation effort governed by the ordi-nance. Also to be included are proposals for the direction that the effort to combat such offences should take over the next three years.

After preparing the report, the Swedish Economic Crimes Council has made the following assessment of economic crime and efforts to combatit.

2

Economic Crime– Current Status and How It Has Changed

Suspected tax violations and crimes against creditors account for the major-ity of economic crimes that are reported and prosecuted. The number of tax offences rose by 30% from 4,459 in 2001 to 5,817 in 2003. Withrespect to crimes against creditors (Part 11 of the Penal Code), bookkeep-ing offences increased by 20% from 4,846 in 2001 to 5,850 in 2003.Other reported crimes against creditors were up by a modest 13% from 729 in 2001 to 824 in 2003.

Prosecuted tax offences in 2003 totalled 403, a fi gure that has remained relatively stable since 1998. Prosecuted crimes against creditors, includ-ing bookkeeping offences, numbered 990 in 2003, also fairly steady since 1998.

Reported violations of the Insider Penal Act increased from 3 in 2001 to 15 in 2003. Reports of improper infl uence on share prices rose from 2 in 2001 to 6 in 2003. Reported EU fraud cases were up from 8 in 2002 to 26 in 2003.

Thus, reported economic crimes have increased over the past three years. But since so many cases go unreported, it is diffi cult to draw any reliable conclusions from the above fi gures. Most probably the number of crimes has not signifi cantly increased or decreased. In any case, neither SKV nor the other agencies – primarily EBM, the police, Customs and the Offi ce of the Prosecutor-General – that work together in combating economic crime have noticed any such tendencies. Nevertheless, certain trends can be identifi ed, although it is to early to tell whether they are affecting the number of prosecutions.

The fi rst trend is that economic crime has become harder to investigate.The offences are being planned more carefully and involving a greater number of people. Both the globalization process and accelerating tech-nological progress further complicate the matter.

The second trend is that even people who commit other offences are engaging in economic crime. Links to other serious crime are becomingmore and more common. As a result, a growing number of economicoffences are attributable to organized crime. Characteristic features of

3

such criminality are that it includes several types of illegality, is interna-tional in scope and is carried out by closely-knit groups or networks.

A third trend is that the offenders place themselves out of reach by appointing fi ctitious foreign individuals to corporate boards and engag-ing in other similar ruses.

Due to advances in information technology, capital can be moved across national borders to an extent that was unheard of before. It is no exag-geration to maintain that today’s sophisticated IT is well suited for the commission of economic crime. E-commerce, particularly over the Inter-net, can aggravate any attempt to identify the seller or establish a fi scal domicile. The Internet is not only a marketplace, but a vehicle for world-wide funds transfer. Thus, technology has provided economic offenderswith a tool for both committing crimes and laundering the proceeds that their acts generate.

An important phenomenon to keep an eye on is how young people feelabout economic crime. The 1998-2001 periodic attitude surveys con-ducted by the Swedish Tax Agency (SKV) noted an increasing acceptanceof undeclared work by young people. A series of similar studies commis-sioned by EBM have shown that young people take a more lenient stanceon undeclared work and economic crime than did previous generations.A somewhat different perspective emerged following an informationaldrive aimed at 16-20 year olds that SKV carried out in 2002-03. In order to measure the impact of the campaign, a preliminary survey was con-ducted in the spring of 2002. Following a year of activities, a new study in the spring of 2003 indicated that more young people had an unfavour-able view of and rejected undeclared work. Now that the informationaleffort has proceeded for another year, the results of a third survey are in the process of compilation. Preliminary fi ndings suggest that attitudes are continuing to change. Thus, SKV has established that such campaignscan change the way that people look at these matters.

Our understanding of young people’s views on economic crime is neither unambiguous nor complete. How they feel about such offences is key to predicting future crime trends. Thus, more in-depth information needs to be gathered in this area.

4

Economic Consequences of Economic Crime

SKV estimates that uncollected 2002 tax revenues totalled SEK 105billion, of which SEK 70 billion was due to undeclared work. There is insuffi cient data to quantify the harmful economic effects of other eco-nomic crime. Such offences in connection with bankruptcies, primarilythe crimes against creditors, hurt not only the state in terms of tax and fee evasion, but also banks, other lenders, suppliers and landlords, all of which suffer major losses. Similarly, not enough information is available about the economic impact of fi nancial crimes.

5

Resources for Combating Economic Crime

The graph below illustrates the resources that have been available for efforts to combat economic crime. By transferring resources from other activities, SKV has gradually strengthened its tax crime units. That devel-opment has been accompanied by a reduction of the resources that the police’s economic crime squads have at their disposal.

The graph specifi es the costs associated with combating economic crime. The overall impact has been a steady increase in resources that the anti-crime effort has at its disposal. But given wage and price growth during the period, the total expansion of resources is less than the graph sug-gests.

Agencies have various kinds of resources, such as SKV’s special divisions, in addition to those included in the graph, that help combat economiccrime.

EBM Other ÅM RPS SBE

0

50000

100000

150000

200000

250000

300000

350000

400000

1999 2000 2001 2002 2003

Total costs 478 606 516 381 543 915 588 398 614 522

147 600

259 211

39 000

138 200

283 500

56 000

125 300

304 307

76 000

38 30838 68132 795

97 000

317 767

38 000 29 000

135 631166 653

92 000

317 869

Costs for combating economic crime, 1999–2003

6

Interagency Cooperation MeasuresThat Have Been Taken

Agencies largely rely on cooperation with each other in their ongoingeffort to combat economic crime. The partnership, often informal in nature, is continually evolving. Structured, overarching and functionallyoriented collaboration through the Swedish Economic Crimes Counciland its task force, as well as through regional cooperating agencies for combating economic crime (SAMEBs) – supplements that arrangement.

Examples of More Formal Operational Cooperation

• A national interagency monitoring project carried out in 2000 tothwart VAT carousel fraud signifi cantly reduced the number of such offences in Sweden, as opposed to many other European countries– including Britain and France – that are still wrestling with an extensive problem.

• A similar nationwide effort to deal with VAT fraud in connec-tion with crossborder trade in food products began in 2003 and isexpected to continue through 2005.

• A report on shelf companies was submitted in 2003. On behalf ofthe Swedish Economic Crimes Council, the project team is still inthe process of coordinating implementation of the report’s proposed measures to reduce abuse of shelf companies.

• The SAMEBs have carried out a number of regional and local moni-toring projects, primarily in the construction, restaurant, taxi and transport sectors.

Cooperative Crime Prevention

Crime prevention measures have included such direct action as variouskinds of contact with businesses, agencies, organizations and the public, as well as indirect action like investigations and information gatheringefforts that may serve as the basis of future direct action.

• Prevention projects are under way or have been completed withina number of sectors in partnership with the agencies that combateconomic crime, the Swedish Trade Union Confederation, the Con-

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federation of Swedish Enterprise, and many other organizations,municipalities and county councils. The purpose of such initiatives is to raise the consciousness of such institutions concerning the impor-tance of prevention.

• Some SAMEBs have cooperated on prevention with other organiza-tions, particularly trade unions. The SAMEBs have also conductedinformational campaigns aimed at new businesses and the like. Among other activities have been coordinated courses and seminarsto provide agencies with additional skills and increase their familiar-ity with different types of crime prevention measures.

• A task force has examined trading prohibitions and how they aresupervised, a report on which was submitted in the spring of 2004.One purpose of the project is to make prohibitions more effective in preventing crime.

• An EBM-designed system (Ekobanken) to store and share knowledgeand experience has the long-term goal of supporting all agencies that are involved in combating economic crime. Ekobanken will set thestage for improving skills and methods development in the area ofcrime prevention as well.

The objectives of crime prevention initiatives are normally long-term in nature. No follow-up or evaluation has yet been performed on the meas-ures taken thus far – in most cases, special action will be required in order to do so.

Other Cooperative Projects

• The Swedish Economic Crimes Council has launched a special project that develops models and working methods to take advantageof existing ways of tracking and recovering proceeds of crime.

• Begun in 1994 under the title of Rubicon (Routines, criminal inves-tigations in bankruptcy), the initiative resumed in 2000 and led to a nationwide seminar series in 2002.

Threat Analysis

The Swedish Economic Crimes Council started an interagency seminarseries to work up a threat analysis in the area of economic crime. The effort was initially sweeping in scope, but the Swedish Economic Crimes Council subsequently decided that the fi rst phase should concentrate on the following areas.

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Undeclared Work

• Employers who hire undeclared labour in cash sectors• Undeclared work and staffi ng companies

VAT Fraud

• Particular focus on crossborder trade

Agents Who Aid Economic Crime

• Spurious advisers and tax havens• Spurious founders of shelf companies and abuse of legal forms of

business entity

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Proposed Direction and Measures for the Next Three Years

The following section starts with an overall discussion of the direction that the effort to combat economic crime should take over the next three years. After that is a detailed presentation of the most promising ways to deal with the types of threats described above.

To begin with, cooperation must continue and expand on the operationallevel, including the joint development of new methods to more effectively fi ght economic crime.

A second primary task is to broaden the prevention effort on the basis of close, multilevel collaboration among the agencies concerned, as well as the private sector and other interested parties. Young people, many of whose attitudes toward undeclared work and economic crime need work-ing on, are a key target group. More suitable methods must be developed to wield that kind of infl uence.

A third task is to maintain the focus on threat analyses. Next on the agenda is a 2005 interagency review of the EU’s enlargement. Another essential step is to build upon intelligence activities in the area of economic crime. Links to organized crime should receive particular attention.

Cooperation is the key to success. Secrecy issues often come up in this connection. SAMEB reports frequently argue that secrecy legislationerects barriers to combating economic crime in several different areas, particularly before a pretrial investigation or audit is launched. A more general problem is that agencies often cannot provide information to other agencies or receivers in bankruptcy unless expressly requested to do so. The party that needs the information is frequently unaware of its exist-ence. Overhauling this kind of legislation would appear to be urgent.

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A CLOSER LOOK AT UNDECLARED WORK, VAT FRAUD AND AGENTS WHO AID ECONOMIC CRIME (SPURIOUS ADVISERS AND TAX HAVENS)

Undeclared Work

Although available resources required that the fi rst phase of the threat analysis focus on cash sectors, undeclared work is also a phenomenon in invoicing sectors, particularly the construction industry in its broadest sense. Logically speaking, the next phase should examine the other sec-tors as well.

This type of crime involves withholding and failing to declare cashincome, thereby affecting not only income tax assessment, but VAT and social security payments as well. One serious consequence is that com-panies hire undeclared labour to reduce costs and thereby become more competitive vis-à-vis legitimate businesses. The particular ways of con-cealing such income are highly specifi c to each sector.

SKV is conducting a nationwide project to determine the extent to which major construction efforts throughout Sweden use undeclared labour. A report issued by the project notes that certain segments of the con-struction industry have incorporated tax evasion in a way that may be described as the organized contracting out of such labour. The use of various constellations of independent contractors – subcontractors, staff-ing companies and other intermediaries at different level – makes it more diffi cult for SKV to detect and investigate tax evasion schemes. The phe-nomenon is not new in itself. Previous reports on contracting sectors have also revealed widespread tax evasion calling for legislative changes. The current statutes on how labour is contracted out have made SKV’s job even harder when it comes to heading off this type of evasion.

The project has found evidence of widespread payment of undeclared wages in the construction industry. The assessments that have been made so far suggest that such wages amount to SEK 2.5-3 billion annually in the areas covered by the project. While declining to estimate the extent of undeclared work in the industry as a whole, the report stresses that it is clearly unsettling. As the result of uncollected payroll tax, personal income tax, and VAT, the state loses annual revenue amounting to 85% of undeclared wages, or SEK 2-2.5 billion. The scope of this problem has distorted competition in some cases.

11

The proposals of a Construction Commission appointed by the Govern-ment in February 2002 are now under consideration by the GovernmentOffi ces. It is important that the upcoming legislative proposals be designed so as to have a real impact on undeclared work. Otherwise, there is a clear danger that spurious segments of the construction industry, includingelements of professional crime, will grow ever stronger.

Since it became legal to contract out personnel, staffi ng companies have become active in many sectors. Some of the companies are spurious, i.e., their business concept is to provide undeclared labour. Since they hold business tax certifi cates, employers who use their services can deny ever having hired such workers.

Trends Over the Next Three YearsAttitude surveys, which are described in more detail above under “Eco-nomic Crime – Current Status and How It Has Changed,” suggest that young people today do not have the same fundamental principles andtaxpayer morale as previous generations. That shift in values may pose a threat to the Swedish tax system. Unless the trend is reversed, the state is likely to lose even more tax and fee revenue in the future.

Proposal• It is essential that the legislative work currently under way with

respect to withholding taxes for subcontractors in the constructionindustry be completed as soon as possible, and that similar systemsare implemented in other sectors characterized by chains of subcon-tractors.

• When it comes to cash sectors, laws that require the introduction of type-approved cash registers are of great urgency.

• Based on what SKV has learned from its special campaign, informa-tional efforts should be carried out to reshape the lenient attitude of young people toward certain kinds of undeclared labour.

• Interagency crime prevention projects have been conducted in coop-eration with unions, employer organizations, trade associations,municipalities and county councils. Such activities must continue,expand and spread to other sectors that are involved. Furthermore, special initiatives are planned to increase the participation ofSAMEBs and to engage local crime prevention councils in prevent-ing undeclared work.

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VAT Fraud

There is always a risk that output VAT will not be reported as required or that improper deductions will be claimed for ingoing VAT.

VAT fraud can be committed in four basic ways. • A transaction is not declared and no VAT payment is made. As a

result, no income tax is paid for any profi t associated with the trans-action. Nor is any selective purchase tax collected.

• VAT is declared but not paid, a frequent occurrence when bankrupt-cies are being planned.

• Based on false grounds, excess input VAT is declared so as to extort tax revenue from the state.

• Goods are smuggled into Sweden from non-EU countries in order to sell them without having to pay income tax on the proceeds. As a result, no VAT is paid either.

Both criminological research and government agencies in their daily work are highly familiar with the fraudulent methods employed in connectionwith VAT. Nevertheless, there is no doubt that attempts by the agenciesto monitor such fraud have given rise to new methods.

No reliable estimate is available as to the scope of VAT fraud. Consumers often fail to consider the issue when they purchase a good or service that is “exempt from VAT” at an unreasonably low price. Furthermore, com-petition becomes distorted when some businesses can offer lower prices than their rivals by virtue of not paying VAT. That has a ripple effect in that companies may turn to crime in order to survive.

A special type of evasion, involving “missing traders,” has raised a great deal of concern within the EU. Also involving VAT carousel fraud, such activities have risen to a totally unacceptable level in countries like Britain and Germany. As a result, the European Commission undertook a specialproject to combat this type of VAT evasion.

According to EU’s basic treaties, the Member States share the responsibil-ity of monitoring harmonized indirect taxes. Analyses conducted in some EU countries suggest that uncollected revenues may exceed 15% of the taxable base.

The fi nal report of the Commission’s project concluded that VAT carou-sel fraud would continue to pose a risk for the foreseeable future. Despite indications that Sweden is no longer always the country that suffers the loss of tax revenue, it remains one station through which the carousels

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pass. Thus, other Member States ask for Swedish assistance during various investigations of distribution and payment channels, etc.

Trends Over the Next Three YearsVAT will continue to represent a clear risk area, particularly in relation to crossborder trade.

The enlargement of the European Union on 1 May 2004 to include tenadditional countries is expected to affect VAT fraud associated with EU-related trade. However, the new Member States are working on strategiesto deal with these problems.

Proposal• Indirect taxes in connection with crossborder trade deserve special

attention.• International cooperation among various agencies is needed to more

effectively monitor this area.

Spurious Advisers and Tax Havens

Dealings through tax havens have many different purposes and contexts.SKV has charted and described a number of such methods as part of vari-ous monitoring projects.

Tax havens have been around for a long time. Prior to the deregulationsof the 1990s, they were very expensive and complicated to use. Since that time, they have become much cheaper and simpler to use, while manysources of advice and offers are now available on the subject. The projects discussed above indicate that the utilization of tax havens is on the rise, particularly among small, profi table businesses. In recent years, most transactions have been conducted through facade companies in countrieslike Britain and the Netherlands.

Estimates for Sweden put annual uncollected tax revenues related to international transactions at SEK 20-35 billion, of which SEK 2-5 billion stems from company formation through tax havens and SEK 8 billionprimarily from investments by private individuals in low-tax countriesthat provide insuffi cient supervision.

International tax evasion differs from other types in that the taxable basis is often lost forever. No revenue is ploughed back into the Swedish econ-omy to create additional income.

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Trends Over the Next Three YearsFor a number of years, the OECD and EU have devoted a great deal of effort to following and assessing the injurious effects of taxation differ-ences among various countries.

Labelling it unfair or harmful tax competition, the EU has concentratedon attempts by Member States to use favourable regulations to attractbusinesses, capital and individuals at the expense of other countries. The OECD calls the phenomenon harmful tax practices, focusing on taxhavens instead. Following extensive investigation and negotiation, most of the 40-odd tax havens that were pinpointed have pledged to amendtheir regulations. One key area of reform is to make it easier to share information and learn the identity of a company’s true shareholders.

Proposal• The most important measures involve continuing to design moni-

toring methods, following and analyzing trends in the market forfi nancial advice, and strengthening international cooperation, bothgenerally among the various EU and OECD institutions and specifi -cally on the purely operational level. Since spurious advisers are often the hub of this type of economic crime, action to deal with them is of particular urgency.

Spurious Founders of Shelf Companies

Each year, individuals and businesses in Sweden form a large number of shelf companies that they sell for SEK 4,000-5,000 each without ensur-ing that the share capital of at least SEK 100,000 is ever deposited. In most cases, the purchasers plan to use the companies to withdraw excess input VAT and commit various and sundry types of fraud.

Government agencies are acquainted with the spurious founders of shelf companies who are engaged in extensive activities. There are 15-20 indi-viduals who manage businesses that buy and sell shelf companies in a spurious manner. After a short while, most of the companies declare bankruptcy and the purchasers are saddled with very high debts, both public and private. Approximately 17,000 joint stock companies, some 3,000 by spurious founders of shelf companies, have been started annu-ally over the past three years.

In that way, such a company can become a vehicle for engaging in illegali-ties. Sometimes these spurious founders help purchasers commit various tax crimes and other economic offences. Shelf companies without capital

15

cover are put into the service of economic crime. The state loses major tax and fee revenues as a result. Suppliers and creditors suffer heavy losses. Meanwhile, having observed that government agencies are monitoringtheir activities, some founders of spurious shelf companies have started to market partnerships and limited partnerships instead of joint stock companies.

Trends Over the Next Three YearsDespite the countermeasures that have already been initiated, and that will be evaluated and improved upon on an ongoing basis, the risk remainsthat these spurious activities will continue. The state may lose major tax and fee revenue as a result. Suppliers and creditors are in danger of suf-fering large losses.

ProposalsThe Swedish Economic Crimes Council extended the mandate of theSpurious Founders of Shelf Companies task force to work on and gatherresources for implementing the proposed measures. The measures are broken down into two basic categories. • Providing information on the content of the report to employees of

the cooperating agencies, founders of shelf companies, accountant’sorganizations and individual accountants for chains of shelf compa-nies. Hopefully that will have a preventive effect and alter the behav-iour of those involved.

• Taking advantage of existing legislation to prosecute people who par-ticipate in spurious shelf company dealings.

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Concluding Remarks

The purpose of the measures and activities discussed above is to reduce economic crime and its injurious impact on the national economy, ulti-mately on individual citizens. That effort must continue and expand. Par-ticular attention should be paid to supplementing traditional monitoringactivities, particularly crime prevention measures.

Nevertheless, the resources that agencies have at their disposal will always be a limiting factor in terms of what they can achieve. As part of the national budgetary process, the agencies that make up the Swedish Eco-nomic Crimes Council will submit additional requests to the Govern-ment on these matters.

