Enormous VAT fraud busted

A MAN nicknamed the Lord of Zemplín, who has been in business for 12 years and serves as an authorised representative in 77 firms, has allegedly stolen nearly €29 million from the Slovak state via a fraud involving value added tax. Mikuláš Vareha, a businessman from eastern Slovakia, was arrested by the police on March 1. He reportedly traded in a wide variety of goods and commodities including bark beetles, cowshed compost and wooden gates. The police believe at least some of the trading between firms was fictitious and that about a dozen shell companies were involved.

Vareha has now been charged with tax evasion and is in pre-trial custody, said Interior Minister Daniel Lipšic, who along with Finance Minister Ivan Mikloš announced the arrest to the media. If convicted he faces up to 12 years in prison, SITA newswire reported.

The businessman reportedly claimed VAT refunds totalling €28,745,934 based on what the police say were fictitious deals. Between 2007 and 2010, the state refunded VAT of €32,729,204 to the businessman, which Lipšic said makes it likely that additional charges will be filed. Additionally, the businessman had claimed an additional €21 million in VAT refunds that the state had not yet transferred to him.

Lipšic stated that the businessman apparently thought his political connections would allow him to cover up millions of euros in tax fraud.

“Those times are over,” Lipšic said, as quoted by SITA. “Whoever wears whatever political suit and has whatever friends at the highest positions, if the person violates the law, crosses its limits, one will bear responsibility.”

Mikloš stated that the businessman served as an authorised representative in 77 firms, 51 of which were registered as VAT payers, adding that these companies maintained active business ties while charging that Vareha simply made deals with himself, that invoiced products never left warehouses, that the firm had no documentation on only sporadically-used transport, and that most of the companies had no employees. SITA wrote that Mikloš reported that the 51 firms reported revenue of €705 million and losses of €109 million between 2007 and 2009.

The Sme daily reported that it had found 136 firms in Slovakia’s business registry under Vareha’s name, including dozens of wood processing firms, water transport companies, construction contractors, and real estate businesses as well as firms trading in Tokaj wine. Sme also wrote that several years ago Vareha had built a mini-zoo with wild boars, ostriches and deer but local residents complained about the smell and said that the animals were suffering.

Sme added that Vareha apparently enjoyed the bright spotlight and wrote that in early 2009 he had distributed apples along with Silvia Gašparovičová, the wife of Slovakia’s president.

Marek Trubač, spokesman for the President’s Office, stated that it does not check the tax affairs of those who make donations to the foundation headed by the president’s wife, adding that Gašparovičová did not have any other business activities with Vareha.

Both Lipšic and Mikloš lashed out at the previous government, stating that it had done little to investigate and prosecute tax frauds and using as evidence a recent study by the European Commission that reported that Slovakia has the second highest rate of VAT evasion in the EU, following only Greece.

The opposition Smer party responded that it was the police force under Robert Fico’s government that had discovered and taken action against the largest VAT fraud in Slovakia’s history involving Sk1.35 billion (nearly €45 million).

“The ministers of interior and finance at that time did not have the need to brag about the specific case,” stated a news release prepared by Erik Tomáš of Smer’s communication department, adding that the police president and the director of the Tax Directorate announced the breaking of that tax fraud.

The case involved 10 men and four women who had established or acquired 30 companies which filed fraudulent tax reports to claim VAT refunds from the state.

Former interior minister Robert Kaliňák, now a Smer MP, stated that the police force under his watch was ready to take action against Vareha.

“We had registered an increased number of exactly these suspicious operations linked to firms of this businessman and proceedings had started over the matter,” Kaliňák said, as quoted by TV news channel TA3.

Mikloš said that the head of the Trebišov district tax office had been sacked over the arrest of Vareha.