Money Laundering, Terrorism and Financial Institutions - USA Patriot Act Monitor

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4/13/2007 FATF Studies Growing Threat of VAT Carousel Fraud

VAT carousel fraud is a term that describes a number of activities whereby criminals, and possibly terrorists, make VAT reclaims though a significant initial payment was never made. VAT carousels usually involve a number, sometimes hundreds, of transfers, on some of which VAT will actually be paid, but where the amount paid is substantially less than what is claimed back. Goods frequently leave the EU at some point in the carousel so that the audit trail is broken. There are sometimes corrupt tax and customs officials involved, and no goods may actually be moved. If there are goods, they are usually small and expensive, such as mobile phones. Once the goods have gone through the carousel of participants, they often end up where they began and the carousel starts again, producing more VAT reclaims. The European Commission estimates that VAT frauds cost EU members 60 billion euros annually. Though the U.S. does not have a VAT system, funds may be moved into U.S. financial institutions because such institutions are often unfamiliar with this type of fraud and do not recognize the “red flags” as easily as do European institutions. VAT carousel fraud and the recent FATF report will be the subject of an article in the June Monitor. Also, the Red Flags Checklist is being updated to include more than 20 indicators of VAT carousel fraud.

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