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Report

Lennart Berg, Anna K. Hansson, Dan Magnusson and members of the Swedish Economic Crimes Council task force

1

Contents

1. Introduction 6

2. Current Status of Economic Crime 72.1 THE CONCEPT OF ECONOMIC CRIME 7

2.2 VARIOUS KINDS OF ECONOMIC CRIME 7

2.3 SOURCES OF INFORMATION 8

2.4 CRIME LINKED TO CROSSBORDER TRADE 10

2.4.1 VAT Fraud 10

2.4.2 Smuggling of Commercial Imports 10

2.5 FINANCIAL CRIME AND THREATS TO THE SWEDISH TAX BASE 11

2.5.1 Insider Crime and Improper Infl uence on Share Prices 11

2.5.2 Undeclared Work and Other Sector-related Crime 12

2.5.3 Traditional Tax Evasion 16

2.5.4 Evading Selective Purchase Tax 19

2.5.5 Tax Havens and Tax Evasion Linked to Foreign Financial Markets 22

2.5.6 Money Laundering 23

2.6 ABUSE OF LEGAL FORMS OF BUSINESS ENTITY 25

2.6.1 Spurious Shell Company Dealings 25

2.6.2 Spurious Founders of Shelf Companies 26

2.7 INSOLVENCY-RELATED CRIME 28

2.8 ORGANIZED CRIME 28

3. Cooperation 333.1 THE SWEDISH ECONOMIC CRIMES COUNCIL 33

3.2 EU FRAUD 34

3.3 THREAT ANALYSIS 34

3.4 COLLABORATION AMONG THE NATIONAL COOPERATING AGENCIES 35

3.5 REGIONAL COOPERATING AGENCIES 37

2

4. Intelligence and Monitoring Operations 384.1 INTELLIGENCE 38

4.2 TAX SUPERVISION 42

4.3 SUPERVISION BY FINANSINSPEKTIONEN 46

4.4 CUSTOMS CONTROL 48

4.5 NATIONWIDE INTERAGENCY PROJECTS 49

4.5.1 Carousel 2000 49

4.5.2 Food Products Project 50

4.6 REGIONAL MONITORING EFFORTS 51

5. Reports of Suspected Crime 55

6. Crime Investigation 616.1 General 61

6.2 Case Handling by the Public Prosecution Authorities 61

6.3 THROUGHPUT TIME AND PROSECUTION 64

6.4 POLICE INVESTIGATIONS IN THE REST OF THE COUNTRY 67

6.5 TAX CRIME UNITS 68

7. People Convicted and the Penalties 69

8. Resources 71

9. Attachment, Collection, etc. 729.1 BANKRUPTCY SUPERVISION 74

9.2 TRACKING DOWN AND RECOVERING THE PROCEEDS OF ECONOMIC CRIME 75

9.3 RUBICON (ROUTINES, CRIMINAL INVESTIGATIONSIN BANKRUPTCY) 76

10. Crime Prevention Efforts 7710.1 GENERAL 77

10.2 EBM’s STRATEGY 77

10.3 SKV’s CRIME PREVENTION EFFORT 79

10.4 CONTACT AND INFORMATION 80

3

10.5 NATIONAL CRIME PREVENTION PROJECT 82

10.6 REGIONAL CRIME PREVENTION ACTIVITIES 82

11. Study of Adherence to Trading Prohibitions 85

12. International Contact and Cooperation 86

13. Skills and Methods Development 8813.1 EKOBANKEN 88

13.2 TRAINING 88

13.3 METHODS DEVELOPMENT 89

14. Research on Economic Crime 91

15. Problem Areas and Future Threats 9615.1 THEORETICAL BACKGROUND FOR THE ANALYSIS 96

15.2 PUTTING TOGETHER A THREAT SCENARIO 98

15.3 UNDECLARED WORK IN CASH SECTORS 100

15.4 VAT FRAUD 102

15.5 AGENTS WHO AID ECONOMIC CRIME 104

15.5.1 Spurious Founders of Shelf companies 104

15.5.2 Spurious Advisers and Tax Havens 105

Appendix 1 108Glossary of Agencies, Committees and Organizations 111

Glossary of Abbreviations 112

TABLES AND GRAPHSTable 1 Percentage of businesses by sector that believe that

they are subject to unfair competition 13

Table 2 Schematic calculation of the total amount of tax error in 1997 and an updated calculation for 2000, SEK billion 18

Table 3 Estimated tax error linked to international transactions 19

Table 4 Assessed selective taxes, 2003, SEK billion 20

Table 5 Decisions on liquidation (number) 28

4

Table 6 Overview of changes in organized crime 30

Graph 7 Reports of money laundering, 1998–2003 39

Table 8 Money laundering reports in 2000-2003 by informer 40

Graph 9 Number of pretrial investigations, 1998–2003 40

Table 10 Types of crimes in pretrial investigations, 2001–2003 41

Graph 11 Number of new registrations with SKV, 1999–2003 43

Graph 12 Annual workforce for SKV’s supervision, 1998–2003 43

Graph 13 Number of audits, 2000–2003 44

Graph 14 Number of tax rulings on the basis of audits and desk reviews, 2000–2003 44

Graph 15 Amounts in SEK million in tax rulings due to audits and desk reviews, 1999–2003 45

Graph 16 Number of tax surcharges, 2000–2003 45

Table 17 Number of insider investigations 47

Table 18 Number of investigations of improper infl uence on share prices 47

Table 19a Alcohol 48

Table 19b Tobacco products 49

Table 20 Results of crime ring investigations 54

Graph 21 Crime reports by the authorities, 1998–2003 55

Table 22 Reported crimes, 1998–2000 57

Table 23 All reported economic crime by category, 2001–2003 57

Table 24 Crime reports, 2001–2003 58

Graph 25a Total number of reports of suspected crime, 2001–2003 59

Graph 25b Total number of reports of suspected crime by category, 2001–2003 60

Graph 26 Cases received, 1998–2003 62

Graph 27 Cases received, 1998–2003 62

Table 28 Difference between received and completed cases in 2000–2003 63

Graph 29 Breakdown of activie cases by degree of diffi culty, 31 December 2003 63

Table 30 Number of decisions by EBM on indictment matters, 1999-2003 64

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Table 31 Number of decisions by other prosecuting authorities, 1999-2003 64

Diagram 32 Legal process launched 65

Graph 33 EBM’s average throughput time from crime report until verdict (number of days), 1998–2003 65

Graph 34 Average throughput time for police, other ÅM and total (number of days), 2001–2003 66

Graph 35 Cases completed in 2003 by year reported 66

Graph 36 Investigations by tax crime units 68

Graph 37 People convicted, by principal offence 1998–2002 69

Graph 38 Trading prohibitions, 1998–2003 70

Graph 39 Violations of trading prohibitions 70

Graph 40 Costs for combating economic crime, 1999–2003 71

Graph 41 Number of appliations to county administrative courts for attachment 72

Graph 42 Unpaid taxes and fees (SEK million) registered by KFM, 1999–2003 73

Graph 43 Unpaid taxes and fees (SEK million), special enforcement, 1999–2003 74

Graph 44 Supervision of bankruptcy, 1998–2003 75

Graph 45 Analysis model for economic crime 96

Graph 46 Declared income for certain types of small businesses (SEK thousand) 101

6

1. Introduction

The ordinance on the co-operation of government authorities againsteconomic crime (1997:899) sets up a coordinating organization at the national level – the Swedish Economic Crimes Council, chaired by the Prosecutor-General – while each county has a cooperating agency (SAMEB) headed up by the governor.

The SAMEBs are to put together a report on economic crime once every three years. Starting in 2004, the report is to be submitted to the Swedish National Economic Crimes Bureau (EBM) by 15 February.

On 11 November 2003, following preparatory work by the Swedish Economic Crimes Council, EBM issued general recommendations anddetailed information concerning the report’s content and design. During a conference at EBM, the Swedish Economic Crimes Council task force and SAMEB representatives discussed and analyzed the new reportingregulations as of 2003, as well as more general national and regional coop-eration issues.

EBM is to submit an economic crime report to the Government by 15May once every three years The report, which the Swedish EconomicCrimes Council is responsible for preparing, is to describe how economic crime has changed and present the measures that have been taken as part of the interagency cooperation effort governed by the ordinance. Also to be included are proposals for the direction that the effort to combat eco-nomic crime should take over the next three years.

7

2. Current Status of Economic Crime

2.1 THE CONCEPT OF ECONOMIC CRIME

The concept of economic crime covers such a variety of phenomena that any attempt to defi ne it operationally and stipulatively would exclude many of them. Many interested parties would fi nd such a demarcation to be inappropriate.

A solution is to regard the concept as conventionally determined. Thus, it would theoretically include any phenomena recognized by those parties at any particular point in time.

That leads to problems in classifying the various kinds of economiccrime.

The lack of clearly defi ned boundaries that applies to the general concept is also relevant to such a breakdown.

As a result, the notion of typology is more suitable than that of classifi ca-tion. A typology describes a number of phenomena that are not strictlyrelated to one another. Thus, they may contain some of the same ele-ments, leading to possible overlapping data. Such overlaps must be kept track of when quantifying various kinds of economic crime.

The typology described in the 1992:2 EBM report proceeded from how agencies perceive the types and scope of economic crime that determinedits structure. The present report takes the same approach.

2.2 VARIOUS KINDS OF ECONOMIC CRIME

1. Offences linked to crossborder trade VAT fraud, such as carousel fraud in gold, mobile phones and com-

puter components Smuggling in commercial imports

2. Financial offences and threats to the Swedish tax base Undeclared work and other sector-related crime Insider offences Traditional tax evasion

8

Evasion of selective purchase tax Tax havens and tax evasion related to foreign fi nancial markets Money laundering

3. Abuse of legal forms of business entity Spurious shelf company dealings Spurious founders of shelf companies

4. Insolvency-related offences

5. Organized crime

2.3 SOURCES OF INFORMATION

The status report (1999:2) that EBM submitted in September 1999 as the basis for the Government’s 2000 interagency guidelines ventured an overall description of the various types of economic crime in Sweden. The report (2001:1) submitted in August 2001 argued that methods of committing these offences had not changed signifi cantly. Although most agency offi cials involved in combating economic crime appeared willing to sign off on such an assertion, it should be taken with a grain of salt.

Important to keep in mind is the way in which information about the types and scope of economic crime is spread. In the fi rst place, such offences committed against the public sector are of a totally different character than traditional or economic crime whose victims are businesses, organizationsor private individuals. When the public sector is the target, no individual suffers direct injury or loss. Only after a public offi cial has taken some kind of monitoring measure – or an individual, business or organization has fi led a report – are such offences detected. A much greater proportion of economic crimes committed against the public sector undoubtedly go unreported than is the case with those aimed at other victims.

Nevertheless, various studies have shown that a relatively large percentage of such offences suffered by others than the public sector are also unre-ported, albeit not for the same reasons.

For instance, businesses refrain from submitting reports for fear of losing their standing with customers, while fi nancial institutions don’t want to let on that their monitoring procedures are inadequate.

An assessment of overall economic crime trends during a particular period of time must examine, in addition to unreported cases, the ways in which

9

detected offences are documented, as well as how such information is subsequently processed and compiled.

Following are the characteristics of economic crime that are of greatest value for understanding its evolution from the point of view of efforts to combat it.• What punishable acts are involved? • How many such offences are committed? • How many people engage in economic crime? • What are their modes of operation? • What is the scope of the offences in money terms? • What are the sanctions?

No Swedish agency involved in combating economic crime systemati-cally documents all of these characteristics. The information that is docu-mented is neither processed nor compiled. That makes it diffi cult to gain a more precise overview of even the detected offences.

The methods for getting a sense of the types and scope of economiccrime are the same now as in previous years. Such information is based on monitoring measures taken by various agencies as described in the SAMEB reports submitted each February, as well as the annual reports of the national agencies. Either singly or jointly, the agencies also carry out in-depth, short-term projects that examine particular economic offencesand generate special reports.

Interviews with individual offi cials of agencies that combat economic crime provide information, albeit ad hoc and unsystematic, about ongo-ing cases. Like the above projects, research can also shed light on par-ticular aspects of certain economic offences carried out during a specifi ed time period. Furthermore, coverage by the mass media offers some insight into how economic crime is committed.

All in all, the prospects for providing a reliable account of the types, scope and trends of economic crime are currently unpropitious. The resultingdefi cit of knowledge hampers the effort to combat such offences at all levels: governmental needs of documentation for management, prioritiza-tion and legislation; measures taken by agencies; and reforms adopted by the private sector.

10

2.4 CRIME LINKED TO CROSSBORDER TRADE

2.4.1 VAT Fraud

The adoption of the destination principle, the regulations of whichexempt goods from VAT in the seller’s country of domicile and make them taxable in the purchaser’s country, has facilitated VAT fraud linked to transactions within the EU. This exemption in the country of origin provides simple channels for manipulating the system in order to avoid taxation and/or obtain VAT refunds.

One method for taking advantage of the regulations is to use a company’sVAT number during a short period of time and then relinquish it. Mean-while, goods have been purchased in another Member State and resold to an independent domestic buyer. After that, the company (missing trader) “goes missing” and no tax is paid. Maintaining that he acted in good faith, the independent domestic buyer demands a refund on the inputVAT. Proof that the scheme was concocted in advance is diffi cult to estab-lish. In more complicated cases, several companies are involved in order to foil detection and counterevidence. Sometimes the entire transactionchain entails repeated “resale” of the same consignment, giving rise to the term “carousel fraud.”

There is a danger that a deduction will be allowed for input VAT without corresponding output VAT having been paid.

After treating carousel fraud as a high-risk area in recent years, govern-ment agencies believe that its incidence has decreased. But given the large amounts of money that may be involved, the danger of tax evasion remains great.

A Closer Look at VAT and Selective Purchase Tax Fraud in the FoodIndustryIn January 2003, the Swedish Economic Crimes Council launched anationwide, interagency monitoring project in the food industry. A number of fraudulent methods have been documented so far.

The project will continue throughout 2005. VAT and selective purchase tax fraud is widespread and involves large amounts of money.

2.4.2 Smuggling of Commercial Imports

A study was carried out to estimate the volume of uncollected customsrevenue in all of 1999 by means of a number of monitoring actions repre-

11

sentative of both commercial goods and other traffi c from non-EU coun-tries from 15 April through 15 June and from 15 August through 15November of that year.

The unreported volume of uncollected revenue was then calculated by subtracting the uncollected revenue that Customs was able to detect and rectify in 1999 from the total estimate. A total of 1,730 randomly selected commercial import shipments were checked. In addition, 10,312 checksof other traffi c to Sweden were made. The commercial selection was pro-portional to the number of shipments received in the various customsregions and by the individual customs offi ces based on 1998 fi gures.

Although not all the other traffi c was studied, the intention was to obtain a representative sampling on which to base a nationwide estimate. Thus, passengers were searched at Arlanda, Sturup and Landvetter, but not at smaller airports like Örebro.

The selection of commercial shipments was extrapolated in three differ-ent ways. The fi rst method was to extrapolate an absolute fi gure based on regional averages, generating total uncollected revenue of SEK 1,386 million for 1999. The second method, which extrapolated traffi c in the West Sweden and Skåne customs regions on the basis of Mälardal region fi gures, came up with SEK 2,389 million. The third method, proceedingfrom weighted averages in each region, arrived at SEK 1,378 million.Uncollected revenue for other traffi c totalled SEK 2,194 million.

The results of Customs’ monitoring operations in 1999 were SEK 449 million. Total debited revenue amounted to SEK 40,539 million. Theunreported volume of uncollected revenue was 7.7% based on the abso-lute fi gure, 10.2% based on the Mälardal region, and 7.7% based on weighted regional averages.

2.5 FINANCIAL CRIME AND THREATS TO THE SWEDISH TAX BASE

2.5.1 Insider Crime and Improper Infl uence on Share Prices

Following are accounts of a few legal cases that illustrate insider crime and improper infl uence on share prices.

In 2002, the Svea Court of Appeal sentenced G to 8 months imprisonmentfor insider crime, felony, and improper infl uence on share prices, as well as PL to 4 months imprisonment for complicity in insider crime, felony. PL’s brother ML was put on probation and fi ned for insider crime.

12

1. See Skattefel och skattefusk. RSV Report 1998:3 (Uncollected Revenues and Tax Fraud. RSV Report 1998:3) and Branschsanering. SOU 1997:111 (Sector Reform. SOU 1997:111).

When working for a printer’s in 1991, PL learned that the Swedish busi-ness that had ordered an informational brochure was planning to acquire a stake in an American company. He told ML about it. ML gave the infor-mation to a broker by the name of G, through whom he purchased stockin the U.S. company. In addition, G had made 21 fi ctitious purchases of the Swedish company’s stock in order to improperly raise its price.

In 2001, the Uppsala District Court fi ned L 80 days income for improp-erly infl uencing share prices. L had submitted exorbitant purchase bidson two stocks. He had made the purchases to improve his position in a stock auction. The district court found that L’s actions had led to unrea-sonable closing prices, thereby misleading the market. The transactionshad no commercial justifi cation. L’s objective of improving his position in an auction was improper.

The Stockholm City Court placed a representative of a business on pro-bation and fi ned him for insider crime. In 2000, he had taken part in discussions with the principal shareholders of a listed real estate company concerning a public offering of all its stock.

Through another subsidiary of the same Group, the representative had agreed to join a bid consortium in the capacity of an investor. The city court ruled that, before the public offering had been announced, the representative had, on the basis of information that had not yet been released, made several purchases of the real estate company’s stock so as to substantially and intentionally infl uence its price. As a result, the stock price was higher once the public offering had been announced.

2.5.2 Undeclared Work and Other Sector-related Crime

Most of uncollected tax revenue is deemed to stem from various kinds of evasion related to undeclared work and unreported income for small or medium-sized businesses.1 To illustrate the issue, parts of a report com-piled by the Nationwide Project on Monitoring Undeclared Labour in the Construction Industry (SKV 2001:9) are cited below. The excerptshighlight the particular risks that crop up when a certain type of illegal behaviour is incorporated into standard operating procedures. Other con-tracting sectors give rise to similar problems.

A great deal of evasion also goes on in cash sectors, i.e., transactionsbetween businesses and private individuals. Frequently there is no docu-

13

mentary evidence for verifying actual revenue, particularly in the case of small businesses that lack fi nancial management or internal monitoring systems. Among other contributing factors may be the stiff competitionthat businesses face and the labour shortages that arise during economic booms.

The following table shows the results of an SKV survey (Report 1998:1)in terms of the percentage of businesses in various sectors that feel that some of their competitors evade taxes.

A report issued by SKV’s nationwide project on undeclared labour indi-cates that certain segments of the construction industry have incorporatedtax evasion in a way that may be described as the organized contractingout of such workers. Various constellations of independent contractors– subcontractors, staffi ng companies and intermediaries at a number of different level – are used in order to aggravate SKV’s attempts to uncover and investigate tax evasion schemes.

The phenomenon is not new in itself. Previous examinations of contract-ing sectors have revealed widespread tax evasion that called for legislative changes. Current statutes on private employment agencies and the con-tracting out of labour, as well as the adoption and practical application of business tax certifi cates, have made it even harder for SKV to do some-thing about this type of evasion.

The project has found widespread payment of undeclared wages in the construction industry. The studies conducted so far, as well as the crime rings that have been identifi ed, suggest that such wages amount to SEK 2.5-3 billion annually in the areas covered by the project. While refraining from estimating the extent of undeclared work in the industry as a whole, the report stresses that it is clearly unsettling. As the result of uncollected

Table 1

Percentage of businesses by sector that believe that they are subject to unfair competition

Sector

Construction 37%

Restaurant 38%

Taxi 31%

Trucking 43%

Cleaning 54%

Hairdressing 64%

14

payroll tax, personal income tax, and VAT, the state loses annual revenue amounting to 85% of undeclared wages, or SEK 2-2.5 billion. The scope of this problem has distorted competition in some cases.

According to the report, the work of the Nationwide Project demonstratesthat the organized contracting out of undeclared labour by the construc-tion industry has reached the point that radical legislative changes are required to deal with it. In the autumn of 2001, the Ministry of Finance commissioned SKV to study the prospects for adopting a system whereby withholding taxes would have to be collected for subcontractors. SKV report 2002:6 described various options for designing the system, such as a voluntary vs. compulsory approach. The Government appointed a Construction Commission in February of 2002. The subsequent materialexpanded upon the legislative proposal, as well as offering recommenda-tions where the SKV report had presented alternative solutions.

The commission proposed a system of compulsory withholding taxes for building and construction subcontractors and for fi rms that contract out such workers. The system is to cover both Swedish and foreign contractorsand subcontractors. The amount withheld, which is to be 40% of com-pensation for labour costs, is to be deposited in a special SKV account, while the remaining invoice amount is paid to the contractor.

With respect to VAT, the commission proposed a compulsory “reverse tax liability” for both Swedish and foreign buyers. Although Sweden would have to apply for a special exemption pursuant to Article 27 of the EC’sSixth VAT Directive, the commission believes that the EU has already established a precedent for granting such a request.

Adoption of the VAT reform is dependent on a decision of the SwedishParliament and the timing of EU approval.

The commission also proposed that a ROT (repair, renovation, exten-sion) deduction be enacted to encourage households to hire legitimatebusinesses. The deduction went into effect in April 2004.

Putting together a legislative proposal that can work well for everyone involved has proven very diffi cult. The latest reported development is the appointment of a special joint action group – represented by various min-istries, the construction industry and SKV – to design the system.

Taxation on a Standardized BasisOne possible way of discouraging evasion in certain sectors is to adopt some kind of taxation on a standardized basis for the smallest businesses.

15

SKV put together documentation to launch a comprehensive inquiryconcerning the possibility of effective standardized taxation procedures. Although many fundamental objections were advanced to such a system,SKV performed an additional analysis at the Government’s request and proposed an elementary outline of the criteria that could be decisive for such a standard. The report was circulated for comment. Opinion is reportedly divided. While a number of the referral bodies are favourably disposed, many are sceptical that a system of taxation on a standardized basis could be developed. Nevertheless, they are not opposed to a con-tinuation of the inquiry. Trade associations are particularly supportive of the idea.

The Government will reportedly decide in 2004 whether and in whatmanner the notion of taxation on a standardized basis is to receive further study. Regardless of which way it goes, any new tax system can hardly be expected to affect 2005. A standardized taxation scheme would cer-tainly have a major impact on risk assessment during the year that it is enacted.

Cash RegistersThe Government appointed an investigator in February 2004 to study “asystem for monitoring sales in cash sectors and the activities of tax crime units.” His assignment is dual in nature. His fi rst task involves the ques-tion of whether to adopt a requirement whereby businesses that sell goods and services to the public for cash must have cash registers. His second task has to do with making tax crime units more effi cient.

Greater attention has been paid over the past few years to revenue rec-ognition by businesses in cash sectors. The lack of regulations in Sweden requiring retailers to use cash registers has become a topic for political discussion. The 1997 Sector Reform Report (SOU 1997:11) proposedthat cash registers be adopted by certain sectors. SKV proposed in 2002 that revenue monitoring be strengthened by the introduction of sealed,type-approved cash registers and receipt requirements.

Regulations on cash registers in retail outlets went into effect in Den-mark a year or two ago. Norway has such rules for some retailers, par-ticularly services such as hairdressing. A report entitled Erfarenheter från Frisörprojektet i Malmö (Lessons from the Hairdressing Project in Malmö)proposed the enactment of a law on cash registers at retail stores. At the request of the Ministry of Finance and based on Sweden’s alcohol legisla-tion, the Swedish National Institute of Public Health prepared directives in 2002 on cash registers at restaurants. SKV has not gained a hearing

16

for its view that the directives should be adapted so as to facilitate tax supervision as well.

In 2002-03, both trade associations and unions in cash sectors actively urged the Government to speed up its consideration of a compulsory cash register system. SKV has been consulted as part of that effort. Among the sectors with which meetings and discussions about revenue recognitionproblems have taken place with union and management representatives are hairdressers, transport companies (particularly taxis and movers) and restaurants. Such exchanges are scheduled to continue through 2004.

2.5.3 Traditional Tax Evasion

The Scope of Tax EvasionOf vital importance when it comes to tax evasion is not only monetary value, but the number of people involved, as well as its causes and conse-quences. Many studies, both in Sweden and abroad, have examined the supply of undeclared labour. A 1998 inquiry by the Swedish NationalAudit Offi ce (RRV) concluded that men are twice as likely as women to do undeclared work, and that self-employed people and students are the most common labourers in this market. A survey by SKV indicatedthat people with high incomes were the most likely to engage undeclared labour. Both studies found that undeclared work stems mostly fromfi nancial motives.

In connection with an assignment by the Government to evaluate its tax supervision activities, SKV estimated in 1998 the volume of its uncol-lected revenues for the previous year. SKV warned that the statistics for making such an assessment were unreliable and not up-to-date. But such an estimate might still prove useful. An assessment could stimulate a fruit-ful dialogue, as well as ongoing methodological discussions and analyses of the magnitude, scope and causes of uncollected revenues. That could lay the groundwork for a strategy aimed at minimizing their volume.

SKV estimated uncollected 1997 revenues at SEK 80-90 billion, almost5% of the GDP or 9% of taxes collected.

It does not follow that such revenue can be extracted by means of addi-tional audits. If the unreported income were to be taxed, many of the serv-ices would not be produced in the fi rst place. SKV also argued that if the tax authorities were given the resources to identify all cost and accounting errors, intentional evasion would be negligible but that society’s resources would not have been used in a cost-effective manner. The conclusion is

17

that a certain volume of uncollected revenues, including evasion, must be accepted in a democracy with a tax system based on information provided by citizens themselves. The amount of uncollected revenue and evasion that can be tolerated is a purely political issue in which both fi nancial and non-fi nancial factors must be considered.

In its estimate of uncollected revenues, SKV combined macroeconomiccalculations with the results of its own checks, mostly random.

The uncollected revenues that can be detected by audits or other in-depth checks were estimated at SEK 40 billion. That part of the estimate was essentially based on scrupulous earlier checks of a wholly random selec-tion, the results of which were extrapolated to the national level. Since the biggest business Groups are fully reviewed within the framework of planned, coordinated audits, the fi gures for them are 10-year averages.

