How Slovak criminals turned the state into their milk cow

A story by with explanation of fraud schemes that have been applied by criminals in Slovakia.

Apart from VAT, criminals have discovered subsidies, either for agriculture or green energy.Apart from VAT, criminals have discovered subsidies, either for agriculture or green energy. (Source: TASR)

The Slovak Spectator brought the English translation of the last story the murdered journalist Ján Kuciak worked on with the agreement of the editorial office. Below is an additional story by that explains some Slovak circumstances to the international audience.

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The original version of the main story published on the website is available here.

Slovakia has not been a country where vagabonds extort small entrepreneurs, cash in on prostitution or tunnel former state-owned enterprises.

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Times of the 1990s have been gone for long. This does not mean, however, that the crime has disappeared completely in Slovakia.

Scammers just changed their tactics. They found their Klondike in the form of public finances - taxes and subsidies.

Transition to sophisticated fraud

"When the criminals found out that they could no longer do their business in the old fashioned rough way, they discovered the value added tax (VAT). It is the largest source of government revenues," the Dean of the Faculty of Law at the Comenius University and prosecutor Jozef Čentéš describes the developments in the country in the new millennium.

A classic example is so-called carousel VAT fraud. These are based on a network of affiliated companies that trade fictitiously between each other (they issue invoices without payment). Some companies in the chain then ask the state to refund the VAT they already paid.

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The company, which is the last piece of the chain and should pay VAT to the state, will be closed and therefore will not be taxed.

Slovakia is an unflattering position within the EU. According to the latest statistics from the European Statistical Office (Eurostat), our state loses up to €2.3 billion a year on VAT fraud.

Read also: Italian mafia in Slovakia. Tentacles reaching out to politics Read more 

Concrete examples

The most famous case was the one involving Mikuláš Vareha, who was nicknamed the King of Zemplín region. This tax fraudster has stolen public finances in the amount of more than € 58 million on VAT.

His network of fictitious businesses reached up to such absurdities as bark beetle trading. Eventually he ended up behind bars for 11 years.

The Slovaks are also familiar with the bribery of the head of the tax office in the town of Šamorín. The Salman brothers, businessmen involved in this case, were sent to prison for six and seven years respectively.

Subsidies for farmers as well

Apart from VAT, criminals have discovered subsidies, either for agriculture or green energy.

Cases of fraudulent subsidies for farmers are quite regular in Slovakia. Fraudsters have most often sought to raise funds for much larger land areas than they actually owned.

Alternatively, they may claim subsidies for crops they never sow and animals they never keep.

In 2016 the Supreme Audit Office criticized the state agency that pays money to farmers for its employees evaluating the allocation of subsidies in a non-transparent way.

Read also: Kuciak investigated links between politicians and mafia Read more 

Interest in green energy

Also the potential of green energy has been noticed. In 2009, the government of Robert Fico decided to support the construction of solar power plants throughout the country.

A number of influential entrepreneurs as well as unknown companies have joined this business as the state announced very generous purchasing prices (8 times higher than the market price).

At that time the state began to grant licenses for the construction of solar power plants. However, the whole process was very intransparent, and the permissions were given on first come first serve basis. Licensing was later criticized by the new leadership of the Ministry of Economy headed by Juraj Miškov.

Subsidies have subsequently been investigated by the European Anti-Fraud Office (OLAF).

Special team

The previous government of Robert Fico has realized that the situation of public finance fraud is beginning to be unbearable. The stolen billions of Euros are eventually missing in the state's treasury.

Therefore the so-called Tax Cobra was created six years ago. This is a special team that focuses primarily on VAT fraud. Until now they have been able to uncover tax fraud worth more than €700 million.

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