Carousel fraud vs. Cum-Ex: The much bigger tax scandal in the EU that nobody knows about? – Why politicians and the media are silent

The forgotten billion-dollar chaos: Carousel fraud as Europe's biggest underestimated tax fraud

While the Cum-Ex scandal, as the epitome of criminal financial acrobatics, dominated headlines in recent years and shook both politics and the judiciary, a far more massive heist of European taxpayers is taking place in the shadows of public attention: so-called carousel fraud. The figures are as staggering as they are alarming. While Cum-Ex caused total damage of around €150 billion over a period of 20 years – equivalent to an annual average of approximately €7.5 billion – the European Union loses an estimated €50 billion every year to VAT carousel fraud. In Germany alone, up to €15 billion disappears into thin air annually.

Despite these gigantic dimensions, which add up to an unimaginable €1.5 trillion over three decades, the outcry in the media and the public has been largely muted. Carousel fraud is the "silent billion-euro scheme" that systematically undermines the European VAT system. Criminal networks exploit the EU's cross-border trade rules to claim refunds of VAT that was never actually paid to the state. It is a perfectly organized cycle of shell companies, "missing traders," and high-priced goods—from mobile phones and CO2 certificates to luxury cars.

But why is there so little reporting on this permanent state of emergency for the financial authorities? While Cum-Ex, with its prominent bankers and political entanglements, has become a household name, carousel fraud remains difficult for many to grasp due to its technocratic complexity and anonymous structures. Moreover, the scandal reveals a shocking failure of policymakers: authorities often operate in the dark due to a lack of statistical data collection, and crucial IT defense systems were only introduced in Germany with considerable delay.

In this article, we shed light on the shadowy world of Europe's biggest tax scandal. We explain how the scheme works, why Germany is lagging behind in combating it, and why, despite effective solutions like the reverse charge mechanism, it takes decades for the state to put a stop to the thieves. It's the story of a systematic plundering of public coffers that affects us all – and that we finally need to talk about.

Carousel fraud vs. Cum-Ex: The systematic tax scandal that exceeds Cum-Ex annually

• Annual losses from carousel fraud (EU): ~50 billion euros
• Total Cum-Ex damage (20 years): ~150 billion euros
• Average annual value of Cum-Ex transactions: ~7.5 billion euros

What is a carousel business and how does the fraud work?

A carousel fraud, also known as carousel fraud or missing trader fraud, is a widespread form of tax fraud in the European Union that systematically exploits the European value-added tax (VAT) system. It is a highly complex scheme in which several companies in different EU member states collaborate to unlawfully claim VAT refunds that were never paid to the tax authorities.

The basic principle of carousel fraud is based on three essential steps that can be repeated in a cycle. First, a company from one EU country sells goods to an intermediary in another EU country. According to the destination principle, this cross-border supply is VAT-exempt for the seller, while the buyer, although required to pay VAT, can immediately deduct it as input tax. In the second step, the intermediary resells the goods domestically and charges VAT. However, they do not remit this collected VAT to the tax authorities and disappear from the market, which is why they are referred to as a missing trader.

In the third step, the last trader in the chain sells the goods back to another EU country, making this delivery again exempt from VAT. However, this trader can simultaneously claim the input tax paid from the tax office and receive a refund. The result is devastating for the public purse: the missing trader has collected VAT but failed to remit it, while the final trader claims a tax refund. The state pays back money it never received.

In the context of VAT carousel fraud, "disappears from the market" does not necessarily mean a formal bankruptcy, but primarily:

• The company is no longer responding: no tax returns, no contact person, mail goes unanswered.
• Often, it is a shell company/mailbox company that is only used for a few months and then deregistered, liquidated, resold or simply effectively "left to languish".
• Managing directors and backers are usually no longer traceable or are formally only figureheads without assets, so the tax authorities are practically unable to collect the outstanding sales tax.

In practice, this can mean: formal deletion, sham insolvency, relocation of the company's registered office abroad, or simply complete unreachability – the crucial point is that the state can no longer access the money.

Which industries and products are particularly affected?

This fraudulent method traditionally focuses on goods that are low in volume but high in value, as these can be easily transported and moved across borders multiple times. The product range has evolved significantly over time and adapted to changing market conditions.