Thus, the uncollected revenues that can be identifi ed by checking, as well as those that escape detection in the form of unreported income or other benefi ts to private individuals, will be included in the statistics on which macroeconomic calculations of the undeclared sector are based. Theadjusting entry refl ects that dynamic, as well as periodization errors.

In conclusion, it should be kept in mind that the calculation does not cover all taxes, all taxpayers or outright fraud directed at SKV involving VAT and the like. Nor are cases included in which taxpayers declare income but evade payment by making their assets inaccessible to collection.

As the general economy grows, new data emerges that can help fi ll in the blanks. SKV’s updated 2000 calculation proceeded from the National Accounts estimate that the undeclared sector represented over 4% of the GDP. In addition, the GDP increase provided a somewhat more reliablebasis for estimating uncollected revenues on assets invested abroad that are subject to taxation. The calculation implies that SKV’s current audit-ing procedures have the ability to detect less than 50% of total uncol-lected revenues.

The calculation for 2000 puts uncollected revenues at almost SEK 90 billion. According to the adjusted calculation, that represents more than 4% of the GDP and approximately 8% of total tax revenues. That issomewhat lower than the 1997 calculation, which nevertheless did not explicitly include investments abroad. A large percentage of estimateduncollected revenues are attributable to the undeclared sector, which SKV deemed in 1997 to be 5% of the GDP on the basis of previous assess-ments.

18

A conservative estimate for 2002 would put the fi gure at 4.5%, or over SEK 100 billion.

The National Accounts periodically undergo retroactive revisions. For 2000, uncollected revenues stemming from undeclared work are esti-mated at SEK 56 billion. According to current National Accounts data, the undeclared sector represented approximately 5% of the GDP in1988-2000. The conservative 4.5% estimate for 2002 yields an unde-clared sector of SEK 105 billion and – based on the previous assumptions – uncollected revenues of some SEK 70 billion stemming from unde-clared work. See Table 2.

On behalf of the Tax Base Inquiry, SKV estimated uncollected revenues linked to international transactions at SEK 20-30 billion, as broken down in Table 3.

Table 2

Schematic calculation of the total amount of tax error in 1997 and an updated calculation for 2000, SEK billion

Tax error, SEK billion National Updated Share of Tax Board calculation total taxerror 1997 2000 1999

Income tax, VAT and social security contributions 60.4 56 64%

Tax on capital investments abroad ? 7.5 9%

Audit results – primarily non-deductible costs and different forms of wrong accounts and wrong tax calculation

Random audits of ordinary taxpayers and com-panies, except the biggest groups of companies 20.8 25.3 ?

Coordinated audits of the biggest groups of companies 20 16 ?

Selective purchase taxes on alcohol, tobacco, oil, etc. 3.0 3.4 4%

Loss of VAT through electronic trade on the Internet ,, 0.5 0.60%

Plain fraud against the tax administration, e.g., claiming VAT repayments ,, ,,

Total tax error, SEK billion 83.8 88 100%

Total tax error as a percentage of GDP (SEK 1 800 billion in 1997 and SEK 2 083 billion in 2000) 4.7% 4.2%

Total tax error as a percentage of taxes in the public sector (SEK 950 billion in 1997 and SEK 1 100 billion in 2000) 8.8% 8.0%

19

The SKV report indicated that the lower estimate of SEK 20 billion for uncollected revenues linked to international transactions was consistentwith the previous assessment of total uncollected revenues of up to SEK 90 billion. Based on the higher estimate of SEK 35 billion, the total fi gure would need to be adjusted upward as well.

All in all, uncollected 2000 revenues in Sweden appear to be in the neigh-bourhood of SEK 100 billion.

Impact of Tax EvasionTax evasion has many different consequences, not all of them undesir-able. The most serious injurious effects are not deemed to be on rev-enues collected, but on social morale and democratic institutions owing to unintentional redistribution of the tax burden. Moreover, there is a danger that ineffi cient businesses that evade taxes will crowd out their more effi cient rivals.

2.5.4 Evading Selective Purchase Tax

Selective purchase tax is levied on specifi c goods and services. Total col-lected revenues for 2003 were approximately SEK 88.3 billion. Sinceselective purchase tax is a means of infl uencing consumption and produc-tion patterns in addition to providing a source of revenue, they are in a state of constant change.

Mineral oil, alcohol and tobacco – the products subject to harmonized selective purchase tax – are covered by the EU’s suspension system. Under specifi ed circumstances, the system permits the products to be manu-factured, stored, processed and shipped among Member States withoutany tax liability accruing. Only when they are available for consump-

Table 3

Estimated tax error linked to international transactions

Special sales tax SEK 2–4 B

VAT SEK 5–10 B

Tax on capital (incl. Inheritance and gift tax) at least SEK 8 B

Tax haven transactions by companies SEK 2–5 B

Miscellaneous (internal pricing, e-commerce, social security contributions, etc.) ?

Total SEK 20–35 B

20

tion, normally at the retail level, does taxation come into play. Approved warehousers and registered consignees have the exclusive right to handle products under suspension.

Table 4 shows the taxes administered by the special tax offi ce in Lud-vika.

Risk AreasThe selective purchase tax is often many times greater than the value of the good itself. That is particularly the case of Sweden, where taxes are higher than in many other EU countries. As a result, there is a consider-able danger of various types of evasion.

Following is a discussion of the risks linked to alcohol, tobacco products and mineral oil. These taxes, which represent large revenues, are in the spotlight as the EU expands.

Alcohol and TobaccoFollowing the establishment of a minimum tax on tobacco products by the EU, all current Member States impose a fairly high rate. Thus only a relatively small amount of tax evasion has been detected in trade among the various EU countries so far. Most evasion related to tobacco products stems from smuggling to and from non-EU countries, such as from and through the Baltic states. Swedish Customs is presently in charge of such matters.

Table 4

Assessed selective taxes, 2003, SEK billion2

Type of tax

Energy 60.4

Environment 3.4

Alcohol and tobacco 19.2

Advertising 0.8

Lottery and gaming 1.2

Other 3.4

Total 88.3

2. 2003 annual report of SKV and the Enforcement Service.

21

The minimum tax rates on alcohol are extremely low by Swedish stand-ards. Since the tax on alcohol differs considerably from country to coun-try, consumer prices vary widely as well. The irregularities that have been reported in the alcohol trade also occur in other areas. High tax rates and opportunities for a quick profi t attract their share of spurious players.

Besides smuggling from non-EU countries are various kinds of untaxed imports to Sweden from other Member States.

The tax evasion ploys in which registered players participate is largely related to crossborder EU trade. Production costs, which are generallyminor compared to the selective purchase tax, appear to be fairly uniform between Sweden and the other EU countries. That purchases are madeabroad, incurring additional transport costs, is often due to such trade being more diffi cult to monitor.

Worth noting is that these irregularities do not involve imports only, but also various sales schemes from Sweden.

Mineral OilThe substantial rise in the selective purchase tax on heating oil in recent years has affected both the legal and illegal border trade, particularlybetween Finland and Sweden. Given that some approved users can acquire oil for certain tax-exempt purposes while paying zero or reduced tax, there are risk areas within Sweden also. The oil can subsequently be resold or used for purposes that are not tax-exempt. The same holds true of oil acquired for use in commercial navigation.

Regulations surrounding the simultaneous production of electric power and district heating represent a special risk area. Complex and diffi cult to interpret, the regulations are constantly changing. Although only a few players are affected, the monetary consequences are considerable and the wording of the regulations has a major impact on the conditions to which such production is subject.

TrendsThe number of registrants for the tax on alcohol is up sharply in recent years. In addition, the sector is suffering profi tability problems. As a result, a considerable number of players are likely to face fi nancial and tax diffi culties in the future.

Tax rates on heating oil and other fossil fuels are poised to rise further as a result of the green tax shift in Sweden.

22

In 2003, the Tax Reduction Committee (SNED) proposed a number ofchanges to the energy tax system. Under current regulations, the manu-facturing sector pays reduced energy taxes. One SNED proposal is to place all business activity on an equal footing with the manufacturingsector. The result would be a dramatic increase in the number of compa-nies subject to reduced energy taxes. Which of SNED’s proposals will be adopted is still a matter of speculation.

Flex Mex2, an ongoing inquiry into a system for trading pollution rights, has released two interim reports. The tax impact of the trading, scheduled to begin on 1 January 2005, remains unknown at this point.

An inquiry, to be completed by 31 December 2004, is under way to evalu-ate the tax on waste introduced on 1 January 2000, as well as the possibil-ity of enacting an incineration tax. An interim report on the incinerationtax is due out by 30 June 2004.

Work on an EU-wide Excise Movement and Control System (EMCS) began in 2002. The proposed system, which is to be fully up and run-ning in 2008, would replace current paper-based declarations with the electronic exchange of information among businesses through the tax and customs administrations of the various Member States. Sweden has been an active participant in the development of EMCS.

2.5.5 Tax Havens and Tax Evasion Linked to Foreign Financial Markets

Among the terms for this phenomenon are safe havens, offshore centres, tax havens and non-cooperative countries.

A tax haven is a jurisdiction with zero or low tax. Among its other char-acteristics are• No accounting liability or reporting for legal entities• Strict banking secrecy• Unwillingness by countries to provide legal assistance

Uncollected income and wealth tax revenues linked to international trans-actions can be broken down into the following general categories.

• Private individuals, for instance – Tax on non-reported assets abroad (including planned losses)– Tax on consulting fees, board remuneration, royalties and other

benefi ts (such as credit cards) from abroad

23

• Businesses, such as: – Tax planning through Controlled Foreign Companies (CFCs)– Swedish shareholders exercise a controlling infl uence in a business

established in a tax haven – Consulting assignments through companies abroad – Foreign endowment insurance policies with employers or from

private limited companies

The above methods may become more extensive due to major monitor-ing diffi culties. Today’s information technology makes it easier to take advantage of tax havens.

For instance, an estimated 400 British companies have links to Sweden. Since the late 1950s, businesses and other players that sell tax dodging schemes have offered various constellations of companies in tax havens. As the tax authorities have become more aware of transactions involving such companies, an increasingly common approach is to form them in countries that are not regarded as tax havens as facades for such schemes. There are now certain addresses in central London at which several thou-sand companies are registered. They do not conduct any activities from such addresses and are in fact discouraged from doing so.

2.5.6 Money Laundering

The money laundering issue has commanded a great deal of attention in recent years, both nationally and internationally. The agencies and organ-izations that have traditionally combated money laundering may now be taking measures against the fi nancing of terrorism as well.

The globalization process, the availability of offshore services, the com-plexity of and automation of the fi nancial system – as well as its products and services – and the entry of new players have all made it more diffi cult to fi ght money laundering.

Based on changes to the Money Laundering Directive, Sweden is review-ing the relevant legislation.

Only a few people have been convicted of money receiving since it was made a separate crime. Although most convictions have been for predi-cate offences, some recent judgments have involved typical money receiv-ing. Following is one particular case.

On 30 August, a Stockholm bank fell victim to gross fraud when anunknown person used a fake ID to make transfers totalling SEK 10 mil-

24

lion from the account of a wealthy individual to an attorney’s business account at another bank.

The following day the money was transferred again to a Swiss bankaccount held by a Swede. The account holder tried to withdraw the entire amount in cash, but the bank would give him only USD 100,000.

On 4 September, the holder retransferred the remaining sum of more than SEK 8.9 million to the attorney’s account in Sweden. Three days later, the attorney transferred the same amount to the client account of another lawyer.

The second attorney purchased two SEK 4 million cashier’s checks, each made out to a different company, on September 10. On the same day, the checks were used to buy foreign currency at exchange offi ces in Stock-holm and Malmö. Thus, most of the money from the plundered bank account had been converted and removed.

The second attorney tried to withdraw the rest by purchasing a third cashier’s check for SEK 845,000. But when the bank refused, he wrote a regular check for the same amount. At the request of the Swede with the Swiss account, the check was made out to a foreign company.

The city court ruled that this type of fraud requires a plan involving sev-eral people, each of whom does his part. The offender(s) could not have expected to remove the money without diffi culty unless other partici-pants in the chain of transactions had not been at least somewhat aware that it had been obtained in a criminal manner.

The Swede with the Swiss account was sentenced to 2½ years imprison-ment for money receiving, while the fi rst attorney was convicted of money receiving, misdemeanour, and put on probation. A person involved in exchanging the money was sentenced to 2 years imprisonment for com-plicity in money receiving. The second attorney was not convicted of money receiving, but of providing negligent advice – he received a pro-bated sentence. In addition, the court found the guilty parties jointly and severally liable for damages of approximately SEK 8.9 million to the bank against which the fraud had been committed.

The court of appeal held with the city court that fraud of the type and scope in question would require a thorough plan and several accomplicesin order to succeed.

25

According to the court of appeal, the idea was for the illegally withdrawn money to be transferred immediately to the fi rst attorney’s account and further to the Swiss bank, from which it would be distributed among the various accomplices. The reason that most of the money went back to the attorney in Sweden must have been that the Swiss bank suspected money laundering and declined to aid and abet it.

Despite the court of appeal’s identifi cation of a plan, it examined the involvement of each accomplice separately. Thus, the court found that the evidence was not strong enough to convict the man who had helpedexchange the money.

But the attorneys received stiffer sentences than in the lower court. The fi rst attorney was sentenced to 1 year imprisonment for money receiving,felony, primarily because he had persuaded the second attorney to accept the money at a time when he realized that there was something “fi shy”about it. The second attorney was convicted of money receiving, misde-meanour, and placed on probation, given that he had reasonable cause to believe that a crime was being committed when the bank refused to issue the third cashier’s check for SEK 845,000. The bank was the party that initially reported the transactions as suspected money laundering.

Finally, the court of appeal elevated the money receiving conviction of the man with the Swiss bank account to a felony but left his sentence at 2½ years.

2.6 ABUSE OF LEGAL FORMS OF BUSINESS ENTITY

2.6.1 Spurious Shell Company Dealings

Sweden’s 1992 tax reform did away with the regulations governing trans-actions of companies with considerable reserves, as well as internal stock transfers. The reasoning was that the proposed new rules for taxing part-ners in close companies would make it impossible to wrest the kinds of improper tax advantages that the regulations had been intended to pre-vent.

But it turned out that the tax reform’s general rules were insuffi cient to avert the plundering of businesses that stems from shell company trans-actions and leads to a large number of bankruptcies. As a result, SKV proposed rule changes.

26

3. Lagerbolag och Ekonomisk Brottslighet. EBM Rapport 2003:3 (Shelf Companies and Economic Crime. EBM Report 2003:3).

New regulations to hinder spurious shell company dealings, which were adopted on 4 April 2002, placed a greater responsibility on sellers of such companies at the time of transfer. For instance, a seller who was a private individual had to submit a tax return for the shell company under certain circumstances.

In 2002-03, several of SKV’s regions examined shell company transac-tions both before and after the 4 April reform. The review showed that spurious shell company dealings had decreased but that certain legislative loopholes remained.

2.6.2 Spurious Founders of Shelf Companies

The ability to purchase a registered joint stock company for a few thou-sand kronor from certain founders of shelf companies gives criminalsaccess to a useful tool. Over the past three years, an estimated 3,000 joint stock companies have been formed and used for illegal purposes. After serving for a short while to facilitate mostly VAT and credit fraud, such a company is left to fend for itself. Founders of spurious shelf companies are a catalyst for economic crime. Moreover, they do not compete on a level playing fi eld with legitimate players, such as corporate counsel, law offi ces, banks and accounting fi rms. Both the state and the private sector suffer considerable fi nancial losses from such fraud. Ultimately, faith in the joint stock company as a business entity is in danger of being under-mined.

The Swedish Economic Crimes Council launched an inquiry in 2000 on problems related to spurious founders of shelf companies.3 The objective of the project was to ensure that every joint stock company was formed with the correct amount of share capital, which remained intact when the shelf company was transferred and began to operate.

A task force of representatives from EBM, SKV, the Swedish CompaniesRegistration Offi ce and the Enforcement Service (KFM) conducted the inquiry. Their report proposed a number of measures to combat abuse.

The task force identifi ed a series of unfair practices that permit the sale and use of a large number of joint stock companies to commit economiccrime. Given that the regulations protecting share capital are circum-vented, the price of a shelf company is only a few thousand kronor. That is accomplished by violating rules about illicit distribution of profi ts, the

27

loan prohibition, the Accounting Act and the provisions of the Compa-nies Act on liquidation and shortage of capital. The persistence of the abuse is largely due to the failure of cooperating agencies to address the problems aggressively enough, such as by adopting measures based on existing provisions of the law. The task force pondered the question of who would be in a position to ensure that current civil, criminal and tax regulations are enforced in the effort to thwart the founders of spurious shelf companies. No agency has overall supervisory responsibility for such enforcement.

One of the fi rst links of the chain in the interagency struggle against economic crime, the Swedish Companies Registration Offi ce is in charge of registering shelf companies and verifying by means of accountant and bank certifi cates that the initial share capital is properly deposited. Theagency currently lacks the authority to investigate whether every regis-tered shelf company actually has at least SEK 100,000 in share capital.

3SKV comes into contact with spurious founders of shelf companies not only directly when auditing their activities, but indirectly when the sold companies and their representatives fail to meet their tax and fee obliga-tions. SKV also becomes acquainted with shelf companies when they reg-ister for VAT, preliminary company tax and as employers. KFM, whichdeals with shelf companies when they are the targets of collection, can apply for bankruptcy proceedings. It is also the supervisory authority in bankruptcy.

Receivers in bankruptcy who become familiar with shelf companies can call attention to illicit distribution of profi ts, illegal loans and the like that may warrant prosecution.

The police, public prosecutor and EBM normally deal with shelf com-panies and spurious founders when the tax authorities and receivers in bankruptcy report them for having engaged in illegal activities.

The task force proposed a number of measures to combat abuse, and the Swedish Economic Crimes Council extended its mandate to work on and gather resources for implementing them. The measures are broken down into two basic categories. The fi rst category involves providing informa-tion about the content of the report to employees of the cooperatingagencies, founders of shelf companies, accountant’s organizations and accountants for chains of shelf companies. Hopefully that will have a preventive effect and alter the behaviour of those involved. The second category entails using existing legislation to prosecute people who partici-pate in spurious shelf company dealings.

28

2.7 INSOLVENCY-RELATED CRIME

Decisions on Compulsory LiquidationIn accordance with the Companies Act, the Swedish Companies Regis-tration Offi ce can make certain decisions on the compulsory liquidation of joint stock companies. The most common grounds for such a deci-sion are that the company fails to submit an annual report and auditor’sreport to the Swedish Companies Registration Offi ce within 11 months of the close of a fi scal year, lacks a certifi ed public accountant or does not appoint a proper board. The decision is often a red fl ag that economic crime has been committed within the company.

Not having the assets to pay for liquidation proceedings, some companiesquickly declare bankruptcy. The Swedish Companies Registration Offi ce does not have reliable statistics on the percentage of companies declaring bankruptcy that were already in liquidation. Rough estimates point to a fi gure of 20%.

2.8 ORGANIZED CRIME

The Task Force on Organized Crime (AMOB), which was appointed byRPS in 1976 to propose investigative procedures in the area, came up with the following oft-used defi nition.

Organized crime is illegality that generally meets the following condi-tions:

1. It is conducted as an operation

2. That operation is criminal in itself

3. It is ongoing in nature

Table 5

Decisions on liquidation (number)

Year Lacked accounting documents No accountant Unauthorised board

1998 558 417 166

1999 759 383 112

2000 293 436 89

2001 729 629 151

2002 723 465 257

2003 726 448 193

29

4. It has a defi nite focus, though it can be broken down into different spheres of activity

5. It can be planned and managed in advance with relative assurance

6. It is linked to fi xed premises, locations or areas

7. It involves a number of people

8. Those people, who make up a decisionmaking and functional hierar-chy, are each replaceable

9. Decisions, information and communication – as well as the fl ow of money, goods and services – follow pre-established patterns

Compare that with perhaps the most oft-used defi nition of economic crime among researchers, as formulated by German criminologist KlausTiedemann.

“Economic crime is illegal behaviour, the effect of which disturbs or threatens economic life or the economic system such that not only the interests of private individuals are affected.”

The primary criteria that distinguish organized from economic crime are that it be criminal in itself and involve a number of people.

Lars Korsell1 compared the AMOB report on organized crime in 1977 with the fi ndings of a report that the Swedish National Council for CrimePrevention (BRÅ) and Lund University compiled on the same subject in 2002.

Korsell concluded that organized crime had changed greatly during that quarter century. Today it operates in the market, sells many goods and services just like in the regular private sector, and has no need of clubs that serve alcohol without licenses. A reasonable assumption is that organized crime will expand along with general crossborder trade and the grow-ing ability of information technology to hold various networks together. Such activities are now carried out in just such networks, as opposed to the hierarchical, Godfather-run structures portrayed in the cinema. The appeal of the industrialized world is likely to boost human traffi cking, an unknown concept 25 years ago. There are indications that corruption,which has hit bottom internationally, may grow – a threat that agencies should take seriously.

4. EBM Threat Analysis 2002.

30

Table 6

Overview of changes in organized crime

AMOB 1977 BRÅ/Lund University 2002

Prostitution (500 brothels) Prostitution (reduction)

Clubs that serve alcohol without licences (200)

Illegal casinos (approx. 100) Illegal casinos

Handling stolen goods Larceny

Stolen vehicles Buying and selling stolen vehicles

Underground credit market

Protection racket Protection racket

Blackmail

Aggravated robbery

Violence and murder

Threats and violence against public offi cials and witnesses

Corruption

Environmental crime Environmental crime

Buying and selling precious metals, art and antiques

Drugs Drug smuggling

Alcohol smuggling

Smuggling of tobacco products

Smuggling of doping agents

Mineral oil

Arms traffi cking

Human traffi cking

Illegal immigration

Fraud and other economic crime

Money laundering

The report of the SAMEB in Västra Götland County made the following observations, which largely tally with Korsell’s analysis, about organized crime.

“Sweden does not harbour extensive organized crime at the moment. On the other hand, it has changed and grown more transnational in nature. Criminals have become more organized in order to maximize the scopeand proceeds of their illegal activities. They orchestrate various projects and sometimes sell their plans further.

31

“A number of groups are engaged in activities that meet the EU’s criteria for organized crime.

“Although organized crime in Sweden basically resembles similar under-takings in Central and Eastern Europe, such groups cannot be placed on an equal footing with the French and Italian Mafi as and the like.

“They are involved not only in traditional illegality like drug traffi cking and the violent transfer of assets (larceny, unlawful collection through blackmail, etc.), but economic crime as well. The effort to size up, inves-tigate and prosecute these groups is in the development stage.

