The story of Amir B. shows how a clever teenager rose from mobile phone trader to tax carousel lynchpin within just a few years. Following his tracks reveals the structure of the fraud system and the difficulties the authorities face in the war against VAT fraud.

Most people don’t realize why it’s so much cheaper to buy mobile phones on eBay rather than from the manufacturer direct. But not Amir Baha (name changed) who understood perfectly when as a 16-year-old schoolboy he started selling mobiles in a city in Germany’s North Rhine Westphalia. “All around the world people know: if you want to sell mobiles in Germany, they have to come from fraud. Otherwise there’s no money in it.” That’s how he summed it up nearly a decade later to prosecutors in Cologne.

Baha was a smart kid who rose to be a multi-millionaire in the space of a few short years. He was at home at Dubai’s nightclubs and flew first class. He traded mobile phones, game consoles, copper electrodes and even certificates for carbon dioxide (CO2) emissions. At the time of his arrest, he was running eleven companies registered in other people’s names.

He did not, however, earn his money from mark-ups on these products but from the tax he stole. By moving his merchandise in circles across borders and without paying value-added tax (VAT), he siphoned off millions from state coffers, tricking the authorities into paying him and his partners money they weren’t owed. Opinions differ as to how much exactly. Insiders estimate €110 million, one prosecutor puts the number at €60 million, a court verdict against Baha at €40 million.

In any case, a huge amount for somebody who traded in mobile phones. An employee with an above-average salary of €5,000 per month would have to work 1,600 years to earn €100 million. In his crowd, however, Baha was only a medium-sized player.

This kind of crime, dubbed ‘VAT carousels’ or Missing Trader Intra-Community (MTIC) fraud, is costing Germany from €5 billion at the low end of estimates to anything up to €14 billion annually. As Europe’s largest economy, the losses are higher than elsewhere. But VAT fraud carousels are an EU-wide problem with the EU commission fixing the total annual tax loss at around €50 billion.

In October last year, CORRECTIV published its investigation into the highly complex share deals known as Cum-Ex, which are designed to ‘reclaim’ tax that was never in fact paid. The Cum-Ex operators require the assistance of teams of highly sophisticated lawyers and bankers to help engineer the trades. By contrast, VAT fraud, some reckon, is Cum-Ex for the masses.

Even teenagers such as Baha can advance from small-time mobile phone seller to multi-millionaire within a couple of years. For the public, the result is the same: billions of tax money ends up in criminals’ pockets rather than going into hospitals, schools and law enforcement.

“Why people would do any other form of criminality, I don’t know,” says Rod Stone, a former British tax investigator and one of Europe’s leading authorities on the subject. “Why do drugs, why do anything else when they can make so much money out of this?” Stone also questions why hardly any European countries are taking the problem seriously despite the enormous losses. VAT fraud is off the political agenda and rarely makes it into the headlines.