Europol backs takedown of gang smuggling hazardous cars from US

Europol supported an action led by the European Public Prosecutor’s Office (EPPO) in Berlin (Germany) and Vilnius (Lithuania), which involved around 1 000 police, tax and customs officers carrying out 200 searches in ten countries. The investigation targeted a vast criminal organisation active in smuggling badly damaged cars from the United States (US) into the European Union (EU), and selling them to end customers after superficial repair, while defrauding the payment of customs duties and committing large-scale value-added tax (VAT) fraud.

Apart for the budgetary damage to society, this criminal scheme also posed serious dangers to the safety of European consumers, who unknowingly bought hazardous vehicles for a high price. 10 suspects, including one of the suspected ringleaders of the criminal organisation, a Lithuanian citizen, were arrested. In addition, 18 other suspects were detained for questioning, all Lithuanian citizens. Key suspects of Russian nationality are also under investigation.

The investigation, code-named ‘Nimmersatt’ (‘Insatiable’ in German), extended from the US to Russia, with links to Canada, Hungary, Ireland and the United Kingdom (UK), as well as 11 EU countries. Investigative measures were conducted on 15 and 16 April in Bulgaria, Estonia, Germany, Hungary, Latvia, Lithuania, the Netherlands, Portugal, Romania and Spain.

 

Wrecked cars, fake import papers, cosmetic repairs and tax fraud

Criminal organisations exploit the US market for cars damaged in accidents, which are often sold by insurance companies abroad or dismantled for scrap. The criminal group targeted by the EPPO-led investigation bought huge quantities of wrecked cars from US insurance companies at online auctions to then ship them to the EU. By using a network of sham companies and fake invoices to cover the origin of the cars, those vehicles arrived in the EU with their commercial history obscured.

The cars arrived at different ports, including Antwerp (Belgium), Bremerhaven (Germany), Klaipėda (Lithuania) and Rotterdam (the Netherlands). In order to evade a substantial part of the customs duties, the perpetrators presented false invoices to the custom authorities, declaring a much lower value than what they paid for the vehicles.

The cars were then transported by land to Lithuania, to be repaired in auto repair shops. However, based on the evidence, the repairs were only superficial, in order to make the cars appear as new and to pass the required technical certification procedures. Later, when the cars were sold to final customers in Germany and in other EU countries, they were presented as “never having had an accident” or “being fully and professionally repaired”, even when they had hidden damage – including missing airbags or other serious security issues. Less valuable vehicles were sold to Eastern European markets.

In Germany, according to the investigation, the vehicles were sold by car dealers linked to the criminal organisation. It is understood that they fraudulently applied reduced VAT, under the so-called ‘margin taxation scheme’. This provision allows resellers to pay VAT only on their profit margin (the difference between the price paid for the item and the price for which it is sold), when selling second-hand goods bought from private individuals. However, the companies under investigation applied this provision unlawfully, as the cars had been imported commercially, mainly from the US, and in some cases also from Canada. The suspected fraud also allowed the wrecked cars to be sold at a lower market price, thus causing unfair competition.

In Lithuania, the members of the organised crime group are believed to have used Lithuanian companies to also launder their profits from VAT fraud and payments in cash from car buyers. The investigation determined that the Lithuanian cell of the organisation used companies in Bulgaria, Estonia, Hungary, Latvia, Lithuania, the Netherlands and Romania to fraudulently conceal the true turnover of the trade in salvage cars. This Lithuanian cell was established in 2020 and headed by a Lithuanian national who was arrested in the course of this action. From Lithuania alone, at least 16 500 cars were sold for an amount of EUR 144 million.

Complex international criminal chain

Thanks to the joint efforts of the EPPO, Europol, Eurojust and national law enforcement authorities, the investigation uncovered an extremely complex criminal scheme with ramifications in 18 countries. The individuals targeted by this operation were the criminal organisation’s leading members from Russia and Lithuania, as well as suspects responsible for the import and transport of the vehicles as well as dozens of car dealers.

The damage caused by these criminal activities, which is still under assessment, is estimated to be at least EUR 31 million in unpaid VAT and customs duties. Freezing orders of up to EUR 26.5 million were granted. For the time being, bank accounts were frozen, and 116 cars worth approximately EUR 2.3 million were seized, as well as EUR 0.5 million in cash and luxury items.

Europol’s role

Europol collected and analysed contributions by its partners, with the outcomes shared as analytical reports (such as cross-references in Europol’s databases), travel intelligence reports (to support the monitoring of main suspects) or financial intelligence reports (to identify as wide a possible overview of the financial circuits of the criminal activity to facilitate asset recovery measures). On the action day, Europol established a virtual command post for communications between the investigation teams and the central command centre set up in the EPPO headquarters. One Europol expert with a mobile office was deployed to the central command centre while six Europol digital forensics experts were deployed to the actions in Lithuania and Latvia, supporting on the spot.

This investigation took place in the framework of an EMPACT Operational Action to combat organised crime groups involved in VAT fraud and other financial crime in the field of importation and trade of crashed cars from third countries (such as the US) into the EU. This EMPACT Operational Action is led by Lithuania and supported and coordinated by Europol from the very first instance when Lithuania shared information about this new modus operandi. 13 countries took part in a SIENA string that allowed them to share information about national investigations that would then develop into EPPO cases.

The EPPO is the independent public prosecution office of the European Union. It is responsible for investigating, prosecuting and bringing to judgment crimes against the financial interests of the EU. This investigation involved 16 European Delegated Prosecutors and counted on the support of the Dresden tax office in Germany, the Financial Crime Investigation Service (FCIS) in Lithuania, Europol, Eurojust and law enforcement forces from several countries. The cooperation with UK tax authorities was also crucial to the inquiry.

More information: Europol