“Since crime heeds no distinctions between the various authorities, inter-agency cooperation is all that more important.”5

5. 2004 SAMEB Report, Västra Götaland County

32

33

3. Cooperation

3.1 THE SWEDISH ECONOMIC CRIMES COUNCIL

The ordinance on the co-operation of government authorities againsteconomic crime (1997:899) sets up a coordinating organization at the national level – the Swedish Economic Crimes Council. In addition to EBM, the Swedish Economic Crimes Council is composed of the Offi ce of the Prosecutor-General (RÅ), the Swedish National Police Board (RPS), the Swedish Tax Agency (SKV), Swedish Customs, the Swedish NationalCouncil for Crime Prevention (BRÅ), Finansinspektionen (the Swedish Financial Supervisory Authority), and the Swedish Companies Registra-tion Offi ce. EBM runs the Swedish Economic Crimes Council offi ce.

A task force, which includes representatives of each agency, does the Swedish Economic Crimes Council’s preparatory work. While the Coun-cil normally meets twice a year, the task force gets together 5-10 times.

The task force plays a key role in forging contacts and providing a forum for interagency information sharing, with the emphasis on new phenom-ena in the area of economic crime.

A detailed discussion of the Swedish Economic Crimes Council’s role and tasks took place in 2001. A 10 May 2002 memo to the Government from the Council proposed changes to Ordinance 1997:899. In accordancewith the proposal, the Government ordered later in the year (2002:873)that the Council deal primarily with strategic issues. Areas requiring con-crete interagency cooperation methods were to be identifi ed and focused on.

Two concerns that the Council and its task force were particularly atten-tive to in 2003 were the interagency action launched in November 2002 and the threat analysis described more fully in Section 15 of this report.

The November action, scheduled to continue throughout 2005, moni-tored certain segments of the trade in food products. The Council and its task force have continually coordinated and reported on the action.

In November 2001, the Council initiated a more fundamental, system-atic probe and review of the threat analysis that EBM is conducting in cooperation with other agencies that combat economic crime. Both the

34

Council and its task force have continued to take an active part in the effort to defi ne and focus the studies.

One threat area that has received in-depth analysis involves agents who aid economic crime, such as spurious advisers, decoys, goalkeepers and tax havens. Among the by-products of that undertaking were studies on spurious founders of shelf companies as described in Report 2003:2.

Preliminary discussions and analyses were conducted in 2003 regarding new interagency actions following the foodstuffs project.

3.2 EU FRAUD

On 1 July 2000, EBM took over the task of the EU Fraud Delegation to ensure adequate protection of the Union’s assets in Sweden. An EU Fraud Council, charged with promoting proper, effi cient use of those assets, was linked to the agency. The Council includes representatives of RÅ, EBM, RPS, Customs, SKV, the Swedish Board of Agriculture (SJV), the Swedish National Board of Fisheries, the Swedish National Labour Market Board (AMS), and the administrative boards of Skåne and Jämtland counties.

EBM submits an annual report to the Government on protection of the EU’s fi nancial interests in Sweden.

3.3 THREAT ANALYSIS

A team of experts from the cooperating agencies was formed in theautumn of 2002 to put together a threat analysis. The project includedstudies of the causes, nature and scope of economic crime, as well as a detailed inquiry into its harmful effects. On behalf of the Swedish Eco-nomic Crimes Council, certain priority areas were subsequently subjectto an in-depth review.

In order to compile and examine threat analysis material on a more con-sistent basis, as well as to conduct the required in-depth studies, a special team of representatives from the cooperating agencies’ analytical units or their equivalent was formed.

The fi rst meeting, which took place around year-end 2003, discussed theteam’s working methods, including the fi rst joint examination of existing material on economic crime and the threat analysis developed by each agency concerning its particular sphere of activity.

35

3.4 COLLABORATION AMONG THE NATIONAL COOPERATING AGENCIES

In counties where EBM is not in charge of prosecution, its instructions render it jointly responsible with the Offi ce of the Prosecutor-General for coordinating activities related to economic crime.

EBM is continually working with public prosecutors and police toimprove coordination procedures in these counties. In addition to purely operational collaboration – such as providing personnel during raids –“contact prosecutors,” visits, special theme days and informational events are part of the effort.

Cooperation between EBM and the police authorities, which is pro-ceeding well, has focused on mutual support in operational matters. For instance, the police at EBM have contributed their skills in securing and analyzing IT seizures from police raids.

The partnership has also included investigations of economic crime linked to other types of offences such as drugs traffi cking or violent acts. Police investigative units often aid EBM in its fact-fi nding work.

The cooperating agencies have participated in various projects and joint action groups. In particular, the Organized Crime in Sweden (OBiS) group has led to closer contacts in the area of intelligence and will enable more effi cient interagency collaboration during 2004. Access by the police at EBM to the criminal intelligence register in 2003 and the ability to enter information into the register in 2004 represent additional steps in the effort for EBM to more actively participate in interagency cooperation.

In collaboration with EBM, RPS and the police unit invited the eco-nomic crime squads of the county police authorities to a coordinatingmeeting in November 2003.

A Joint Action Group for Combating Money Laundering is chaired by the Financial Intelligence Unit (fi po) and includes Finansinspektionen, EBM, the International Division of the Offi ce of the Public Prosecutor in Malmö, SKV and Swedish Customs. Besides generally enhancing coop-eration and raising awareness among the various agencies, the goal is to coordinate money laundering matters in a more effi cient manner.

The national project launched by the Swedish Economic Crimes Councilconcerning certain segments of the trade in food products further ener-gized cooperation with economic crime prosecutors and squads outsideEBM’s geographic jurisdiction.

36

Special joint consultation groups for tax crime units deal with attempts to expand and improve collaboration among prosecutors, police and tax crime investigators. A national committee of representatives from EBM, RÅ, RPS and SKV takes on overall issues, whereas regional and localgroups deal with operational questions.

The cooperating agencies were assigned to study during 2003 how well the collaboration with tax crime units was working, describe and analyze any obstacles, and detail the improvements that were being planned. The heads of the four agencies reported that the collaborative effort had gotten steadily better and that the prospects for further progress were good. But they did not offer any joint recommendations for measures to deal with the barriers identifi ed by the questionnaire with regard to the powers and location of tax crime units.

From an operational point of view, cooperation among EBM, SKV, KFM(particularly in its tax enforcement role and as the supervisory authority in bankruptcy) and receivers in bankruptcy are of major importance, given that they are in charge of most of the economic crime that is reported. Collaboration under the auspices of the Rubicon (Routines, criminalinvestigations in bankruptcy) Project has been further developed. The nationwide seminar series launched in 2001 concluded in 2002.

The agencies concerned have a network made up of representatives from exchanges and the Swedish Securities Dealers Association (SSDA). One purpose of the network – which includes EBM, Finansinspektionen, the Stockholm Stock Exchange, SSDA, FiPo and the Nordic Growth Market– is to create rapid contact channels and share experience about develop-ments in the securities market.

The agencies concerned cooperate with the Swedish Institute of Author-ised Public Accountants (FAR) and the Swedish Association of Auditors(SRS) concerning the obligations of accountants under the CompaniesAct when crime is suspected. A joint consultation group –which regularly examines ways of improving collaboration among accountants, prosecu-tors and the police – charged a task force with developing guidelines on practical implementation of the duty to report such offences. A June 2003 memorandum of the task force’s deliberations – which has been sent to prosecutors, police and accountants throughout the country – is key to the ongoing attempt to establish closer contact with accountants.

Unions and employer organizations are vital partners in preventing eco-nomic crime.

37

3.5 REGIONAL COOPERATING AGENCIES

Each regional cooperating agency (SAMEB) is chaired by the county gov-ernor and includes the regional director of the public prosecution author-ity, the county police commissioner, the head of SKV, the head of KFM and representatives of the county administrative board and Swedish Cus-toms.

EBM runs the SAMEB offi ces in Stockholm, Västra Götaland and Skånecounties. Unless the agencies concerned agree otherwise, the policeauthorities have that responsibility in other counties

To the extent approved by the governor, the work of a regional SAMEBmay include representatives of other government agencies, municipalities,the business sector and various organizations. Some SAMEBs have repre-sentatives from the Social Insurance Offi ce and county labour board.

Two or more SAMEBs can merge into a joint group if they deem it appro-priate. Unless the agencies concerned agree otherwise, the governor of the largest county chairs the combined group. The counties of Östergöt-land and Jönköping, Västernorrland and Jämtland, and Västerbotten and Norrbotten have already taken this step.

Following are some examples of various types of cooperation that are car-ried out on the operational level, or with a focus on certain sectors or phenomena.• Operational collaboration among representatives of SKV, KFM, Cus-

toms and EBM. Other agencies also participate to varying degrees.The purpose of the groups is to maintain close contact and above all to discuss and plan the implementation of measures to combat eco-nomic crime and related phenomena

• A council for the construction industry composed of representatives from the Swedish Association of Building Contractors, unions, SKV, KFM, tax crime units and the police. The employers have asked thatthe Social Insurance Offi ce be included as well

• Commercial traffi c groups in a number of counties • A joint action group for insurance matters, with representatives of

the Social Insurance Offi ce, insurance companies, police authorities and Enforcement Service

38

4. Intelligence and Monitoring Operations

4.1 INTELLIGENCE

An overarching goal of the effort to combat economic crime is a substan-tial reduction in its occurrence.

Decisive in that respect is the ability to quickly detect and stop crime that is in progress by means of intelligence, investigative and monitoring activities.

The National Criminal Investigation Department (RKP)RKP has put together and disseminated information for the purpose of preventing and foiling economic crime.

National and international cooperation has been expanded through work-ing with money transfer companies and similar efforts. Since funds can increasingly be moved anonymously, one goal of the project is to coun-teract money laundering.

The Financial Intelligence Unit (fi po)FiPo is part of RKP’s criminal intelligence operation. FiPo’s task is to gather, process and analyze information in order to fl ag early indications of money laundering and new forms of economic crime such as creditcard fraud, as well as to support investigative efforts. The objective is to stave off and uncover underlying illegalities in the abovementioned areas and, when there is reasonable cause for suspecting crime, turn the matter over to the police and public prosecutor to launch a pretrial investiga-tion.

FiPo is the exclusive recipient of information from businesses, banks, credit market fi rms, securities fi rms, foreign exchange offi ces, insurance brokers, life insurance companies, money transfer companies and casinos that have the duty to report. Pursuant to the UN’s International Con-vention for the Suppression of the Financing of Terrorism, those insti-tutions must also review and report on all transactions involving assets that appear to stem from the funding of particularly serious offences.Governed by the Swedish Act on Measures Against Money Laundering,the effort is primarily a function of the information that businesses report

39

0

2000

4000

6000

8000

10000

12000

1998 1999 2000 2001 2002 2003

8461 512

2 560 4 155

8 080

9 832

Graph 7 Reports of money laundering, 1998–2003

when they suspect that illegalities are being committed. Casinos are sub-ject to a special Government decision on the duty to report.

FiPo can also request information of professional dealers in antiques, art, gems, precious metals, scrap and means of transport, as well as gaming and lottery operations.

Reported Money LaunderingFiPo received 9,832 reports of money laundering in 2003, a 1,752increase from the year before. A signifi cant proportion, some 45%, of the greater number was from the Stockholm area. Given that Stockholmis the country’s fi nancial hub, it not surprisingly accounts for almost half of all reports. FiPo worked further on 2,257 of the reports that arrived in 2003.

The largest number of money laundering reports are from foreignexchange offi ces, one reason being that some of them provide notifi cation of almost all transactions over SEK 110,000.

Since exchange offi ces have only fl eeting contact with their customers, they have an unusually diffi cult time spotting suspicious transactions. On a number of occasions, FiPo and Finansinspektionen have discussed the problem with representatives of certain exchange offi ces.

40

0

10

20

30

40

50

60

70

80

1998 1999 2000 2001 2002 2003

31

47

49

47

67

47

Graph 9 Number of pretrial investigations, 1998–2003

Table 8

Money laundering reports in 2000-2003 by informer

Informer 2000 2001 2002 2003

Foreign exchange offi ces 1 785 3 227 7 338 8 820

Payment transfer companies 0 51 92 221

Banks 577 777 611 765

Inquiries abroad 68 45 6 1

Swedish police 107 32 10 4

Misc. (including casinos) 23 23 23 21

The total money involved in transactions reported by exchange offi ces in 2003 was SEK 1,674 million.

The number of money laundering reports rose during the year from 611 to 765 by banks and from 92 to 221 by money transfer companies.

The number of pretrial investigations launched declined from 67 in 2002 to 47 in 2003.

41

Table 10

Types of crimes in pretrial investigations, 2001–2003

2001 2002 2003

Tax crime 32 44 22

Money receiving 2 7

Fraud 4 11 6

Bookeeping crime 4 2 4

Crimes against creditors 2 1 4

Financing of serious crime 3 2

Drugs 3 3 1

Larceny 1

Blackmail 1

Violation of trading prohibitions 1 1

Other 1

Total 47 68 47

EBM’s Criminal Intelligence OperationsEBM’s special units conducted certain criminal intelligence operations in 2003. Projects in which EBM cooperated with other agencies that fi ght organized crime used the working method most. The right to handle per-sonal data in accordance with the Police Data Act has made it easier for EBM to conduct criminal intelligence operations as of 2004. Thus, the agency will strengthen and expand that effort during the year.

As part of the struggle against organized crime, EBM focused on closer cooperation with RPS and the police authorities in 2003. The initiative to broaden and strengthen contact with the police authorities continued.Various cooperative efforts, operational as well as strategic, were under-taken with both RKP and the police authorities.

The special units of each EBM department collaborate closely with the criminal intelligence squads of the police authorities. The police supervi-sors at the departments meet regularly with the appropriate police author-ity and other cooperating agencies.

One product of the operational partnership was a pretrial investigation in Stockholm that led to convictions carrying several years imprisonment.The police at the Southern Division participated in Project Bornholm, a joint initiative with several other agencies.

42

Intelligence Operations of Tax Crime UnitsTax crime units now conduct intelligence operations aimed at gather-ing, processing and analyzing information to establish whether criminalactivities have been or may be carried out. The objective is to compile data for decisions on pretrial investigations or other measures to prevent, foil or detect illegalities. The operations focus on organized, felonious or otherwise serious tax crime.

Tax crime units do not currently enjoy direct access to the tax rolls, which would be a cornerstone in pursuing effective intelligence activities. Intel-ligence and fi scal operations share information in accordance with the Secrets Act.

Less than 10% of human resources, or approximately 15 labour years, are assigned to intelligence. Special-focus nationwide task forces do some of the work. There is presently one for intelligence registers, one for special investigations and one for IT support. The idea is for each task force to spearhead progress in its particular area for the eventual benefi t of all tax crime units.

Some of the intelligence activities are conducted in close cooperationwith other agencies that combat economic crime. That is particularlythe case during special investigations that zero in on organized crime, or on groups of people in whom the agencies share a common interest. Though limited, the results of such investigations have been encouragingthus far.

4.2 TAX SUPERVISION

With the exception of a slight increase for joint stock companies, the number of active entries in the register of the Swedish Companies Reg-istration Offi ce declined in 2002-03 for all forms of business entity. But there was no signifi cant change in absolute terms. The total number of active companies decreased by 8,413 from 2002 to 2003.

SKV noted more registrations for all forms of business entity in 2001-03. The increases are not sizable and have been steady since 1999. The statis-tics on registered companies do not indicate any signifi cant changes in the basic SKV register, either in percentage or absolute terms. Given private sector trends in both Sweden and around the world during the period, the increase appears to be modest.

43

Total VAT

0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

80 000

1999 2000 2001 2002 2003

69 834

62 549

42 317

41 485

27 517

74 368

65 824

41 304

49 053

33 064

68 729

58 859

36 882

38 334

31 847

68 869

57 926

36 204

30 672

32 665

69 753

60 571

37 726

32 651

32 027

Graph 11 Number of new registrations with SKV, 1999–2003

MonthlyVAT return

VAT in yearly in- come tax return

Registrationsas employers

Preliminarycompany tax

0

500

1 000

1 500

2 000

2 500

1998 1999 2000 2001 2002 2003

Desk reviews Audits

1 851

1 6441 707

2 070 2 0501 902

1 329

1 115975 975 970 959

Graph 12 Annual workforce for SKV's supervision, 1998–2003

While resources for desk reviews varied somewhat during the period,those available for auditing purposes steadily shrank.

44

Yearlysupervision

0

2000

4000

6000

8000

2000 2001 2002 2003

5 360

760

5 740

629220

6 070

539

340 330

6 370

700230

Graph 13 Number of audits, 2000–2003

Selective purchase audits

Scheduled audits

0

100 000

200 000

300 000

400 000

500 000

2000 2001 2002 2003

Social security contributions Income tax VAT

61 558

328 606

45 21856 970

372 618

44 94357 579

437 349

46 663 54 201

253 378

45 513

Graph 14 Number of tax rulings on the basis of audits and desk reviews,

2000–2003

The number of audits consistently increased during the period. With the exception of a slight rise in 2002, all types of tax rulings decreased in number.

45

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

18 000

1999 2000 2001 2002 2003

638

13 605

2 186373

15 520

1 925444

15 220

1 327 751

16 123

2 100 1000

4 000

1 800

Graph 15 Amounts in SEK million in tax rulings due to audits and desk reviews,

1999–2003

Social security contributions Income tax VAT

0

20 000

40 000

60 000

80 000

2000 2001 2002 2003

41 539

63 37761 263

56 33859 223 58 423

60 378

55 349

45 461

39 89041 656 42 445

Graph 16 Number of tax surcharges, 2000–2003

Social security contributions Income tax VAT

The amounts involved in income tax rulings changed drastically. After having risen steadily from 1999 to 2002, the total fell by 400% from

46

2002 to 2003. The sums involved in VAT rulings were down by morethan 50% from 2002 to 2003. But the total for payroll taxes rose follow-ing 1999.

Total tax surcharges decreased in 2002-03, but were higher than in 2001 – with the exception of income taxes, for which there was a steady decline throughout the period.

4.3 SUPERVISION BY FINANSINSPEKTIONEN

Finansinspektionen’s duty is to promote orderly fi nancial markets by improving the supervision of securities trading and exchanges. In that connection, the agency is to consider the impact of supervision on the credibility and effi ciency of fi nancial markets.

Developments that arouse suspicion of irregularities in the trading of fi nancial instruments are to be analyzed and to constitute the basis for identifying cases deserving of investigation. An investigation shouldalways be conducted when insider crime or improper infl uence on share prices is suspected.

Insider Crime and Improper Infl uence on Share PricesThe tables below present fi gures on investigations and reports of sus-pected insider crime and improper infl uence on share prices. The number of new cases rose in 2003.

The year’s trends are as follows.• More cases involving suspicion of insider crime were turned over to

prosecutors, one reason being shored-up investigative resources. The number of cases that were opened remained at the same level as pre-vious years.

• There were fewer new cases involving suspicion of improper infl u-ence on share prices. Since such behaviour was generally detectedby the price supervision units of the exchanges and subsequentlyreported to Finansinspektionen, it is diffi cult to draw any conclu-sions from the decline.

• The agency prioritizes cases in which specifi c people are under sus-picion from the very beginning, as well as those related to takeover bids, profi t warnings or large, important orders. Tax considerations are clearly the motivation in many cases of improper infl uence on share prices.

47

Table 17

Number of insider investigations

1998 1999 2000 2001 2002 2003

Opening balance 28 27 75 59 39 40

Begun 38 80 45 59 47 62

Completed 39 32 61 79 46 52

Closing balance 27 75 59 39 40 50

(of which reports to EBM) 3 7 8 3 8 15

Table 18

Number of investigations of improper infl uence on share prices

1998 1999 2000 2001 2002 2003

Opening balance 1 4 6 17 11 14

Begun 6 11 18 12 16 10

Closing balance 3 9 7 18 13 15

Closing balance 4 6 17 11 14 9

(of which reports to EBM) 0 4 6 2 5 6

The following observations have been made.• Investigations of illegal insider trading indicate that the suspects are

still those with primary access to information. • The incentive for insider crime is information that has not been

made public. The investigations demonstrate that, all too often,businesses continue to handle such information in an unprofessionalmanner.

Finansinspektionen cooperated with EBM during the year by means of ongoing contact on individual cases. The supervisory authority’s inves-tigators also assisted prosecutors during their pretrial investigations.Involving the prosecutor at as early a stage as possible made for improved collaboration.

Detailed regulations are being issued in connection with the new EU Directive on Market Abuse. Through its work on the Committee of Euro-pean Securities Regulators (CESR), Finansinspektionen helped write pro-posals for the regulations.

To improve supervision of securities trading, Finansinspektionen keeps a register of people with insider status at listed companies, as well as their transactions and holdings. Parts of this insider register are available at Finansinspektionen’s website: http://www.fi .se

48

Table 19a

Alcohol seizures6 1999–2003

Alcohol 1999 2000 2001 2002 2003

Seizures 8 475 7 932 4 307 5 008 3 855

Value7 137 010 000 278 176 000 142 372 000 174 077 000 50 295 000

Average value 16 166 35 070 33 056 34 760 13 047

Hard liquor 40% (litre) 283 700 199 815 190 373 106 794 84 357

Hard liquor 96% (litre) 110 000 380 000 147 000 242 244 46 055

Wine (litre) 77 031 18 231 40 643 14 177 19 186

Beer (litre) 271 895 187 052 115 951 182 611 175 347

6. Swedish Customs statistics.7. The calculations are based on an alcohol content of 3.5% for beer and 8.5-15% for wine.

Money Laundering, etc.A newly established joint action group represents increased cooperationamong Finansinspektionen, FiPo and other agencies. Training programsfor foreign exchange companies have been conducted in partnership with FiPo. Measures by some of the major banks to combat money launderingand terrorist fi nancing have undergone special examination.

Finansinspektionen has also launched a study of computer-aided intel-ligent analysis tools that can be used to detect money laundering, and has started discussing the issue with representatives of banks and other interested parties. These inquiries will continue in 2004.

Finansinspektionen has maintained contact with agencies in and outsideof Sweden, as well as representatives of the industry, concerning measures to curb terrorist fi nancing. In addition, it has continually notifi ed compa-nies under its supervision about new and amended EU regulations in the area. The agency has also taken part in a contact group headed up by the Swedish Security Service (SÄPO).

4.4 CUSTOMS CONTROL

Both the number and value of alcohol seizures changed over the past year. The value of such confi scations averaged 2½ times as much in 2001-02 as in 2003. The trend for tobacco was just the opposite, the average value of seizures more than doubling in 2003. The number of alcohol seizures varied over the past three years and was far from steady. On the other hand, confi scations of tobacco products numbered approximately the same throughout the period.

49

8. Statistics were kept for cigarettes only.

Table 19b

Seizures of tobacco products, 1999–2003

Tobacco 1999 2000 2001 2002 2003

Seizures 5 934 5 325 3 491 2 987 2 798

Value8 44 380 000 62 526 000 66 738 000 39 302 000 108 291 000

Average value 7 479 11 742 19 117 13 158 38 703

Quantity

Cigarettes (millions) 32 45 48 27 74

Pipe and rollingtobacco (kg) 389 712 817 319 157

Cigarillos andthe like No info No info No info 403 850

Higher import quotas may have affected the number and value of theseizures

4.5 NATIONWIDE INTERAGENCY PROJECTS

4.5.1 Carousel 2000

In April 1999, SKV appointed a task force to work with EBM on ana-lyzing and investigating carousel fraud, as well as evaluating and pro-posing improvements to SKV’s supervisory activities in the area. At the same time, EBM formed a project team with the sole task of investigatingmobile phone and computer component issues. The project released a report of its work and fi ndings on 8 February 2001.

