According to CORRECTIV research, Chinese fraudsters have been systematically importing textiles into the EU for years without paying the customs fees. On the paperwork for imported containers full of clothing and shoes, they simply indicate the value of the goods to be much lower than it actually is.
The European Public Prosecutor’s Office (EPPO) is currently investigating some 230 cases of customs fraud. “This is not happening sporadically, but on a large scale and permanently,” says Deputy European Chief Prosecuter Andrés Ritter. Luxury cars, tobacco, e-bikes, and small electronics such as headphones are all part of the scheme. However, textiles from China account for most of the smuggled materials. This is the first time that EPPO has commented on how high the damage is. Ritter told CORRECTIV that the damages for cases currently being investigated are estimated to be around one billion euros.
“The Chinese fraudsters are extremely well networked and flexible,” Ritter said. Several people usually worked together with varying degrees of coordination. According to the investigator, some set up dummy companies that would later be stamped out again, others provided false documents, and still others ended up selling the goods in their clothing stores and laundering the proceeds from their criminal activities.
EPPO warns that bluffing at customs is only the first step of a multi-level fraud scheme: The gangs usually also avoid paying VAT as a result. The actual damage to the EU and member countries is therefore much higher than evaded import fees alone.
Greece, Hungary, Poland and Netherlands possible hotspots for customs fraud
Trade with China is essential for the EU. At the moment it seems as if the undisturbed flow of goods has priority over extensive controls. At the cargo port of Hamburg alone, thousands of containers are handled every day. Looking into all of them would disrupt the flow. So many are simply waved through. “In view of the enormous volume of goods imported into the EU, a complete incoming inspection is not possible,” the German General Directorate of Customs told CORRECTIV.
In 2017, the scam first became known through a case from the UK. There, Chinese fraudsters had imported “undervalued” clothing for years. The EU Commission accused British customs of failing in its role as a protective wall for the EU economy and demanded two billion euros in compensation from the UK. The process may have produced undesirable side effects: It could deter member states from disclosing their customs gap. That is what the European Court of Auditors suspects.
The UK penalty, however, has not stopped customs fraud at EU borders. The problem has merely shifted: Statistical calculations made available to CORRECTIV from a source familiar with the subject indicate that in the past twelve months, Greece, Hungary and Poland have been customs fraud hotspots for the import of clothing, as well as the Netherlands for the import of footwear.
Europe lacks a central database and uniform custom risk software
According to CORRECTIV’s research, the scheme has been so successful in part because there is no central, European database and uniform risk software to help detect customs fraud.
The building of such a database is currently planned by the EU commission, and a new authority is being established to evaluate it. “The new authority will also contribute to an improved EU approach to risk assessment and customs controls,” writes the EU Commission on its website. For the Court of Auditors, this is “a step in the right direction,” a spokesperson told CORRECTIV. However, it is not yet clear how effective the database will be.
The new platform is not to be fully launched until 2032 – and will only be used on a voluntary basis.
Read the full investigation here (in German language).