In the early years, the fraudsters started with simple foodstuffs like onions and potatoes. Later, the focus shifted to high-value, low-volume goods, particularly metals such as aluminum. A particular focus then became the trade in electronic devices such as computer chips, mobile phones, tablets, and game consoles, which, due to their high value and ease of transport, were ideally suited for carousel fraud.

The period of CO2 emissions trading between 2009 and 2010 was particularly spectacular, as fraudsters switched to CO2 certificates. These digitally tradable emission rights made it possible to move enormous transaction volumes within a very short time, without the need to transport physical goods. Europol estimated the damage caused by CO2 carousel fraud at five to ten billion euros. After this loophole was closed, the fraud moved on to the energy sector, initially to gas and electricity, and later to renewable energy certificates.

Currently, carousel fraudsters are primarily active in the beverage and automotive trades. The luxury car market, in particular, has become a preferred area for fraud. The Augsburg public prosecutor's office, one of the leading specialized prosecutor's offices for carousel fraud in Germany, has investigated 350 suspects since mid-2011, bringing charges against 116 individuals.

What are the dimensions of the damage caused by carousel fraud?

The financial losses caused by carousel fraud reach dizzying heights, far exceeding the scale of other tax scandals. According to estimates by experts and Europol, the European Union loses around €50 billion annually to VAT carousel fraud. Over a 30-year period, this damage amounts to an unfathomable €1.5 trillion in stolen tax revenue.

For Germany alone, experts estimate the annual tax losses at between five and 14 billion euros, with some estimates even reaching up to 15 billion euros. The Kiel Institute for the World Economy calculated in 2020 that the damage caused by VAT carousel fraud within the EU could amount to as much as 64 billion euros per year, of which 12 to 15 billion euros were likely attributable to Germany.

However, these figures are subject to considerable uncertainty, as neither the federal government nor the states maintain statistical records on the extent of tax losses caused by VAT carousel fraud. In response to a parliamentary inquiry, the federal government gave an evasive answer, stating that it had no information on the frequency, scale, or amount of the damage. Apart from a simulation exercise in 2005, the federal government has not commissioned any studies on VAT fraud or VAT carousel fraud.

The largest single case uncovered to date is Operation Admiral by the European Public Prosecutor's Office (EPPO). This investigation began in April 2021 with an examination of a small company in Portugal that traded in mobile phones and electronic devices. Within 18 months, the EPPO uncovered a network of almost 9,000 companies and more than 600 individuals, spanning 22 EU member states and numerous third countries. The estimated damage amounted to €2.9 billion, later revised to €3 billion.

Which prominent cases of carousel fraud have come to light?

Several high-profile cases illustrate the scale and professionalism of organized carousel fraud. The Deutsche Bank case involving CO2 emissions trading between 2009 and 2010 is among the most notorious scandals in Germany. Thirteen bank employees were convicted for using the institution as an intermediary in the illegal carousel trading of CO2 emission allowances. The tax loss amounted to €145 million. Deutsche Bank settled the resulting tax debt; the institution itself was not prosecuted, as Germany does not have corporate criminal law.

At the center of the scandal was a department head responsible for the emissions sales division. He was sentenced to three years in prison for dispelling the doubts of other employees and fabricating a supposedly positive audit of a dubious company. The Federal Court of Justice upheld the verdict for aiding and abetting tax evasion.

The case of British national Imran Ahmed illustrates the international dimension of carousel fraud and the difficulties of prosecution. Ahmed, who comes from Preston in northwest England, had been under surveillance by British authorities since 1998 due to possible links to crime and terrorism. Over the years, he built an international network involved in mobile phones, textiles, CO2 certificates, and eventually metal trading.

Ahmed is estimated to be responsible for tax evasion totaling €110 million, of which only €40 million was subject to prosecution. He was arrested at Manchester Airport in November 2010 on suspicion of money laundering, but was released shortly afterward and traveled to Dubai. He remains there to this day, living a life of luxury as a free man. At the time of his arrest, evidence was seized of assets worth over £40 million in real estate holdings in England, India, and Dubai, including two floors in the Burj Khalifa, the world's tallest building.