Investigations of carousel fraud under the project’s auspices were success-ful. The interagency cooperation model proved to be productive. The results that were achieved would have been impossible without such col-laboration. The agencies involved were EBM, FiPo, KFM, SKV and Cus-toms.

The VAT evasion in question totalled an estimated SEK 1.5 billion. Deci-sions were made to attach approximately SEK 140 million, while SEK52 million in deduction claims for input VAT was denied. Given thatchanges may occur during additional investigations and judicial reviews, such fi gures are not set in stone.

50

Since the project started on 1 April 1999, the cooperating agencies have devoted some 40 labour years to 15 extensive investigations.

Considering that carousel fraud with mobile phones appears to have come to a virtual halt in Sweden, the investigations may have had a preventive effect. Carousel fraud has not yet proliferated outside the metropolitan areas as much as had been feared. But other kinds of products seem to have taken up some of the slack.

4.5.2 Food Products Project

The Food Products Project is an interagency effort initiated by the Swed-ish Economic Crimes Council, which delegated implementation issues to its task force.

The objective of the project is to study commerce within the Swedishfood industry, as well as between Swedish companies and businesses in or outside of the EU.

The inquiry is focusing on discovering, describing, prosecuting and disrupting the more serious, systematic types of VAT and selective pur-chase tax fraud. Light will also be shed on fraud with recycling fees when detected. Possible preventive measures to be worked out in the future are also being studied.

To assess the scope of unreported EU purchases, SKV in Malmö solicited information from two active wholesale grocers in another Member State. According to the VAT Information Exchange System (VIES), the whole-salers sold approximately SEK 645 million in merchandise to Swedishbusinesses from 1 January 2000 through 30 June 2003. At least SEK 536 million, or 83%, of these purchases or subsequent sales went unreported in Sweden. This information has now been passed on to other regions of the country.

The project covers all types of merchandise sold by food stores. The inves-tigations have not yet dealt very extensively with perishable items. The goods most often studied are soft drinks, 3.5% beer, detergents and rins-ing agents. Cash dealings are common.

Tax evasion on trading in food products within the EU has many differ-ent faces. Some food distributors report only a percentage of their pur-chases, decoys do not report at all and purchase on behalf of someoneelse, and business owners in other industries make unreported purchases for private use.

51

The project is in full swing around the country. SKV is involved in exten-sive activities on a broad front. Various working methods are under devel-opment. The effort will intensify in 2004. A review of problem areas is under way.

There is no patent solution for getting the better of this kind of evasion. Successful investigations require active interagency cooperation and good contacts abroad.

SKV has made the following observations thus far. • Evasion appears to be most widespread in metropolitan areas • The investigations usually involve small neighbourhood stores • Illegal sales are known to occur • There is evasion with the system for returnable containers • Labelling regulations are being violated • Evasion has distorted competition

EBM has launched many pretrial investigations. Other public prosecu-tion and police authorities around the country are also taking part in the project. Only a few convictions have been handed down so far.

FiPo participates by investigating suspicious money fl ows. The Board of Agriculture investigates and reports violations of the Act on Certain Bev-erage Containers. Customs examined food imports in the region and is now carrying out audits throughout the country. KFM contributes by enforcing attachments.

4.6 REGIONAL MONITORING EFFORTS

Operation Restaurant Inspection continued in most counties through-out 2002 and 2003. The effort varies from county to county in terms of scope, the agencies involved, and the focus during any particular year. One part of the operation is a joint project of the County Administra-tive Board, the Police Authority, SKV, the Migration Board, municipallicensing boards and EBM. The goal of the project is to stamp out spuri-ous business owners. In addition to the above agencies, KFM, Customs,the Social Insurance Offi ce, the Environmental Administration and the Emergency Services take part in restaurant inspections coordinated by the County Administrative Board.

Another joint project of SKV, EBM and the County Administrative Board aims at more thorough tax supervision. Approximately half of the some 50 audits that have been launched subsequently led to crime reports.

52

Manipulated cash registers are the chief tax evasion tool.

The cooperative procedures that were worked out in 2002 to combatwelfare cheating by restaurant employees require the alcohol offi cer to provide the County Employment Board and Social Insurance Offi ce with the civic registration numbers of everyone who is on the job at the time of an inspection. The agencies subsequently check that information against the active welfare rolls and pursue further investigations when warranted. During inspection of the restaurant, its owner or representative is notifi ed about what will be done with the employee information that has beenobtained. These procedures appear to have been very effective in prevent-ing welfare cheating.

SKV, EBM, Customs and FiPo are carrying out a project focused on iden-tifying revenue that small and medium-sized businesses fail to report. The effort, which has steadily expanded since its inception in 1999, does not concentrate on any particular sector.

A number of counties engaged in coordinated efforts directed at the transport industry during 2002-03. One county began reviewing andmonitoring its carriers in 2001. The checks are carried out in collabora-tion among the county administrative board, police authority, SKV and KFM. The emphasis has been on operating licensees with large debts. The agencies cooperate continually with regard to new license applicationsand expansions of vehicle fl eets. SKV has responded to inquiries from the county administrative boards, and obstacles to granting licenses have been identifi ed in a series of cases. As a result of this effort, a number ofoperating licenses have been revoked and several carriers have received warnings.

Representatives of the county administrative board (convenor), SKV, KFM and the traffi c division of the police authority make up a joint action group for the supervision of commercial traffi c. The group meets three times a year, whereby SKV submits a list to the county administra-tive boards of licensees and transport managers with unpaid taxes. Each representative provides information about the licensees in question, after which appropriate measures are identifi ed to collect the debts.

The most common measures are: • Revocation of the license unless the debt is paid (county administra-

tive board)• Collection or preparation of an instalment plan (KFM)• Audit, revocation of business tax certifi cate (SKV)• Visit to the company (police authority)

53

The meetings also follow up on measures taken earlier with respect to other licensees. They also discuss tips from competitors and the general public.

SKV, EBM and various traffi c units of the police authority frequently carry out joint monitoring efforts aimed at taxi companies. Special meas-ures have been taken against taxi operators that fail to disclose income. Following pressure by the police and others, some municipalities have banned private automobiles from parts of the centre of town on certain days of the week. In addition, restaurant owners help spread informationabout such taxi companies. Restaurants and places of entertainment put up posters and hand out fl yers to their guests about these operators. Cabs will have decals urging customers to ride with legitimate companies. The police authority and university have put together an infomercial about taxi operators that fail to report their income.

An intercounty, interagency project concerns vehicle imports. All the cooperating agencies have been affected. Prosecutors have taken on some 40 cases as a result. Similar projects are under way in a number of coun-ties to which vehicles are imported from other EU countries and in which VAT, and even income tax, evasion occurs.

Two counties worked together on the guard industry. The purpose of the effort was to assess the occurrence of unreported income and undeclared labour, as well as to monitor the sector in other respects. Since guards are in one sense the long arm of the law, the review was regarded as press-ing. The checks focused on doorman agencies and restaurants. The police authority arranges the training of, and even approves, doormen. Guard agencies must obtain authorization from the county administrative board. SKV gathers information about the industry from the police authorityand county administrative board concerning authorized guard agencies,police requirements for the number of doormen per restaurant, who has been approved to work as a doorman in the county, etc. Checks of res-taurants focus on the wages that doormen receive – as well as unreported admission and wardrobe fees (which account for most of the undeclared revenue).

The reports of the SAMEBs discuss a number of regional projects aimed at the construction industry. In 2003, for instance, SKV conducted a series of crime ring investigations in close partnership with EBM (see Table 20). Coordinated activities have been directed at staffi ng companies that contract out undeclared labour, primarily in the construction and other contracting sectors. Many representatives of such companies are

54

Table 20

Results of crime ring investigations

Crime ring investigation Antal

No. of businesses 55

No. of principals 15

Undeclared wages, SEK million 56

Tax amoung, SEK million 37

No. of crime reports 10

professional criminals to one degree or another. Four of the investigations uncovered unreported revenue and/or wages.

In one case, SKV and the police managed to identify 100 people whofailed to declare their income. Some 30 of them had received unemploy-ment compensation for the same period.

One county has tried a rather original approach to monitoring. On a number of specifi c days in 2002, the police, Customs, SKV and KFM pooled their resources and got municipalities involved as well. Follow-ups of the effort have found all the agencies favourably disposed to the work-ing method. The results of a citizen questionnaire were also encouraging.Among the actions have been a series of unannounced inspections, cash register checks at restaurants, offi cial visits by KFM and vehicle inspec-tions by Customs.

As part of interagency cooperation, some counties single out certain sus-pects for special surveillance.

An effort has been made to get the better of businesses involved with false invoices. Such cases usually start with several reports of attempted fraud. Quickly identifying the company that is responsible for such invoices and performing the necessary checks with SKV and KFM is of the essence. A decision was made in October 2003 to put together a group consisting of a prosecutor and two economic crime investigators to structure such cases and launch a coordinated effort. The group will comply with the direc-tives that are expected to follow a joint decision by RÅ and RPS.

55

5. Reports of Suspected Crime

Tax Agency Receivers in bankruptcy/KFM

0

500

1 000

1 500

2 000

2 500

3 000

3 500

1998 1999 2000 2001 2002 2003

1 743

3 073

2 031

2 081

1 812

2 567

1 632

1 998

2 992

2 849

2 929

Graph 21 Crime reports by the authorities, 1998–2003

Tax authorities, receivers in bankruptcy and KFM reported a total of 27,947 offences in 1998-2003. Forty-eight percent was by the tax author-ities, and the other 52% was by receivers in bankruptcy and KFM.

KFM and receivers in bankruptcy accounted for the majority of reports in 1999-2000 and the minority afterwards. But the difference has not been particularly great. The total number of reports rose by 2,148 from 2001 to 2003. Following a decline from 1999 to 2001, that represents a steep increase.

Report Statistics

Offi cial crime statistics use somewhat different criteria than do EBM’sreports. The offi cial fi gures include economic crime only when there is rea-sonable cause for suspicion. As a result, the statistics refl ect only offences that turn up in the suspect and criminal register. In other words, a large percentage of the offences investigated by EBM do not appear in the

56

9. See Korsell’s reasoning in Brottsutveckling 1998–2000, BRÅ 2001, pp. 195–216.

offi cial fi gures. In the autumn of 2003 and spring of 2004, BRÅ worked with EBM to review and compile information on how it receives reports of economic crime. Measures taken as a result of the review resolved the discrepancies generated for the abovementioned reasons. EBM decided to take 2001-03 data on reported economic crime from Leonardo, the offi ce of the public prosecutor’s statistical database of information from its BRÅDIS register. Since no secure, quality-controlled fi gures on each type of offence were available for 1998-2000, such a breakdown was made for 2001-03 only. All information for crimes reported in 1998-2000 is taken from previous EBM status reports. Thus, the two sets of data are not wholly comparable.

The statistics cover reports of suspected violations of the sections of the law that comprise economic crime and EBM’s target area. A description that ranges from reports of suspected crime to prosecution requires an explanation of certain fundamental differences among the various steps along the way. The number of suspected crimes reported includes each individual offence. A case may involve more than one person, offence and type of crime. Throughput time is measured such that a case is not closed until a decision has been reached about each reported suspicion. Trading prohibitions (along with prosecution and penalties) are reported one by one. Prosecutions are counted on the basis of the individuals involved and the principal offence. Thus, a person who has been prosecuted is linked only to his or her principal offence regardless of the fact that a conviction may involve several.

The dates on which a crime is reported, subject to a pretrial investigation, processed and prosecuted are all different. There is currently no reliable method for comparing those different stages. Such time adjustments are not yet feasible.

Generally speaking, the statistics do not say a great deal about actual eco-nomic crime trends. They are more revealing about the resources that are being devoted to the various types of offences and the priorities of the agencies concerned.9

A total of 7,637 offences were reported in 2000, a 10% decline from the year before.

.

57

The fi gure was down by 17% from 1998 to 1999. The statistics for theperiod suffer from certain qualitative fl aws. For a more detailed account of 1998-2000 trends, please refer to previous EBM status reports.11

A total of 11,961 offences were reported in 2002, a 17% increase from the year before. The fi gure was up by 8% from 2002 to 2003.

The number of reports rose for all three categories in 2001-03. The most noticeable difference is in the other offences category, which jumpedby 25% in 2002 and 45% in 2003. The category is small in absoluteterms, covering 200-400 reports of suspected crime each year. Thus, a few more reports one way or the other has a major impact on the percentagefi gure.

The rate of increase from 2002 to 2003 was less for all categories. The total rise slowed from 17% to 8%.

The breakdown of total reported crime into the various categories did not change signifi cantly from 2001 to 2003. Crimes against creditors and

Table 23

All reported economic crime by category, 2001–2003

2001 2002 Difference, 01/02 2003 Difference, 02/03

Crimes againstCreditors (BrB 11) 5 575 6 366 14% 6 674 5%

Tax Penal Act (SkbL) 4 459 5 331 20% 5 817 9%

Other 211 264 25% 383 45%

Total 10 245 11 961 17% 12 874 8%

10. EBM. Report 2001:1, p. 61.11. EBM. Report 2001:1, p. 61.

Table 22

Reported crimes, 1998–200010

1998 1999 Difference, 98/99 2000 Difference, 99/00

Crimes againstCreditors (BrB 11) 6 674 5 442 –18% 4 494 –17%

Tax Penal Act (SkbL) 3 476 3 022 –13% 3 143 4%

Total 10 150 8 464 –17% 7 637 –10%

58

bookkeeping offences continued to account for just over 50%, and tax offences for approximately 45%, of all reported economic crime. Alto-gether, the two categories represented 98% of the total.

Reports of suspected tax offences (Sections 2-4 of the Tax Penal Act) (up by 760) and bookkeeping offences (up by 698) increased the mostin absolute terms from 2001 to 2002. Suspected insider trading (up by 23 reports, or 153%) and violations of trading prohibitions (up by 28 reports, or 85%) increased the most in percentage terms during the same period.

From 2002 to 2003, violations of the Companies Act (up by 132 reports, or 81%) and negligent tax statements (up by 45 reports, or 58%) increased the most in percentage terms.

Total reports of suspected crime rose from 2001 to 2003, though at a decreasing rate. See Graph 25a. The number rose by 1,716, or 17%, from 2001 to 2002, and by 913, or 8%, from 2002 to 2003.

Reports of crimes against creditors (see graph 25b) increased by 93, or 13%, from 2001 to 2002. From 2002 to 2003, reports of the offence were up by a negligible 2. Reports of crimes against creditors totalled 729 in 2001, 822 in 2002 and 824 in 2003.

Table 24

Crime reports, 2001–2003

2001 2002 2003

Dishonesty to creditors 577 630 650

Negligence with creditors 79 90 76

Fraudulent preference of creditors 73 102 98

Bookkeeping crime 4 846 5 544 5 850

Tax crime (Sections 2–4 of the Tax Penal Act) 3 268 4 028 4 295

Negligent tax statements 80 77 122

Tax accounting crime 197 174 237

Impeding tax supervision 901 1 031 1 153

Tax deduction crime 13 21 10

Violation of a trading prohibition 33 61 46

Violation of the Companies Act 156 163 295

Violation of the Insider Penal Act 15 38 39

Violation of the Financial Instruments Trading Act 7 2 3

59

0

2000

4000

6000

8000

10000

12000

14000

16000

2001 2002 2003

10 245

11 96112 874

Graph 25a Total number of reports of suspected crime, 2001–2003

Reported bookkeeping crime (see graph 25b) rose steadily throughoutthe period. As is the case with crime reports in their entirety, the rate of increase slowed. The number of suspected bookkeeping offences reported increased by 698, or 14%, from 2001 to 2002 and by 306, or 6%, from 2002 to 2003.

Reported tax crime (see graph 25b) rose throughout the period. The rate of increase slowed in this category as well. Reports were up by 20% from 2001 to 2002 and 9% from 2002 to 2003. There was wide variationwithin the category. Code 5020 and 5021 offences accounted for 87% of the increase from 2001 to 2002 and other tax crime for 13%. Impedingtax supervision was the biggest single ingredient (25%) of the increase from 2002 to 2003. Code 5020 offences represented 55% of the increase for the same period.

The other offences category (see graph 25b) is so heterogeneous that a more detailed study is not called for. Reports in this category increased by 25% from 2001 to 2002 and by 45% from 2002 to 2003.

60

0

100

200

300

400

500

600

700

800

900

2001 2002 2003

Crimes against Creditors

211

729

822

264

824

383

0

1000

2000

3000

4000

5000

6000

7000

2001 2002 2003

4 846

5 544

4 459

5331

5 850

5 817

Graph 25b Total number of reports of suspected crime by category,

2001–2003

Tax crimes Bookkeeping crimes

Other economic crimes

61

6. Crime Investigation

12. The data is taken from the 2003 annual reports of the various agencies, along with previous EBM reports.

6.1 General

EBM, certain other divisions of the offi ce of the public prosecutor, eco-nomic crime squads of the police authority outside EBM’s geographic jurisdiction and tax crime units are all involved in the economic crime investigative effort.

EBM handles cases from Stockholm, Västra Götaland, Skåne, Halland, Blekinge and Gotland counties that involve• Part 11 of the Penal Code• the act on safeguarding pension commitments, etc.• the Tax Penal Act• the Companies Act • the Insider Penal Act

and those that• require special knowledge of fi nances, the private sector, tax law and

the like • involve Part 9, Sections 1-3 of the Penal Code if the offence involves

EU’s fi nancial instruments, and Part 9, Section 3a of the Penal Code • are suitable chiefl y because professional crime is involved and the

scope is nationwide, there are international links, or the offences are principal or far-reaching in nature

6.2 Case Handling by the Public Prosecution Authorities

The fi gures below cover all cases handled by EBM, as well as those takenon by other prosecution authorities when coded as economic crime.12

While both received and completed cases rose for EBM, they levelled off for the other agencies. The discrepancy between received and completedcases is a clear indication that EBM had a heavier workload in 2001 and handled it such that more cases were wrapped up than reported in 2003. For all the agencies combined, a signifi cantly larger number of cases were completed than received in 2001. That disparity between EBM and the

62

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

1998 1999 2000 2001 2002 2003

EBM Other ÅM

3 008

2 4282 544

1 222

2 440

1 247

3 019

1 276

3 475

1 583

3 737

1 518

Graph 26 Cases received, 1998–2003

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

1998 1999 2000 2001 2002 2003

EBM Other ÅM

2 446

2 435

2 335

1 559

2 744

1 350

2 791

1 385

3 355

1 488

3 758

1 550

Graph 27 Cases completed, 1998–2003

other agencies narrowed during the next two years, so that the discrep-ancy between received and completed cases was approximately the same for all of them in 2003.

63

The breakdown of active cases by degree of diffi culty is based on Leon-ardo’s fi gures as of 31 December 2003. The breakdown changed during the past three years. In 2001, only 5% of the cases handled by EBMand 4% of those by the other prosecution authorities were categorized as highly demanding. That rose to 7% for EBM and just over 5% for theother agencies in 2003. The percentage of relatively undemanding cases declined during the period. The proportion of demanding cases rose from 2001 to 2003.

The total number of EBM decisions increased, particularly those to indict. Decisions to indict by the other agencies decreased considerably.

Table 28

Difference between received and completed cases in 2000–2003

Agency in charge 2000 2001 2002 2003

EBM –304 228 120 –21

Other ÅM –103 –109 95 –32

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

Relatively undemanding Demanding Highly demanding

EBM Other ÅM

44 %

51 %

5 %

28 %

65 %

7 %

Graph 29 Breakdown of active cases by degree of difficulty, 31 December 2003

64

Table 30

Number of decisions by EBM on indictment matters, 1999-2003

EBM 1999 2000 2001 2002 2003 Change, 02/03

Prosecutions 1 529 1 604 1 168 1 327 1 729 23%

Penalty order 166 480 307 337 381 12%

Right of refusal toprosecute 49 60 21 25 32 22%

Pretrialinvestigationclosed 2 575 2 896 2 484 3 106 3 292 6%

No chargesbrought 619 1 132 264 393 579 32%

No pretrialinvestigationlaunched 1 663 1 566 2 171 2 551 2 794 9%

Other decisions 1 147 1 171 1 482 1 194 1 398 15%

Table 31

Number of decisions by other prosecuting authorities, 1999–2003

EBM 1999 2000 2001 2002 2003 Change, 02/03

Prosecutions 1 738 1 469 1 122 1 442 1 199 –17%

Penalty order 119 157 183 253 266 5%

Right of refusal toprosecute 62 36 41 38 30 –21%

Pretrialinvestigationclosed 1 554 1 535 1 788 1 830 1 612 –12%

No chargesbrought 625 342 199 264 236 –11%

No pretrialinvestigationlaunched 535 543 521 640 725 13%

Other decisions 773 496 721 578 469 –19%

The total number of decisions was up during the period for EBM but not for the other agencies. The percentage relationship between decisions to indict, penalty orders and right of refusal to prosecute increased for EBM and decreased for the others.

6.3 THROUGHPUT TIME AND PROSECUTION

The disparity between throughput times for EBM and other prosecutionauthorities is due to their disproportionate participation in investigations.

65

Crime committed

Diagram 32 Legal process launched

Crime detected/reported

Pretrial investigation

Pretrial investigation concluded

Prosecution

Verdict/appeal

Penalty

0

100

200

300

400

500

600

1998 1999 2000 2001 2002 2003

345

458

528 533 523

496

Graph 33 EBM's average throughput time from crime report until verdict

(number of days), 1998–200313

13. Leonardo, 31 December 2003.

EBM’s throughput time runs from the crime report until a decision onindictment. The agency requires that period because it comprises both police and prosecutor activities. The other authorities measure through-put time from completion of the pretrial investigation and not from the crime report, i.e., the police investigation is not included.

Both the average and median throughput time has decreased. Since there are so few cases, the completion of one can lead to a signifi cant variation in throughput time from year to year. That is particularly true of highly demanding cases.

Measures taken to increase the number of cases prosecuted and improve the quality of pretrial investigations help minimize throughput times. The attention paid to older cases will lead to shorter throughput times

66

0

100

200

300

400

500

600

2001 2002 2003Report to

police untilcompleted pretrial

investigation

77 90 81

401377 394

478 467 475

Graph 34 Average throughput time for police, other ÅM and total

(number of days), 2001–2003

Other ÅMcompleted pretrialinvestigation until

prosecution

Totalthroughput

time

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2003 2002 2001 2000

EBM Other ÅM

1 712

523

1 060

521 481

258 225114

Graph 35 Cases completed in 2003 by year reported

for EBM in the future. The agency has been working aggressively to wrap up old cases that are still active. As a result, throughput times will increase in the short term and then decrease again.

