EU Court Freezes $77 Million in Alleged VAT Fraud Scheme Involving Chinese Nationals

The European Public Prosecutor’s Office (EPPO) in Rome is investigating a large-scale customs and VAT fraud scheme involving 13 Chinese nationals and four Italians. The syndicate is accused of illicitly importing clothing, shoes, and accessories from China into the European Union, evading taxes through fraudulent financial maneuvers.

On March 6, Italian authorities executed a judicial order in Florence, leading the Guardia di Finanza to freeze 71.05 million euros ($77 million). The syndicate reportedly exploited the EU’s Customs Procedure 42, which exempts import VAT at ports of entry if goods are destined for another EU country. The contraband was funneled through Bulgaria, Hungary, and Greece before reaching distribution hubs in Italy.

To facilitate the scheme, the syndicate allegedly created 29 front companies in Florence, Prato, and Rome, shutting them down within two years to evade detection. Fake invoices for non-existent transactions were generated to further obscure the paper trail. Additionally, the network operated an underground money transfer system, bypassing financial intermediaries and offering its services to Chinese nationals in Italy.

This case follows a series of financial crime crackdowns by EU authorities. In 2024, investigators dismantled a money laundering operation that processed a million euros daily. Spanish law enforcement arrested the kingpin and four associates in raids across Alicante, Barcelona, Madrid, and Valencia, confiscating 160,000 euros in cash. The operation had ties to counterfeit goods, prostitution, and customs fraud, with funds moved through clandestine banking networks.

In another probe later that year, EU prosecutors froze 116 million euros ($126 million) in assets linked to a 113-million-euro ($137 million) tax evasion scheme. Authorities raided 20 locations across Italy, seizing luxury vehicles, real estate, and bank accounts associated with 33 individuals. Some suspects were placed under house arrest with electronic monitoring, while others faced imprisonment or routine police check-ins.

Investigators believe these schemes were part of a broader underground banking network that funneled illicit funds across multiple EU countries, ultimately transferring them to China. Authorities estimate the total proceeds from such operations reached 500 million euros, linked to a complex international tax fraud involving “missing traders.” Hundreds of containers of smuggled goods followed a similar route, entering the EU through Bulgaria and Greece before being distributed in Italy.