Since Ahmed is practically unreachable for European justice in Dubai, a two-year suspended sentence was agreed upon with his lawyers. Of the tax evasion originally estimated at one billion euros, only 80 million euros remained at the time of the verdict at the end of 2017. However, only around four million euros were actually recovered, having been secured in time in an Italian bank account.

Another sensational case involved a former mobile phone dealer named Amir Baher, whose name has been changed by the media. The teenager went from being a small-time mobile phone dealer to a multimillionaire. In 2014, he was arrested and convicted of tax evasion amounting to around 40 million euros. His traded goods primarily included mobile phones, game consoles, and CO2 certificates. He earned only a fraction of his money from the actual sale of his goods. He mainly circulated the offered products through various missing trader companies across several EU countries.

In 2024, two men were convicted in Berlin for a Europe-wide carousel fraud scheme involving luxury cars and medical masks. They allegedly failed to pay value-added tax (VAT) and claimed input tax credits. The estimated tax loss was approximately €50 million. The investigation extended across Germany, the Czech Republic, Poland, France, and Croatia. The men were sentenced to ten years and eight years and six months in prison, respectively.

Operation Vortex by the EPPO in July 2025 targeted a carousel fraud involving luxury cars worth at least €100 million. Six people were arrested during coordinated raids in Germany, the Netherlands, Belgium, Hungary, and Slovakia. More than €20 million in assets were seized, including bank accounts, real estate, and luxury vehicles. The criminal groups sold thousands of vehicles using shell companies and forged documents.

Why is carousel fraud so difficult to detect?

Detecting carousel fraud poses immense challenges for tax authorities, challenges inherent in the structure of the fraud itself. The complexity is further increased by the cross-border nature of the transactions, the use of additional shell companies, and other obfuscating elements, making detection virtually impossible for tax authorities.

A key problem is that the companies involved initially remain inconspicuous to the tax authorities. Without a thorough investigation into the background of the scheme, the other companies cannot be held accountable. The missing trader typically disappears from the market after about six months, before the tax office notices the fraud.

The goods go through a cycle in which they change hands multiple times with each additional transaction. With each step, the potential for illicitly high profits increases, while at the same time, tracing the crimes becomes increasingly difficult for investigators. Often, shell companies and front companies are used to manipulate substantial amounts of sales tax.

The cross-border nature of the fraud further complicates prosecution. According to the destination principle, no offsetting with input or output tax from other parts of the supply chain is possible, since the VAT is levied not in the country of origin but in the country of destination. This results in the involvement of various national tax authorities, who often struggle to exchange information.

Investigations typically last several years. The Augsburg public prosecutor's office, considered one of the most competent and dedicated investigative authorities in cases of carousel fraud, has conducted extensive investigations since mid-2011, expanding from an initial small number of suspects to more than 350 individuals. Eight different organizations have been identified that operated multiple carousel fraud schemes. These are highly professional organizations based abroad.

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How does Germany fare in the fight against carousel fraud?

Germany exhibits significant shortcomings in combating carousel fraud, both in data collection and international cooperation. The federal government's responses to parliamentary inquiries reveal a shocking lack of awareness. Neither the federal nor the state finance ministries possess concrete data on the frequency, scale, or extent of damage caused by carousel fraud. Cases involving VAT carousel fraud are not recorded separately in the statistics.

Fabio De Masi, deputy chairman of the Left Party parliamentary group in the Bundestag, sharply criticized this situation: “The federal and state governments are groping in the dark without their own data, while criminals fleece the state of sales tax like a Christmas goose.” Tim Pargent of the Bavarian Greens added: “The lack of concrete data and differentiated statistics in the area of ​​tax and financial crime massively hinders the search for political solutions.”.

A particularly critical point is Germany's hesitant stance towards the European early warning system TNA (Transaction Network Analysis). This system uses artificial intelligence to detect cross-border VAT fraud and was launched in May 2019. Along with the UK, Germany was the only EU country that initially did not actively participate in the TNA system. At the beginning of May 2019, the German government had expressed concerns regarding tax secrecy and data protection.

While other countries were already using the system, Germany spent months examining the structures that would enable this instrument, together with its 16 federal states. Such delays cost the German treasury money every day. Professor Marie Lamensch, an expert on European tax systems at the Free University of Brussels, commented: “If the people in Germany knew this, they would be really angry with the government.”.