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Graph 34 compares throughput times reported by the police and RÅ for economic crime.

Throughput times for the police and other prosecuting authorities are at the same level as for EBM.

Graph 35 shows completed cases by year reported. Most of them were reported in 2002 or 2003. The data is presented on the basis of suspected crime, not number of cases. The average EBM case consists of one coded suspicion, whereas the average case of the other prosecuting authoritiesconsists of fi ve – for a cumulative average of two.

EBM prosecuted 24% of its cases in 2002 and 24.5% in 2003, whereasthe other authorities prosecuted 36.5% of their economic crime cases in 2002 and 30.8% in 2003.

6.4 POLICE INVESTIGATIONS IN THE REST OF THE COUNTRY

The number of active cases older than one year has been about the same as those turned over to prosecutors. The percentage of cases received that are still active has been on the rise, particularly since 1998. One reason is that SKV has taken over economic crime cases from the police. Most of them are relatively straightforward and do not require a great deal of time to investigate. Thus, the cases for which the police are still responsible have become more complicated.

For the fi rst time since 1998, the number of cases received and those turned over to prosecutors is increasing. Percentage wise, those turned over to prosecutors have risen somewhat faster than those received. Thus, even though the number turned over to prosecutors has grown somewhat, it has remained relatively stable since 1998. But there are major variations from one police authority to the other.

The low ratio of economic crime reports to total cases received is partly due to the fact that six police authorities, including the three largest, are no longer involved in combating such offences.

For the police authorities that still fi ght economic crime, the percent-age ranges from 0.1% in Västerbotten County to 0.4% in Östergötland,Jämtland and Norrbotten counties. The proportion of investigation hours devoted to economic crime varies from 2.4% in Västerbotten County to 7.5% in Norrbotten County. Economic crime and the category of otheroffences are the two areas in which resources available for investigationhave markedly decreased.

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0

200

400

600

800

1 000

1 200

1 400

1999 2000 2001 2002 2003

Pretrial investigations completed Numbers of investigators

258

70

521

100

773

131

949

157

1 378

179

Graph 36 Investigations by tax crime units

6.5 TAX CRIME UNITS

Expansion of tax crime units is proceeding according to plan. There were a total of 179 investigators at the end of 2003, as opposed to 157 a year earlier.

The number of pretrial investigations completed rose by approximately40% in 2003 to almost 1,400. Since tax crime units are still in the expan-sion stage, enhanced performance is to be expected. Nevertheless, the improvement has been better than anticipated.

Some 80% of the cases completed in 2003 originated as crime reports from the tax authorities. Receivers in bankruptcy reported the secondlargest number of offences.

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7. People Convicted and the Penalties

0

200

400

600

800

1 000

1 200

1998 1999 2000 2001 2002

Crime against Creditors (BrB 11) Tax crime (SkbL)

1 123

362

955

272

992

411

790

376

990

403

Graph 37 People convicted, by principal offence 1998–2002

The offi cial statistics on people convicted cover the principal offence only. As a result, they don’t refl ect all offences. The data, which is taken from BRÅ’s offi cial fi gures, includes only offences stipulated in the Tax Penal Act and Part 11 of the Penal Code.

The number of people subject to trading prohibitions has risen sharplysince 1996. The fi gure jumped by 114% from 262 at the end of 1998 to 561 at the end of 2003.

70

0

100

200

300

400

500

600

1998 1999 2000 2001 2002 2003

New Active

262

95

140

399422

92

468

561

155188

322

103

Graph 38 Trading prohibitions, 1998–2003

0

10

20

30

40

50

60

70

2001 2002 2003

59

33

46

Graph 39 Violations of trading prohibitions

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EBM Other ÅM RPS SBE

0

50000

100000

150000

200000

250000

300000

350000

400000

1999 2000 2001 2002 2003Total costs 478 606 516 381 543 915 588 398 614 522

147 600

259 211

39 000

138 200

283 500

56 000

125 300

304 307

76 000

38 30838 68132 795

97 000

317 767

38 000 29 000

135 631166 653

92 000

317 869

Graph 40 Costs for combating economic crime, 1999–2003

8. Resources

Tax crime units have grown in recent years. Thus, although there has been a levelling off of costs for all agencies except those units, the total is up.

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9. Attachment, Collection, etc.

0

50

100

150

200

250

300

1999 2000 2001 2002 2003

156

193218 208

282

Graph 41 Number of applications to county administrative courts for attachment

The effort to track down and recover the proceeds of crime is a top interagency priority. Vital to preventing economic crime is the ability to ferret out its proceeds and subject them to enforcement measures such as attachment, sequestration or seizure. That requires close interagencycooperation, as well as organized, tactically oriented activities.

The purpose of attachment is to ensure the payment of taxes, customsduties and fees. The county administrative court makes attachment deci-sions. It may do so only if there is a palpable risk that the taxpayer will try to dodge claims of signifi cant magnitude. When the law is enforced, there is often a well-founded suspicion of tax crime. Due to the elimina-tion of the right of priority for tax claims, SKV will act to ensure they can be more quickly submitted to KFM.

In combating economic crime, KFM is to pay special attention to coop-erative efforts. The agency’s collections policy and guidelines for creditor operations highlight that need.

KFM has employees assigned to special enforcement in each region.

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0

10000

20000

30000

40000

50000

60000

70000

1999 2000 2001 2002 2003

Debt Paid

5 709

67 040

6 467

61 677

60 709

6 259

58 832

6 622

56 636

6 686

Graph 42 Unpaid taxes and fees (SEK million) registered by KFM, 1999–2003

The collections policy stresses the key role of effective enforcement in minimizing the harmful effects of economic crime. It also emphasizes that KFM actively participate in various joint action groups to head off such offences. The agency is to accord priority to debtors who evade their obligations or have suspected ties to economic crime.

Activities involving collection or pursuant to the Trading Prohibition Act incorporated rules for the presumption of secrecy on 1 October 2001. As a result of the change, the diffi culties that have sometimes arisen when sharing information with other agencies can be ameliorated, while the secrecy of individuals who are subject to KFM measures is better pro-tected. Amendments to the Secrets Act on 1 March 2003 made it even easier to share information. According to the new regulations, SKV and the agencies that combat economic crime can render the work of receivers in bankruptcy more effective by providing them with information from audits and pretrial investigations.

Special enforcement normally focus on debtors who are suspected of engaging in economic crime. A total of SEK 417 million was collectedin 2003.

KFM collected SEK 78 million abroad in 2003.

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0

3000

6000

9000

12000

15000

1999 2000 2001 2002 2003

Debt Paid

319

13 294

579

14 270

10 338

322

11 047

242

11 557

380

Graph 43 Unpaid taxes and fees (SEK million), special enforcement, 1999–2003

9.1 BANKRUPTCY SUPERVISION

KFM is also the supervisory authority in bankruptcy. Such supervision is exercised over receivers in bankruptcy as appointed by the courts.

Pursuant to the Bankruptcy Act, the purpose of supervision is to ensure that receivership is conducted in accordance with the law, appropriatelyand so as to obtain the best possible fi nancial outcome for creditors.

In order to meet the Government’s requirements for bankruptcy supervi-sion, SKV issued recommendations in 1999. Among them are that thesupervisory authority in bankruptcy be questioned before a receiver is appointed. In addition, the receiver is to provide timely information on each bankruptcy, while supervision is to be active, systematic and focused on the essentials.

The task of the supervisory authority includes making sure that receivers report both suspected crime and situations in which there is cause to issue trading prohibitions, as well as helping to improve the quality of such reports.

Bankruptcies steadily decreased in number during the late 1990s. A slight increase in the fi rst years of this decade seems to have levelled off in 2003.

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0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

18 000

1998 1999 2000 2001 2002 2003

Cases received Active cases

9 254

16 488

7 279

13 43612 353

7 196

13 037

8 374

12 575 13 012

8 686

7 879

Graph 44 Supervision of bankruptcy, 1998–2003

9.2 TRACKING DOWN AND RECOVERING THE PROCEEDS OF ECONOMIC CRIME

An interagency project launched by the Swedish Economic Crimes Council involves tracking down and recovering the proceeds of economiccrime. One objective is for EBM, FiPo, SKV, KFM, Customs and othersto develop joint models on how various agencies can obtain informa-tion about assets. That also entails working methods for expanding and improving current procedures for securing property.

Police, prosecutors and others are to learn more about attachment and sequestration, as well as how seizure and bankruptcy regulations work. Awareness of how to secure assets found during a search of the premises and the like should be a standard feature of every crime investigation. In addition, consciousness about currently available options for informationsharing among crime investigation agencies, SKV, KFM and receivers in bankruptcy is to be raised.

With that in mind, EBM is planning seminars aimed at the agencies con-cerned. Based on the Rubicon model, the practical experience shared at the seminars will be followed up on and analyzed in greater detail. At that stage, the project will further examine improvements to the regulationsthat are needed to more effectively collect assets from people and busi-nesses linked to economic crime.

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Since a coordinated effort to recover such proceeds requires an attitude change in addition to increased knowledge, it is important that the semi-nars get going as soon as possible.

9.3 RUBICON (ROUTINES, CRIMINAL INVESTIGATIONS IN BANKRUPTCY)

A task force that included participants from RÅ, KFM, what is now EBM and a number of other agencies, as well as receivers in bankruptcy and accountants, issued the Rubicon memorandum in 1994 concerning itsefforts. Included were a series of proposed measures to make crime inves-tigations in connection with bankruptcies more effi cient. The memoran-dum also suggested ways in which receivers, accountants and the agencies concerned could work together more closely. A seminar series in 1997 was the next step in the Rubicon project. A follow-up launched by EBM in 2000 on the status of cooperation under the Rubicon umbrella led to a fresh nationwide series of seminars, held mostly in 2002. The semi-nars reviewed the new Accounting Act, provided information on how to handle accounting data, took up the issue of trading prohibitions, iden-tifi ed existing problems and discussed ways of promoting the Rubiconconcept.

Among the results of the seminar series are as follows. An EBM memo-randum offered an overall background and model for future methodsof cooperation under the Rubicon concept. As of 2004, EBM has fi xed routines for providing information to receivers in bankruptcy.

A determination was made that the original Rubicon memorandum’sguidelines for reporting procedures and methods of cooperation are gen-erally still appropriate. In 2004, EBM will put together and electronically publish a document that is easily accessible for everyone concerned. It will subsequently be updated on a regular basis.

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10. Crime Prevention Efforts

10.1 GENERAL

As far back as 1994, a strategic Government paper (1994/95:217) called for increased emphasis on preventive measures in combating economiccrime. The Government’s annual goals and guidelines have further stressed prevention, identifying it as a key success factor in the struggle. The latest such guidelines (14 December 2000) stated the following.

“A guiding principle should be to step in and break up criminal activitiesat as early a stage as possible, as well as to promote prevention efforts in other respects. For instance, agencies might prioritize and improve upon their own supervisory and monitoring operations, along with varioustypes of interagency monitoring measures involving joint visits to all the businesses in a particular sector or sphere of activity. Informational and training efforts are important, particularly for new and small businesses.

“The guidelines also discussed the possibility of making these operationsmore effi cient by singling out certain suspects, collaborating with the pri-vate sector, sharing information, analyzing legislative measures, etc.”

BRÅ submitted two reports in 2003 about methods of preventing eco-nomic crime. Report 2003:1, Preventing Economic Crime, presented and analyzed needs, methods and research in the fi eld. Report 2003:10, An Anthology, contained 15 freestanding essays concerning preventive meth-ods.

10.2 EBM’s STRATEGY

In 2002, EBM appointed a task force to develop strategies and guidelinesfor making its crime prevention efforts more effi cient. Report 2003:1 of May 2003 proposed a strategy in the area. Planning activities for EBM’s2004 activities subsequently took up the proposals. In brief, the proposals envisage EBM becoming a more proactive force in the evolution of crime prevention initiatives, particularly by launching and coordinating opera-tions together with other agencies and organizations concerned.

EBM is to be the catalyst for change in the area of economic crime pre-vention.

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According to the proposals, the agency’s efforts should embrace the fol-lowing main tasks. • Gathering information and providing analyses to raise awareness

about the basis and prerequisites of economic crime• Working up suggestions for legislative changes that will avert or

hamper the commission of criminal acts, or enable the detection or reduction of their harmful effects

• Making the general public, politicians and private sector moreknowledgeable about the scope and harmful effects of economic crime

• Initiating or taking part in the development of methods and systemsfor early detection of ongoing criminal activities

• Improving upon and disseminating knowledge about specifi c types of economic crime so that individuals and businesses can guard againstits harmful effects or help uncover and fi ght it

• Launching and/or supporting cooperation among different playersand interested parties

Starting in 2002, EBM’s organization more clearly refl ected its responsi-bilities and resources for crime prevention efforts. The agency’s develop-ment unit is in charge of strategic matters, methods development and coordination of prevention activities. The head of each department’sspecial unit has express operational responsibility, while resources in the individual units are earmarked for prevention.

The increased importance of, and focus on, prevention requires a system-atic, long-term development effort that tries new or untested methods as part of pilot or experimental studies. Prevention does not normally have access to the technical and IT-based systems that have emerged to sup-port traditional enforcement efforts. As a result, working up documenta-tion for planning, as well as developing routines for follow-up, demands special initiatives, thereby putting prevention at a disadvantage vis-à-vistraditional enforcement. Thus, crime prevention measures must be con-tinually followed up on subsequent to implementation.

Intelligence and investigative activities are key to uncovering economic crime. EBM’s special units play a vital role in their operational responsi-bility for investigative efforts, while serving as a central link in contacts with the intelligence, investigative and monitoring units of other agen-cies. EBM’s divisions have established close operational cooperation withthe crime units of the various county police authorities when it comes to investigation.

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Preventive Economic Contacts (PECs) represent the most common work-ing method for preventing economic crime. PECs are visits, coordinatedby various agencies, to businesses for the purpose of providing informa-tion about registration, accounting, taxation, etc. Such visits have been increasingly called into question in recent years and steadily diminishedin number. Meanwhile, alternative crime prevention methods – often based on interagency cooperation with various interest organizations– have emerged.

Under certain circumstances, PECs allow for productive contact with the general public. While culling information, agencies can make observa-tions and learn about the problems and conditions faced by the private sector. Thus, there may be grounds for devoting resources to some kind of PEC effort merely to understand the workaday world better, even if that is not its primary purpose.

10.3 SKV’s CRIME PREVENTION EFFORT

SKV’s general task is to prevent and rectify tax errors and evasion. Inves-tigative and supervisory activities are central to preventing tax crime. The overarching purpose is to have a preventive effect. SKV’s tax crime units are its primary vehicles for preventing and combating illegal activities.

The units’ knowledge and experience of risks and behaviour will be put touse. Their preventive efforts chiefl y involve gathering, systematizing and analyzing information. SKV will draw on the knowledge accumulated by the units in order to minimize uncollected revenues.

SKV put together a report in 2003 entitled Contributions of Tax Crime Units to the Crime Prevention Efforts of the Tax Authorities. In 2004, a task force will develop a method for taking advantage of the experiencethat the units have had during pretrial investigations. Prevention efforts will accumulate unique knowledge about the causes of and opportunitiesfor crime. The experiences will be systematized and serve as the basis for SKV’s supervisory and informational activities. The information will also provide the underpinnings of the agency’s legislative proposals.

Tax-related offences represent a large, important area in the effort to pre-vent economic crime. One case in point is the fi ght against the everyday offences of undeclared work and unreported income. Of great urgency is to identify ways for tax authorities, tax crime units and EBM to cooper-ate and share responsibility so as to maximize their combined skills and resources. The tax authorities are continually in touch with individuals

80

and employers concerning registration and tax return matters. The tax authorities should normally be in charge of carrying out any measures aimed at preventing tax offences by individuals or businesses. EBM’sskills and resources should concentrate on analysis and development of legislative proposals and systematic solutions, informational initiatives directed toward groups of businesses or taxpayers, contacts with interest organizations, etc.

10.4 CONTACT AND INFORMATION

Contact and cooperation with other agencies and organizations expandedsteadily in 2003. The initiative often came from trade organizations in sec-tors that have problems with undeclared work and undisclosed income.

Contacts were forged at both the national and regional level.

Following are a few concrete types of cooperation.• Crime prevention activities with individual agencies or municipali-

ties• Informational initiatives about economic crime and prevention

efforts by agencies at meetings with groups from particular sectors,such as the Transport Workers’ Union, the Swedish Movers Federa-tion (SMF), the Swedish Flower Wholesalers’ Association, regional representatives of the construction industry, or local representatives in the case of large projects

• Closer cooperation on the issue of undeclared work in the restaurantsector with agencies concerned and representatives of the SwedishHotel and Restaurant Employers’ Association, the Hotel and Res-taurant Workers’ Union, and organizations of musicians and staffi ng companies

• General cooperation and concrete activities with local chapters of the Swedish Trade Union Confederation

Information is a key tool in crime prevention efforts, a fact that EBM takes into consideration in all of its activities. The mass media represent an import target in that respect, as well as various interest groups such as trade organizations, employer’s associations and schools.

The media are vital to informing the general public about economiccrime and the effort to combat it. The agencies concerned have ambitiousgoals with respect to being available to the media and serving as sources of information when reporters have questions about economic crime.

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Economic crime, and therefore EBM’s sphere of activity, was in the media spotlight during 2003. The publicity survey that the agency conductedamong the major morning newspapers in the fi rst half of 2003 refl ected that interest. The analysis revealed that the press covered economic crime twice as much in 2003 as the year before.

Other efforts to raise awareness about crime prevention activities included participation at seminars, information offerings for schoolchildren and students, and meetings with agencies, organizations and other interested parties in the fi eld. One of the informational brochures that EBM put together was aimed at newly started small businesses and dealt with false accounting

An economic crime symposium arranged in November by EBM and Jönköping International Business School attracted some 20 leading Euro-pean researchers in addition to the cooperating agencies.

In the autumn of 2003, EBM conducted a survey on the attitudes ofSwedes toward economic crime. More than half of the interviewees said that such offences are fairly widespread in Sweden. Over one-third said that it was very widespread. The fi gures are somewhat higher than a simi-lar 2001 survey.

Almost half of those questioned said that they had contact with at least one person who did not declare their income over the past year or with someone who hired such workers. That was particularly true of men,young people with college educations and high-income earners. A total of 82.9% of the respondents felt that society and politicians were not doing enough to combat economic crime. The youngest age group (18-24) deviated from the consensus.

Important to keep in mind is that SKV noted in its periodic attitudesurveys that young people grew more accepting of undeclared work from 1998 to 2001. In addition, a series of similar studies commissioned by EBM have shown that young people today are more tolerant of unde-clared work and economic crime than previous generations.

SKV subsequently carried out an informational drive aimed at 16-20 year olds. In order to gauge the impact of the campaign, a preliminary survey was conducted in the spring of 2002. Following a year of activities, a new study in the spring of 2003 indicated that fewer young people thoughtthat undeclared work was legitimate and more repudiated the idea. Now that the informational effort has proceeded for another year, the results of a third survey are in the process of compilation. Preliminary fi ndings

82

suggest that attitudes are continuing to move in the right direction. Thus, SKV has established that such campaigns can change the way that people look at these issues.

10.5 NATIONAL CRIME PREVENTION PROJECT

A report from the Hairdressing Project in Malmö was submitted to the Government in November 2002. Bankrolled by the Ministry of Finance,the project was aimed at hairdressing saloons, their employees and the general public. The emphasis was on preventive measures, includinginformation for the public and voluntary certifi cation to strengthen legit-imate businesses.

In 2003, the Swedish Taxpayers’ Association initiated a series of discus-sions, conferences and seminars on the undeclared sector. Set in Stock-holm, the fi rst seminar dealt with the Hairdressing Project, which was central to subsequent discussions as well.

Various trade associations in the hairdressing sector are considering the possibility of expanding voluntary certifi cation and making it nation-wide.

A follow-up on the impact of the pilot project is examining reported revenue and assessed income for the Malmö hairdressing sector after the 2003 tax assessments. A report is due out in early 2004.

Collaborating with the local authorities in Gotland, EBM launched a project in 2001 focused on crime prevention in the municipality’s restau-rant sector. A similar project concentrated on peddling in Gotland.

Among the activities of the projects was to pay one or more visits to all restaurants licensed to serve alcohol. The tax authority has also carried out other monitoring activities in the restaurant sector.

Visits to markets and public squares have checked VAT registration, busi-ness tax certifi cates, adherence to information requirements pursuant to the act on peddling, and the use of undeclared labour.

10.6 REGIONAL CRIME PREVENTION ACTIVITIES

At one time, PECs were the most common crime prevention measures.Due to a certain amount of confusion, such activities have steadily dimin-ished as of 2002. Many SAMEBs are asking for clearer legal regulations

83

on PECs, arguing that a combination of informational and inspectionvisits to businesses – particularly in sectors where evasion is known to occur – is an effective crime prevention measure. They suggest changesto legislation and the allocation of resources that would allow for coordi-nated visits by the police and Tax Administration.

As in previous years, various counties conducted projects such as “TheWhite Coast.” The cooperating agencies have been SKV, EBM, KFM, municipalities, the Social Insurance Offi ce and the County Labour Board. Both the agencies concerned and sector representatives view the projects – which have dealt with the construction industry, restaurants, peddlingand more– as extremely important.

The pilot project in the hairdressing sector has spawned regional and local initiatives to monitor and inform hairdressers for the purpose of discour-aging undeclared work. Both members and non-members of the SwedishNational Hairdressers’ Federation have exhibited great interest. In one region, the project has offered certifi cation to hairdressers, provided that they have the following.• Cash registers with receipts and control slips• Price lists in plain view• Proper registration with SKV • Liability insurance• Registration with the Environmental Board • Credit card terminals (not mandatory)

Approximately half of the county’s 600 registered hairdressers have attended the informational meetings. More than 60 businesses have been certifi ed so far. The information will be provided at hairdresser’s training as well.

Among other crime prevention measures are:• special economic crime days attended by agencies concerned, interest

organizations, etc.• seminars with representatives of EBM, SKV and KFM, as well as

people from various organizations helping immigrants who own orwant to start businesses. The goal was to identify channels for pro-viding the target group with information about regulations and agen-cies

• More than 40 representatives of the cooperating agencies, as well as receivers in bankruptcy, took part. A follow-up seminar is scheduledfor the spring of 2004

84

• a regional informational project in 2002 conducted by EBM, SKV,KFM, the County Administrative Board, Customs and the Police Authority. A 2003 press released entitled “A United Front Against Economic Crime” attracted some media coverage. All the agencies got together on a two-page spread in an October edition of the news-paper Länstidningen. In addition to regular circulation, the articles were sent to the region’s schools. The target audience was the general public. The objective was to discuss the consequences of doing unde-clared work and to highlight interagency cooperation

• providing interagency information to upper secondary schools ona trial basis in the spring of 2001. The objective was to discuss the potential personal consequences of unpaid debts (bad credit ratings),revelations of undeclared work, evasion, economic crime, etc. Bothstudents and teachers were so enthusiastic about the pilot projectthat the effort was extended to other schools in the county.

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11. Study of Adherence to Trading Prohibitions14

14. This section is a summary of a report, to be submitted in 2004, on how well adherence to and supervision of trading prohibitions are being monitored.

A trading prohibition can be issued for 3-10 years. KFM, which monitorsadherence, can request assistance of the police authority. The Swedish Companies Registration Offi ce keeps the public register of trading pro-hibitions that have been issued. Violations are punishable by an exten-sion of the prohibition for up to fi ve years and a maximum of two years imprisonment. If the offence is trivial, a fi ne or sentence of no more than six months is given and the prohibition is normally extended.

EBM, the Swedish Companies Registration Offi ce, SKV and KFM put together a joint report, including suggestions for improved compliance.The report proposed legislative changes and other measures to help make the trading prohibition process more effective.

The project included a study of KFM supervision of the prohibitionsissued in the second half of 2002, as well as an examination of those that started earlier and were still in effect at the end of that year. In addition, it reviewed the circumstances surrounding and the measures taken follow-ing reports of suspected violations.

The number of people subject to trading prohibitions has risen sharplysince 1996. The fi gure jumped by 217% from 173 at the end of 1995 to 561 at the end of 2003. The increase is due to the fact that more prosecu-tors are requesting trading prohibitions than earlier.

The main purpose of such prohibitions is to prevent offending businessowners from continuing to cause major harm. Effective supervision is vital to that effort.

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12. International Contact and Cooperation

In 2003, EBM continued to broaden its international contact network in the area of economic crime. In addition to being in constant touch with agencies in the Nordic area that combat such offences, EBM participatedin the annual Nordic Economic Crime Conference arranged by SØK, its Danish counterpart. Interest has also come from outside the Nordic area as to how Sweden combats economic crime and EBM’s unique constella-tion of agencies.

EBM assisted the Swedish Ministry of Justice in negotiating the UN’sConvention Against Corruption and participated in the world body’sCommission on Crime with regard to corruption issues. The agency has also taken part in the European Council’s Group of States against Cor-ruption (GRECO) and the OECD Working Group on Corruption in International Business Transactions.

EBM attended a preliminary meeting at the United Nations Asia and Far East Institute for the Prevention of Crime and the Treatment of Offenders (UNAFEI) in Japan. The meeting planned a new seminar on economiccrime at the 2005 UN Congress on Crime Prevention and the Treatmentof Offenders, to be held in Thailand.

Agencies that combat economic crime are involved in a legal assistanceproject fi nanced by Phare, a EU program that promotes cooperation between applicant countries and the agencies of Member States, as well as helping aspirants meet the requirements for joining the Union. Moreover, the agencies have attended a number of seminars arranged by the Council of the Baltic Sea States (CBSS).

They also participate in:• the Financial Action Task Force (FATF), an action group to combat

money laundering and terrorism, the offi ce of which is in OECD. Sweden holds the Presidency of the organization from July 2003 through June 2004. An offi cial specially appointed by Finansin-spektionen assists the president. Under the aegis of FATF, Finansin-spektionen has evaluated how well Sweden follows the organization’srecommendations on money laundering and terrorist fi nancing

• the Committee of European Securities Commissions (CESR), an advisory body to the European Commission charged with ensur-

87

ing consistent implementation of the legal measures that have beenenacted. CESR is to consult with the parties concerned before issu-ing its opinions. The committee is a permanent participant in joint,transnational investigations and surveillance projects, coordinatingapproval and the mechanics of surveillance. As an advisor, CESRproposes technical directives that are part of the Financial Services Action Plan (FASP). Among them are the International AccountingStandards (IAS) Directive, the Market Abuse Directive, the Prospec-tus Directive, the Investment Services Directive (ISD) and the Trans-parency Directive

• a group of experts in the Operative Committee (OPC) of CBSS thatdeals with money laundering and terrorist fi nancing. Sweden, Fin-land, Denmark, Norway, Iceland, Germany, Russia, Poland and theBaltic States compose OPC

FiPo takes part in the Egmont Group, currently consisting of 84 countries and international organizations. Egmont’s Secure Web, to which FiPo is linked, permits participants to share information about legislation, train-ing and new modes of operation.

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13. Skills and Methods Development

13.1 EKOBANKEN

EBM’s vision is to serve as the catalyst for society’s struggle against eco-nomic crime. A key success factor is to utilize the knowledge and experi-ence that continually emerges from the fi ght against such offences and make it available to everyone in the organization.

EBM pursued an intense development effort in 2003. Information is now being fed into a pilot version of Project Ekobanken, a database of knowl-edge and experience to support operational activities. Another prominent feature of the development effort is to ensure the quality of those activi-ties. As of November 2003, a quality monitoring and assurance modelevolved to the point that it is evaluated and documented for all category 3 cases.

Ekobanken was developed throughout 2003 for the purpose of designingroutines and systems in that effort. The pilot version will initially be avail-able to a limited group of users, essentially one unit of each division. The second step will open the system up to everyone at EBM, with the even-tual goal of including all parties involved in the fi ght against economic crime. Started up in February 2004, the pilot version is to support opera-tional investigation and prosecution efforts. As a source of knowledge and experience, as well as a stimulus for employee-to-employee contact,Ekobanken will improve the quality of operational activities and set the stage for shorter throughput times.

13.2 TRAINING

EBM has put together a comprehensive training program of more than15 different courses. The program is designed for both EBM employees and those engaged in combating economic crime at cooperating agencies.Prosecutors, economic crime accountants, police, tax crime investigators,and administrators have been the primary attendees. The curriculum is designed to provide each profession with cutting-edge expertise in its area and the ability to work more effectively with the others in interdisci-plinary investigative teams. Particularly when it comes to complicated

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investigations, awareness of what each profession can contribute lays the groundwork for satisfactory results. Thus, a number of interdisciplinary courses have been developed at various levels.

Prosecutors, police and economic crime accountants who investigate vio-lations of the Insider Penal Act participate in licensing courses for brokers. An interactive course in Accounts Analysis, a prerequisite for Accounting, was added during the year.

Administrative employees took a course in economic crime designed for their particular needs. A special course for police at and outside EBM who investigate economic crime was given for the fi rst time. The goal is to enhance their skills in the specifi c areas that affect their work.

Almost 400 EBM employees and those from cooperating agencies – including 94 external prosecutors, police and tax crime investigators– took one or more of the courses in 2003.

As in previous years, EBM’s prosecutors took part in RÅ’s special training sessions.

A development and training effort was started during the year for the agency’s economic crime accountants to make it easier for them to analyze extensive accounting records on the basis of IT support.

Given the rapid technological progress of recent years, particularly in the private sector – which demands a great deal on the part of EBM in terms of securing computerized data – the agency continued to focus on advanced training of IT specialists in its operational activities.

EBM employees share their expertise, primarily in the area of economiccrime, by teaching courses set up by RÅ, the Swedish National Courts Administration, the Swedish National Police College, the Swedish Insti-tute of Authorised Public Accountants (FAR), the Swedish Association of Auditors (SRS) and others.

13.3 METHODS DEVELOPMENT

A long time often passes between the commission of a crime and the point at which a receiver in bankruptcy or tax authority reports it. A striking number of businesses that are reported have failed to prepare and submit annual reports to the Swedish Companies Registration Offi ce.

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Since the autumn of 2002, EBM has conducted a project to uncover eco-nomic crime as soon as possible using the Swedish Companies Registra-tion Offi ce’s information about such delinquent businesses.

Since newly started companies are traditionally in the risk zone in terms of serving as tools of economic crime, the project places them at centre stage. Given that the Companies Act requires accountants to report sus-pected illegal activities, the effort also examines their actions with regard to the businesses involved.

The project was limited to 82 reports of suspected false accounting.• In 15 cases, annual reports were subsequently submitted and no pre-

trial investigations were launched• In 15 cases, pretrial investigations of other suspected offences were

already under way• Of the remaining 52 reports, 23 people were deemed to be engaged

in serious economic crime• Seven judgments have been handed down so far, all convictions• A total of 49 companies have declared bankruptcy

The project will be fully evaluated in 2004. It is already clear that the working methods and cooperation have proven successful, allowing crime to be discovered and prosecuted at a very early stage. That is extremely important from the point of view of prevention, even increasing the like-lihood of tripping up crime while it is still in progress.

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14. Research on Economic Crime15

15. This section is an abridged version of a brochure published by BRÅ in 2004.

Swedish research on economic crime has long been neglected. In 1998-2002, BRÅ provided SEK 26 million in grants to promote such research. The source of the initiative was the Government’s 1995 strategy for com-bating economic crime, a cornerstone of which was the need for greater knowledge in the area.

In White-Collar Crime Research. Old Views and Future Potentials – Lec-tures and Papers from a Scandinavian Seminar, published by BRÅ in 2001, Sven-Åke Lindgren, Associate Professor and Head of the Department of Sociology at Göteborg University, talks about how white collar crime has interested researchers ever since the 19th century.

Martin Bergquist’s licentiate dissertation Ekonomisk brottslighet – Någotatt räkna med (Economic Crime – Something to Consider) (2002) for the Department of Criminology at Stockholm University thoroughly exam-ines the concept as it appears in international literature.

Fiffelstrategier vid ekonomisk brottslighet (Strategies in the Commission of Economic Crime) (2003) by Tage Alalehto at Umeå University’s Depart-ment of Sociology reviews international research and provides an over-view of the various types of offences involved. He focuses entirely on the methods employed by offenders.

An essay by Alalehto and Jan Sjödin in Förebyggande metoder mot ekobrott(Methods of Preventing Economic Crime), published by BRÅ in 2003 at the initiative of the Swedish Economic Crimes Council’s cooperating agencies, describes a Swedish case in which a spurious contractor cheatedboth the county administrative board and the municipality out of mil-lions of kronor. The investments that were to attract employment and wealth to the community never arrived.

Kartin S. Thornton, Associate Director of the Tuck School of Businessat Dartmouth College, examined 263 Swedish companies that declared bankruptcy in 1988-91. In 2002, she posed the question as to how share-holders can be sure that the company’s executives are not using the money for private gain. They can divest the company’s assets at a loss to busi-

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nesses under their control, grant lucrative salaries to themselves, sell stock to themselves or family members at cheap prices and exorbitantly remu-nerate themselves.

The latter ploy is a well publicized phenomenon in today’s business world. According to Thorburn, the composition of boards, reward systems and the number of votes entitled by a share are of vital concern in combating economic crime.

Forskning om ekonomisk brottslighet. En översikt (Nordic Research on Eco-nomic Crime: An Overview) (Korsell et al, 1999) and Från storsvindel till småfi ffel. Teman i internationell ekobrottsforskning (From Fraud to Cheat-ing: Themes in International Economic Crime Research) (Lindgren and Theandersson, 2000) were both published at BRÅ’s behest.

Among the issues discussed by the second publication are the causes of economic crime and the kinds of people who commit it.

Norway and Finland have also launched special research efforts. Paul Larsson’s overview points to early Norwegian economic crime research, i.e., Vilhelm Aubert’s classic study of business owners who violated pric-ing and rationing legislation.

One of BRÅ’s tasks has been to encourage the sharing of information among researchers in the fi eld. Korsell’s Nordic overview was the product of a seminar attended by economic crime researchers. The articles and lectures from an additional seminar, arranged in collaboration with Göte-borg University and also attended by researchers from around the world, were compiled in Lindgren’s international overview.

One key research fi nding has been that we must become just as skilful in gauging economic crime as traditional types of offences. Bergquist’s dis-sertation zeroes in on that challenge.

Hazel Croall’s 2004 report for BRÅ entitled Lurad och förgiftad – att avslöja utsatthet för ekobrott (Fooled and Poisoned – Uncovering Vulner-ability to Economic Crime) also discusses needs and opportunities for measurement. Seminars and compilations have been integral to BRÅ’stask of raising awareness about international research and encouragingeconomic crime experts to share their fi ndings.

A 2001 dissertation by Erik Wesser at Lund University’s Department of Sociology entitled “Har du varit ute och shoppat, Jacob?”. En studie av Finansinspektionens utredning av insiderbrott under 1990-talet (“Have You Been Out Shopping, Jacob?”: A Study of Finansinspektionens’s Super-

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vision of Insider Crime in the 1990s) examines all 344 of the agency’sinvestigations from 1991 through 1999. Twenty-seven investigationswere turned over to prosecutors, eight led to prosecutions and six to con-victions.

BRÅ supports a research project at Lund University on corruption in the private sector. An essay by Katarina Jacobsson and David Wästerfors in Methods of Preventing Economic Crime argues that what constitutes bribery in a legal sense may be appear innocuous in everyday terms. Phenomenalike bribery, subornation and corruption are described as “commissions,consulting assignments, gifts, trips and receptions.”

Antoinette Hetzler at Lund University’s Department of Sociology also stresses the importance of such grey areas in explaining economic crime. Her 2003 examination of fi nancial markets concludes that abuse walks a fi ne line between what is legal and illegal.

A 2002 study by Samuel Cavallin, research fellow at the Jönköping Inter-national Business School, also deals with how the fi nancial market is regulated. The regulation concerning improperly infl uencing share prices focuses on legal measures, the illicit purpose of which is to make money off the system. Cavallin maintains that the term illicit purpose represents an attempt to criminalize behaviour in the grey area. His argument is that the provision has no legal substance, given that what constitutes an illicit purpose in the capital market is not generally known.

A BRÅ report entitled Organiserad brottslighet – lösa maskor eller fasta nätverk (Organized Crime – Loose Mesh or Fixed Networks) (Korsell et al, 2002) features a large number of researchers who provide a joint overview of the situation in Sweden. They conclude that organized crime consists of networks in which the offenders work together. That is partic-ularly true when it comes to smuggling of drugs, alcohol, tobacco prod-ucts and doping agents, as well as larceny, traffi cking in women and arms traffi cking. Organized crime also involves such economic offences as tax violations, shell company dealings, undeclared labour and fraud.

In partnership with the Swedish Insurance Federation, the SwedishNational Insurance Board, and the Faculty of Law at Lund University, BRÅ has launched a research project on the connection between publicand private insurance fraud. A report by Helén Örnemark Hansen, Fre-drik Andersson and Anette Ohlsson, scheduled for release next year, will describe methods of discouraging fraud. Central to the project is the notion that closer cooperation between private insurance companies and

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social insurance offi ces could prevent many crimes, given that offenders play off one system against the other.

From Fraud to Cheating: Themes in International Economic Crime Researchreviews what is currently known about those who commit such offences.

On the basis of interviews with business owners, Fiffl arens personlighet, En studie om personlighetsdragets betydelse vid ekonomisk brottslighet (The Personality of the Swindler: A Study in the Signifi cance of Personality Traits in Economic Crime) (2002) by Swedish researcher Tage Alalehtoidentifi es three personality types.

Research has also examined offenders from a gender perspective. The 2000 review of international research by Lindgren and Theandersson sug-gested that women are vastly underrepresented among those who commiteconomic crimes, just as they are among traditional offenders. One key factor is that many fewer women own businesses than do men. In addi-tion, more men hold corporate posts that provide the occasion to engage in certain kinds of economic crime. On the other hand, women are often in a position to commit embezzlement or fraud.

A 2003 doctoral dissertation entitled I fi nansvärldens bakre regioner. En studie om fi nansiella offshoremarknader och ekonomisk brottslighet (In the Backwoods of the Financial World: A Study of Offshore Markets andEconomic Crime) by Oskar Engdahl at Göteborg University’s Depart-ment of Sociology makes another contribution to the evolution of Swe-den’s recent economic crime policies. In 2000, Enghdahl published a BRÅreport entitled Finansiella offshoremarknader och skatteparadis (Offshore Financial Markets and Tax Havens).

Lotta Pettersson and Vanja Lundgren of the Departments of Criminologyat Stockholm University and the University of Oslo respectively studied economic crime in the transport sector. Their 2002 BRÅ report entitled Just in time. Ekobrottslighet inom svensk och norsk långtradartransport (Just in Time: Economic Crime in Swedish and Norwegian Trucking) describesthe structural problems that lead to such offences.

Another transnational research project concerns offences discovered and reported by Swedish Customs. Anna K. Hansson, doctoral candidate at the Jönköping International Business School, examines fraud in connec-tion with crossborder trade. Certain companies that import productsfrom non-EU countries make false customs declarations in order to mini-mize or totally evade taxes, fees and duties.

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An essay by Katarina Jacobsson and David Wästerfors of Lund Univer-sity’s Department of Sociology in Methods of Preventing Economic Crimeargues that one way of fi ghting corruption is to call a spade a spade when it comes to bribery.

Att förebygga fel och fusk. Metoder för reglering och fusk (Preventing Error and Cheating: Methods for Regulation and Cheating) (Korsell och Nils-son, 2003) looks at ways that the Government and Parliament can better structure legislation to prevent economic crime and point various agen-cies in that direction as well. A key element of the Government’s effort is to demand factual information concerning the various guises that eco-nomic crime assumes.

Förebygga ekobrott. Behov och metoder (Preventing Economic Crime: Needs and Methods) (BRÅ, 2003) is directed toward agencies that combat eco-nomic crime, including the police, prosecutors, EBM and tax crime units. The report, which is in response to directions from the Government to work up economic crime prevention methods for the agencies concerned,contains a series of approaches structured according to the situationalmodel normally used to counteract traditional offences.

As part of the Government’s assignment, an extensive survey was con-ducted among receivers in bankruptcy, tax accountants, enforcementoffi ces, tax crime investigators, police, prosecutors, etc. A report (Canow, 2003) and an essay on preventive measures (Canow, 2003a) review the survey fi ndings.

An upcoming BRÅ report by Bengt Larsson, senior lecturer at GöteborgUniversity’s Sociology Department, entitled Revisorers anmälningssky-ldighet (The Duty of Accountants to Report) presents the results of hisevaluation in the area.

On behalf of BRÅ, Sören Wibe, now at the Swedish College of Forestry in Umeå, published in 1990 the fi ndings of an extensive survey on attitudes toward economic crime. His follow-up study in 2003 was an attempt to determine whether anything had changed. The results suggest that the public is more receptive to the idea of stricter tax supervision as a means of combating economic crime. In addition, more people now approve of efforts to fi ght such offences in the business world.

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15 Problem Areas and Future Threats

Norms and values

Crime opportunity structure

SupervisionAttitudes

Motive formation

Economic crime

Technical,economicandpoliticaldevelop-ment

Diagram 45 Analysis model for economic crime

Effects

15.1 THEORETICAL BACKGROUND FOR THE ANALYSIS

EBM’s initial status report (1999:2), which served as a basis for the Gov-ernment’s 2000 interagency guidelines on combating economic crime, was the fi rst overall review and analysis of the issue ever put together in Sweden. At the time, it was deemed appropriate to establish a generalcausal model on which to structure the analysis. The purpose of the over-all analysis was to lay the groundwork for more effective crime preven-tion activities and measures. From that point of view, the most suitable focus appeared to be on the causes of economic crime, thereby improving the prospects of successfully tackling it. Nevertheless, the effects of such offences were also systematically examined.

The analysis proceeded from a model based on the Routine ActivitiesTheory (RAT) developed by L. E. Cohen and M. Felson in 1979. Themodel seeks to explain the commission of an offence using three groups of causal variables: a motivated offender, the opportunity to commit a crime (opportunity structure), and the lack of effective monitoring.

EBM analysis adapted RAT to analyze economic crime. Figure 45 presents the model in graphic form.

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In response to an April 2002 assignment from the Swedish EconomicCrimes Council, EBM used the model as the basis for putting together a threat analysis on economic crime, which it submitted in May 2003.

The model proceeds from various types of offences. The analysis refi ned the concept of motivated offender to a more neutral examination of human motives, i.e., people’s goals and their perception of the best way to attain them. Thus, the analysis examined how different crime opportu-nity and monitoring variables affect the development of people’s motives such that they commit economic offences.

In addition to opportunity and monitoring, EBM added another groupof causal variables to its model: social values, norms and attitudes that affect whether or not a person commits a crime.

The report maintained that crime opportunity variables are describableon the basis of different classifying principles. One fundamental classi-fi cation regarded as useful proceeded from the kinds of people who fall victim to economic offences. The victim can be said to have offered the opportunity for the commission of crime. That in turn can happen in many different ways. Thus, a breakdown of the opportunity variablesmay include classifying principles in addition to the focus on the victims themselves.

Monitoring refers primarily to various actions by government agencies,but may also include those by unions and trade associations. Althoughthe emphasis is on the ten agencies that cooperate in the fi ght against economic crime, the Social Insurance Offi ce, the Consumer Ombuds-man, the Swedish Consumer Agency and others can have a role to playas well.

Socioeconomic, political, and technological developments all affect the evolution of human motives with respect to economic crime. The impactmay be either direct, or indirect by way of the model’s other groups of variables. One such development was the transition to the euro.

The direct, immediate harm caused by an economic offence can be meas-ured in the amount of money taken from the victim. Among the indirect or far-reaching effects are:• the unreasonably large percentage of investigative resources that

some economic offences tie up• sabotage of income distribution policies• fi nancial losses suffered by lenders, suppliers and the like • greater exodus of capital, reduced GDP

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• higher unemployment • distorted competition • threat to democracy and the rule of law • damage to faith in the political system

15.2 PUTTING TOGETHER A THREAT SCENARIO

In August 2002, the Swedish Economic Crimes Council task force resolved to appoint a group of experts with representatives from its vari-ous agencies for the purpose of identifying the economic offences deemed to constitute the greatest threats.

The group, which came to consist of 20 representatives from most of the agencies that make up the Swedish Economic Crimes Council, split up into three teams to pinpoint the areas that currently occasion the most harm and that could become even more threatening within fi ve years. The teams ultimately agreed to underscore the following categories.• Undeclared work • VAT fraud• Selective purchase tax• Dishonesty to creditors • Abuse of legal forms of business entity • Stock market offences • Breach of trust and associated fraud • Organized crime • Agents who aid economic crime

A task force meeting on 23 September 2002 decided to proceed in accord-ance with these broad categories, while asking EBM’s development unit to identify specifi c modes of operation and to present them at a seminar slated for 24-25 October to discuss the threat scenario. The development unit also submitted a proposal to the seminar identifying explicit ele-ments of the threat scenario within the above categories. After discuss-ing the proposal and adding certain specifi cs, the seminar worked up the following suggested threat scenario for presentation to the Swedish Eco-nomic Crimes Council meeting of 6-7 November.

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Threat Scenario Agents who aid economic crime• Spurious founders of shelf companies and abuse of legal forms of

business entity • Spurious advisers and tax havens

Undeclared work• Employers in cash sectors who do not declare their labour• Undeclared work• Spurious staffi ng companies

VAT fraud• Particular focus on crossborder trade

Crime in the fi nancial market• Insider offences • Miscellaneous (such as false bank guarantees)

Company-related fraud• Credit fraud, etc.

Crime and dishonesty related to bankruptcy

Organized crime

In-depth AnalysisThe Swedish Economic Crimes Council meeting of 6-7 November 2002charged its task force with proceeding on the following categories.

Agents who aid economic crime• Spurious founders of shelf companies and abuse of legal forms of

business entity • Spurious advisers and tax havens

Undeclared work• Employers in cash sectors who do not declare their labour• Undeclared work• Spurious staffi ng companies

VAT fraud• Particular focus on crossborder trade

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15.3 UNDECLARED WORK IN CASH SECTORS

Behaviour that Constitutes a ThreatAlthough resource considerations have limited this phase of the threat analysis to cash sectors, undeclared work is just as widespread in the invoicing sectors, particularly the construction industry in its broadest sense. The next phase will take up these other sectors as well. This type of crime involves the failure to disclose and declare cash income, thereby affecting not only income tax assessment, but VAT and social securitypayments as well. In the most serious form of undeclared work, compa-nies use it to reduce costs and thereby strengthen their competitiveness vis-à-vis legitimate businesses. The particular ways of concealing suchincome are highly specifi c to each sector.

Spurious staffi ng companies are a burgeoning phenomenon. Since they hold business tax certifi cates, employers who use their services can deny ever having hired undeclared labour.

A number of studies have been conducted on this criminality’s modes of operation in specifi c sectors: restaurants, cleaning, taxis, hairdressing, transport (movers), food, peddling, etc. Moreover, government agencies,unions and trade associations possess so much information that minimalresources should suffi ce to put together a fairly comprehensive account of the various modes of operation. Certain industries, such as car repairs, are a combination cash/invoicing sector.

ScopeSKV estimated uncollected 2000 tax revenues on undeclared labour – as well as unreported business income (income tax, VAT and payroll tax) – at SEK 56 billion. The percentage represented by cash sectors was not broken out.

For illustrative purposes, the graph below shows assessed income for indi-vidual businesses in a number of typical cash sectors. By way of comparison, annual salaries in many of these sectors average SEK 180,000-200,000.

The scope of undeclared work poses a particularly serious threat to Swe-den’s social welfare system. The spurious staffi ng companies that have emerged since contracting out workers became legal are a major riskfactor in that connection. EBM has planned a study of the problem but not yet carried through due to want of resources.

The assertion that many small businesses in cash sectors pay tax on the basis of whim rather than ability.

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0

5

10

15

20

25

30

35

40%

–50–0 0–50 50–100 100–150 150–200 200–250 250–

Bakeries Kiosks Shoemakers Hotdog stands Hairdressers

Graph 46 Declared income for certain types of small businesses (SEK thousand)

Opportunity StructureSome of the opportunity for crime in cash sectors derives from the ease of starting and registering companies with the tax authorities for VAT, business tax certifi cates and employer status. Founders of spurious shelf companies are complicit by furnishing people with joint stock companiesfor SEK 4,000-5,000 without having to deposit the SEK 100,000 share capital minimum.

Owing partially to changes in the job market during the 1990s, cash sec-tors have undergone a rapid transformation over the past ten years.

The number of small businesses, particularly in the retail and service seg-ments, has grown very quickly. Another element of crime opportunityis the high taxes and fees that make it profi table to perform undeclared labour.

Monitoring and SupervisionSince cash dealings do not leave a bookkeeping, invoice or receipt trail, they are intrinsically diffi cult to monitor. The tax authorities do not presently have suitable tools to supervise cash sectors. While a very large number of these businesses need to be checked, audits consume too many resources to be used more extensively.

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EBM’s pilot project on measures for preventing economic crime in thehairdressing, restaurant and peddling sectors suggests that information,prodding and inspections are insuffi cient. Unless offences uncovered during such inspections lead to prosecution and conviction, businessesremain unfazed.

Values and AttitudesAttitude surveys by both SKV and EBM indicate that young people today lack the fundamental values and taxpayer morale of previous generations.That may pose a serious threat to the future of the Swedish tax system.

ImpactThere is no question but that the state loses several billion kronor in uncollected taxes and fees every year. Although no overall empirical study has been carried out, undeclared work appears to be on the rise. Agencies, unions and trade associations have all testifi ed to a steady increase.

15.4 VAT FRAUD

Behaviour that Constitutes a ThreatThere are four basic ways of committing VAT fraud. • A transaction is not declared and no VAT payment is made. Nor is

income tax paid for any profi t associated with the transaction. Nor is any selective purchase tax collected.

• VAT is declared but not paid, a frequent occurrence when bankrupt-cies are being planned.

• Based on false grounds, excess input VAT is declared in order toextort tax revenue from the state.

• Goods are smuggled into Sweden from non-EU countries in order to sell them without having to pay income tax on the proceeds. As a result, no VAT is paid either.

These general categories can be broken down into some 20 modes ofoperation that have been well documented in both crime research and the day-to-day work of agencies. As soon as agencies start to monitor one type of fraud more closely, other methods crop up.

No reliable estimate is available as to the scope of VAT fraud, but bil-lions of kronor are clearly involved every year. Thus, the appropriationof resources for an empirical study of how widespread the phenomenonactually is would be an extremely useful step to take.

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Opportunity StructureThe opportunity to commit VAT fraud consists in the existence of a tax, the payment of which can be avoided or even manipulated so as to actu-ally extort tax revenue from the state. The fact that Sweden has the high-est VAT rates in the EU makes it that much more attractive to commitfraud there.

Monitoring and SupervisionThe tax authorities and Customs, and to a lesser degree other agencies,employ a number of monitoring and supervisory strategies to combatVAT fraud. But there are no simple systematic solutions that can fully eliminate the problem. Sweden’s membership in EU, which follows the destination principle, opened the door to new types of fraud that are dif-fi cult to monitor. For instance, VAT carousel fraud and VAT fraud linked to cash dealings in food products from other EU countries are the subject of a nationwide interagency monitoring project. Any empirical study on the scope of VAT fraud as described above should also include a badly needed overview of such monitoring efforts.

Values and AttitudesPeople engaged in various types of VAT evasion presumably have a favour-able view of what they do. Consumers are complicit in many respects,given that they are more than willing to purchase goods or services that are “exempt from VAT” at unusually low prices.

ImpactThe state loses major revenues. Competition becomes distorted whensome businesses can offer lower prices than their rivals by virtue of not paying VAT. That has a ripple effect in that companies may turn to crime in order to survive.

Trends Over the Next Three Years Assuming that agencies continue to have the same monitoring resources and strategies at their disposal, the occurrence of VAT fraud is highly unlikely to decrease. The more probable scenario is that it will increase as Swedes become further integrated into an EU that has just taken in ten new members.

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15.5 AGENTS WHO AID ECONOMIC CRIME

15.5.1 Spurious Founders of Shelf Companies

Behaviour that Constitutes a ThreatEach year, individuals and businesses in Sweden form a large number of shelf companies that they sell for SEK 4,000-5,000 each without ensur-ing that the minimum share capital of SEK 100,000 is ever deposited. In most cases, the purchasers plan to use the companies to illegally obtain excess input VAT and commit various types of fraud.

EBM report 2003:3 entitled Lagerbolag och Ekonomisk Brottslighet (Shelf Companies and Economic Crime) by the agency’s Spurious Founders of Shelf Companies project team reviews and describes the ploy in great detail.

ScopeAgencies are acquainted with the founders of spurious shelf companieswho are engaged in extensive activities. Between 15 and 20 individu-als manage businesses that buy and sell shelf companies in a spuriousmanner.

The abovementioned project team has pieced together a number of chains of shelf companies forged by such people. After a short while, most of the companies declare bankruptcy and the purchasers are left with very high debts, both public and private.

Approximately 17,000 joint stock companies, some 3,000 by spuriousfounders of shelf companies, were started annually over the past three years.

Opportunity StructureGiven the current demand for joint stock companies without having to deposit the SEK 100,000 share capital minimum, founders of shelf com-panies can make money by selling them. Most purchasers would presum-ably not qualify for even a short-term loan to meet the requirement at the time of transfer. In a sense, they are actually running private fi rms while formally managing joint stock companies with respect to creditors, sup-pliers and others.

Monitoring and SupervisionNo agency has overall monitoring responsibility when it comes to the for-mation of shelf companies. Accountants are the only ones who ever check

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whether regulations are being adhered to. In addition, certain means are available for getting at founders of spurious shelf companies by prosecut-ing them for violating the loan prohibition. In case no. 11007-02, the Svea Court of Appeal convicted a founder of shelf companies for violating the loan prohibition when the seller transferred the company’s claim on share capital to the purchaser. The ruling was appealed to the Supreme Court.

Values and AttitudesThough fairly self-evident, it is worth pointing out that the values and attitudes of most buyers and sellers in this market accept and justify such criminal behaviour. A few purchasers may turn out to be ignorant of the applicable regulations and believe that they are acting in full accordance with the law.

ImpactA joint stock company becomes a tool of crime. Sometimes these spuri-ous founders also help purchasers commit various kinds of tax crimes and other economic offences. Their activities constitute a kind of school in economic crime. The state loses major tax and fee revenues as a result. Suppliers and creditors suffer heavy losses. Meanwhile, having noticedthat agencies are monitoring their activities, some founders of spurious shelf companies have started to market partnerships and limited partner-ships instead of joint stock companies.

Trends Over the Next Three YearsUnless countermeasures are taken, spurious activities will no doubt pro-ceed at their current level and most likely increase. More and more people will learn how to commit economic crime. The state will continue to lose major tax and fee revenues. Suppliers and creditors will suffer heavy losses. Hundreds of millions of kronor are involved every year. The indi-rect, long-term impact of systematic schooling in the commission of tax crimes and other economic offences is diffi cult to predict.

15.5.2 Spurious Advisers and Tax Havens

Behaviour that Constitutes a ThreatDealings through tax havens have many different purposes and contexts.The common denominator is the attempt to conceal, by forming variouscompanies and trusts, the actual purpose of a transaction or the identities of the parties and shareholders involved. The checks that have been car-

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ried out indicate that most transactions are either for self-gain (i.e., the payer and payee are one and the same) or for the benefi t of someone other than the payer, such as a consultant, athlete or artist. SKV has charted and described a number of such methods as part of various monitoringprojects.

Opportunity StructureTax havens have been around for a long time. Prior to the deregulations of the 1990s, they were very expensive and unwieldy. Since that time, they have become much cheaper and simpler to use, while many sources of advice and offers are now available on the subject. The projects discussed above indicate that the utilization of tax havens is on the rise, particularly among small, profi table businesses. In recent years, most transactions have been conducted through facade companies in less conspicuous countrieslike Britain and the Netherlands.

Monitoring and SupervisionAn effective supervisory method developed by SKV takes advantage of data that the Swedish Central Bank receives about payments to and from abroad, as well as information sharing with Britain and other countries.But it is diffi cult to reliably estimate the ratio of unreported to reported cases. Efforts through the tax courts have proven successful. The proceed-ings are often based on reviews and chains of circumstantial evidence.Since more aggressive litigation was introduced in recent years, the courts have largely gone along with the arguments of SKV. SKV’s most recent supervisory initiative has proceeded from the gathering of information on the holders of foreign credit cards used in Sweden.

ScopeTax havens are nothing new, and their number has grown steadily. The biggest increase has occurred following deregulations in the foreign exchange and fi nancial markets during the 1990s. Tax havens house an estimated 1.2% of the world’s population and 25% of its fi nancial assets. A signifi cant percentage of those assets appear to represent income fromnon-tax offences.

Sweden estimates annual uncollected tax revenues linked to internationaltransactions at SEK 20-35 billion, of which SEK 2-5 billion stems from company formation through tax havens and SEK 8 billion primarily from investments by private individuals in low-tax countries with insuffi cient supervision.

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Values and AttitudesA rough breakdown can be made between businesses and households.Nothing but stricter supervision and the risk of detection is likely to infl u-ence a businessperson who has started companies in a tax haven in order to divert money and thereby elude the tax authorities. Private individu-als who invest abroad may have a different attitude. Legislative and tax policy changes in the next few years could very well have a major impact on such investment behaviour. For instance, if new regulations impose a wealth tax on OTC stock, investments may rise further. If the rules for the wealth and estate tax are amended as is currently being considered, the money may begin fl owing back into Sweden. But estimates are diffi cult to make in these areas. Much of the investment abroad is no doubt part of a plan that exploits loopholes in regulations, supervision and informationsharing among the countries involved. Changes in Sweden could possi-bly have an impact on that dynamic. But tax relief will clearly not affect foreign investments that are protected by an impenetrable wall of secrecy regulations for the purpose of evading Swedish tax.

ImpactThe state loses tax revenues. International tax evasion differs from other types in that the taxable basis is often lost forever. No revenue is chan-nelled back into the Swedish economy to create additional income.

Trends Over the Next Three YearsFor a number of years, the OECD and EU have devoted a great deal of effort to following and assessing the injurious effects of taxation differences among various countries. Labelling it unfair or harmful tax competition,the EU has concentrated on attempts by Member States to use favourableregulations to attract businesses, capital and individuals at the expense of other countries. The OECD calls it harmful tax practices, focusing on tax havens instead. Following extensive investigation and negotiation, most of the 40-odd tax havens that were pinpointed have pledged to amendtheir regulations. One area of reform is to make it easier to share informa-tion and learn the identity of a company’s true shareholders. But there is great scepticism at the moment as to if and when such changes will actu-ally happen. No signifi cant improvements are likely over the next three years.

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Appendix 1

CHANGES PROPOSED BY SAMEB REPORTS• Proposals have been developed for a long time and in different con-

nections for the purpose of reducing tax evasion in cash dealings.One recurring demand is for type-approved cash registers.

• SKV should be given express permission to make unannounced inspections of business premises and fi nd out– who is responsible for operations there– who works there– the prospects for the business to meet its obligations to render

account vis-à-vis SKV • All business premises must have up-to-date papers containing share-

holder and registration information. • The inspection coordinator should have the authority to immediately

close any business at which nobody claims responsibility. The countyadministrative court must review the coordinator’s action within fi ve days. If nobody claims responsibility for the business within fourweeks, its inventories, equipment, etc. will be forfeited to the state.

• There has been discussion of requiring customers to take cash receipts and keep them for a certain period of time. Another approach recently suggested at the national level is to adopt one or more types of taxation on a standardized basis.

• Supervision will never totally eliminate tax evasion. Thus, theSAMEBs propose a greater focus on preventive efforts and more straightforward regulations. Some kind of taxation on a standardized basis may be one way of simplifying matters. The taxi, hairdresserand restaurant sectors would be suitable for such an approach. Taxa-tion on a standardized basis would make businesses aware of their tax costs, thus reducing and facilitating supervision. Furthermore, every-one will be playing by the same competitive rules.

• Many observers regard undeclared labour as the thorniest economiccrime issue facing us. Businesses whose only raison d’être is to issue false invoices that other companies can use in their books to concealpayment of undeclared wages have become very common. Society has a vital interest in quickly identifying and implementing measures to impede and hopefully prevent such activities.

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• Withholding taxes and social security contributions should be attrib-utable to the individual wage earner during the income year.

• Do not grant extended fi scal years. That makes it much too easy to gain breathing space to commit crimes and to put goalkeepers inplace before closing the books.

• Do not permit VAT reporting on tax returns. • Overhaul the Secrets Act to allow for information sharing between

the social insurance offi ce and the county labour board, etc. • Incorporate Preventive Economic Contacts (PECs) into legislation.• PECs have been part of the crime prevention effort for a number of

years. But largely due to confusion about its legal status, such activ-ity has diminished recently. From a nationwide perspective, it is of the greatest importance that the regulations be clarifi ed and that good crime prevention ideas and initiatives be spread throughout the country.

• New legislation is needed to curb the steadily growing market forundeclared labour and false invoices, perhaps the most serious eco-nomic crime problem today. The legislation should make it pos-sible to demand identifi cation of people at the workplace who are employed in the most vulnerable contracting sectors, such as con-struction, assembly and services.

• A highly desirable requirement would be that holders of restaurantlicenses keep records of those who work for them and thus facilitatemonitoring of undeclared labour in the sector.

• Legislation should be changed so as to place a greater responsibilityon businesses that use staffi ng companies. The responsibility would include an obligation for the licensee to carefully check up on the staffi ng company at the behest of the tax authority.

• In order to prevent welfare cheating, an employer should be required to notify the Migration Board when hiring an asylum seeker who isexempt from the obligation to hold a work permit.

• A number of changes to secrecy regulations are in order. A letter to the Ministry of Justice refers to “absurdities” in this area that make interagency cooperation to combat economic crime more diffi cult.

County Administrative Boards• The Social Insurance Offi ce is not authorized to release inspection

reports or rulings concerning welfare recipients to a county adminis-trative board or supervisory authority to help them decide whether a business owner can keep his or her license to serve alcohol.

• SKV is currently neither obligated nor authorized to inform thesupervisory authority that it is auditing a restaurant owner.

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SKV• SKV should have limited authority to release classifi ed information

to cooperating agencies on its own initiative. • Absolute classifi cation at SKV and poorer secrecy protection at the

agencies make it harder to release information pursuant to the gen-eral clause.

• Which investigative method SKV employs is decisive to whether classifi ed information may be released to a receiver in bankruptcy.

Social Insurance Offi ce• The social insurance offi ce should have limited authority to release

classifi ed information to cooperating agencies on its own initiative. For instance, the social insurance offi ce cannot presently contact the tax authority when it suspects tax fraud. Nor does it have legalauthorization to release information to the Migration Board.

• The secrecy regulations to which the Social Insurance Offi ce is sub-ject should be overhauled to enable agencies to obtain informationabout individuals suspected of welfare cheating.

• The SAMEB of Västmanland County stresses the necessity of allow-ing agencies to cooperate for crime prevention purposes withoutencountering obstruction from secrecy regulations. Secrecy legisla-tion should be amended so that the agencies concerned can partici-pate in the effort.

• As the SAMEB of Västmanland County has previously stated, secrecy regulations should not keep agencies such as the Social Insur-ance Offi ce and County Labour Board from being involved in crime prevention initiatives. Those agencies have played a very useful part in the activities of the SAMEB of Västmanland County.

• SKV presented its evaluation of the tax crime unit reform in report 2001:7. The overall assessment is that the reform has worked welland that the units are ready for the next phase in which they will be given expanded authority. Among the report’s recommendations is that tax crime investigators be empowered to hold interrogations that may subsequently form the basis of a prosecutor’s request.

• Legislation governing secrecy with respect to the tax rolls also needs overhauling. Despite the fact that tax crime investigators are tax offi -cials, they do not presently have direct access to the rolls but must submit a request. They regard the subsequent one-day delay as anobstacle to doing their jobs effi ciently.

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Glossary of Agencies, Committees and OrganizationsCommittee of European Securities Commissions (CESR)Committee of European Securities Regulators (CESR)Council of the Baltic Sea States (CBSS)Enforcement Service (KFM)European Council’s Group of States against Corruption (GRECO)Excise Movement and Control System (EMCS)Far East Institute for the Prevention of Crime and the Treatment of Offenders (UNAFEI)Financial Action Task Force (FATF)Financial Intelligence Unit (FiPo)Financial Services Action Plan (FASP)Hotel and Restaurant Workers’ UnionNational Criminal Investigation Department (RKP)OECD Working Group on Corruption in International Business Trans-actionsOffi ce of the Prosecutor-General (RÅ)Operative Committee (OPC)Organized Crime in Sweden (OBiS)Regional cooperating agencies for combating economic crime (SAMEBs)Rubicon (Routines, criminal investigations in bankruptcy)Security Service (SÄPO)Swedish Association of Auditors (SRS)Swedish Board of Agriculture (SJV)Swedish Companies Registration Offi ceSwedish CustomsSwedish Economic Crimes CouncilSwedish Financial Supervisory Authority (Finansinspektionen)Swedish Flower Wholesalers’ AssociationSwedish Hotel and Restaurant Employers’ AssociationSwedish Institute of Authorised Public Accountants (FAR)Swedish Movers Federation (SMF)Swedish National Audit Offi ce (RRV)Swedish National Board of FisheriesSwedish National Council for Crime Prevention (BRÅ)Swedish National Economic Crimes Bureau (EBM)Swedish National Labour Market Board (AMS)Swedish National Police Board (RPS)Swedish Securities Dealers Association (SSDA)Swedish Tax Agency (SKV)Swedish Trade Union ConfederationTask Force on Organized Crime (AMOB)Tax Reduction Committee (SNED)

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Transport Workers’ UnionVAT Information Exchange System (VIES)

Glossary of AbbreviationsÅM (Procecuting Authorities)AMOB (Task Force on Organized Crime)AMS (Swedish National Labour Market Board)BRÅ (Swedish National Council for Crime Prevention)BrB (Penal Code)CBSS (Council of the Baltic Sea States)CESR (Committee of European Securities Commissions)CESR (Committee of European Securities Regulators)CFCs (Controlled Foreign Companies)EBM (Swedish National Economic Crimes Bureau)EMCS (Excise Movement and Control System)FAR (Swedish Institute of Authorised Public Accountants)FASP (Financial Services Action Plan)FATF (Financial Action Task Force)FiPo (Financial Intelligence Unit)GRECO (European Council’s Group of States against Corruption)IAS (International Accounting Standards)ISD (Investment Services Directive)KFM (Enforcement Service)OBiS (Organized Crime in Sweden)OPC (Operative Committee)PECs (Preventive Economic Contacts)RÅ (Offi ce of the Prosecutor-General)RAT (Routine Activities Theory)RKP (National Criminal Investigation Department)RPS (Swedish National Police Board)RRV (Swedish National Audit Offi ce)SAMEBs (Regional cooperating agencies for combating economic crime)SÄPO (Security Service)SkbL (Tax Penal Act)SJV (Swedish Board of Agriculture)SKV (Swedish Tax Agency)SMF (Swedish Movers Federation)SNED (Tax Reduction Committee)SRS (Swedish Association of Auditors)SSDA (Swedish Securities Dealers Association)UNAFEI (Far East Institute for the Prevention of Crime and the Treat-ment of Offenders)VIES (VAT Information Exchange System)

Economic Crime – Scope and Unreported Cases

The estimated scope of economic crime is SEK 100–150 billion annually.

Tax and fee evasion accounts for 75–85 % of that amount, i.e., SEK 75–130 billion annually.

Undeclared work and unreported income

Other tax and fee evasion

Crimes against creditors

Other economic crime

Estimated unreported cases and unknown grey areas

Reported economic crimes have increased over the past three years. Since so many cases go

unreported, it is diffi cult to draw any reliable conclusions about crime trends. Most proba-

bly no signifi cant increase or decrease has occurred.

During the next three years, agencies must continue to expand their collaboration and

jointly develop new methods for combating economic crime in a more effective manner.

The aim must be to put together a fundamental prevention effort aimed at reducing crime

over the long run. That will be accomplished by performing strategic reviews and in-depth

analyses designed to make the operations of the agencies more effi cient. The ultimate

objective is to enhance crime reduction initiatives both quantitatively and qualitatively

while focusing investigation and prosecution activities on the most serious types of crimes.

P.O. Box 820, SE-101 36 Stockholm, Sweden, Street Adress: Hantverkargatan 15, Phone: +46 8-762 00 00, Fax: +46 8-613 40 19