In a comprehensive 2020 report, the German Federal Court of Auditors criticized the inadequate IT support for combating fraud. Central national systems for VAT control were outdated. A national IT tool for the European early warning system EUROFISC had not yet been developed. Furthermore, the central fraud prevention agencies lacked the technical infrastructure for automated data exchange.

Furthermore, effective fraud prevention tools have been weakened. The monthly reporting requirement for newly founded businesses, which was an important early warning system, was suspended for several years. Special VAT audits have shown a continuously declining audit rate for years, even though they had proven to be an effective tool for combating fraud.

Are there effective solutions against carousel fraud?

Experts largely agree that the so-called reverse charge procedure is the most effective solution against carousel fraud. This procedure reverses the tax liability: the recipient of the goods or services, rather than the supplier, is responsible for paying the VAT. While the recipient must pay the VAT, they can simultaneously claim it as input tax. The result is a zero-sum game, eliminating the incentive for carousel fraud.

The reverse charge procedure would exempt trade between businesses from VAT, thereby eliminating the incentives for carousel fraud. The missing trader would no longer be able to withhold VAT, as it would not be paid in the first place. At the same time, there would be no more unlawful input tax refunds, since the last trader in the chain would have to pay the tax themselves.

In Germany, the reverse charge procedure is already mandatory for certain fraud-prone sectors and product groups, particularly in the construction sector and in the trade of mobile phones, tablet PCs, computer chips, and game consoles. These measures have significantly reduced fraud cases in the affected areas.

The Bavarian state government and politicians from various parties are calling for an EU-wide expansion of the reverse charge procedure. Fabio De Masi demanded: “Finance Minister Olaf Scholz should advocate for a reverse charge procedure in the EU.” However, Germany’s position in the discussion about a general reverse charge procedure at the European level is unclear.

Another important instrument is the aforementioned TNA system within EUROFISC, the multilateral early warning system of the member states. Through automated data analysis and artificial intelligence, suspicious networks can be detected at an early stage. The system makes it possible to identify transaction patterns that indicate carousel fraud and to quickly exchange this information between member states.

Preventive measures for businesses include the careful vetting of business partners. Suspicious signs include large cash payments, bank accounts in a country other than the business address, doubts about the VAT number or tax registration, and unusually high commissions. Businesses should verify the identity and address of potential business partners at their business address and involve another person who can confirm this verification.

Why is carousel fraud hardly known in the media and the public?

The low public awareness of carousel fraud compared to other financial scandals like Cum-Ex is a complex phenomenon with several causes. The annual damage caused by carousel fraud in the EU, amounting to €50 billion, significantly exceeds the total Cum-Ex damage of an estimated €150 billion over 20 years when comparing the timeframes.

A key reason lies in the complexity of the fraud. While Cum-Ex transactions are also complex, they focus on stock transactions around the dividend record date, making them a more manageable and easily understood concept. Carousel fraud, on the other hand, encompasses a wide range of commodities, is constantly evolving, and extends across multiple jurisdictions. Its mechanics are more difficult for laypersons to grasp than the already complex Cum-Ex system.

Media coverage of Cum-Ex benefited from several factors absent in carousel fraud cases. First, Cum-Ex involved prominent players such as publicly known banks and connections to politicians like Olaf Scholz in connection with Warburg Bank. This personalized reporting generates more public attention than abstract investigations into anonymous shell companies.

Secondly, the intensive investigation by Correctiv, Panorama, and other media outlets into the CumEx Files in 2018 generated sustained media attention. The publication was accompanied by a large-scale media campaign that brought the issue into the public spotlight. Although Correctiv published a comparable investigation into carousel fraud in 2019, “Grand Theft Europe,” which involved 35 media outlets from 30 countries, the public response remained significantly less pronounced.

A key aspect is legal clarity. In 2020, the Federal Court of Justice unequivocally confirmed that Cum-Ex transactions are criminal offenses and not merely a tax loophole. This clear classification as a crime and the resulting convictions, some with lengthy prison sentences, made the issue newsworthy. This clear classification is often lacking in carousel fraud, as many participants are unknowingly drawn into fraudulent chains.

The nature of the media landscape also plays a role. White-collar crime, and tax fraud in particular, are considered complex topics that are difficult to communicate. German media tend to focus on domestic scandals with direct personal involvement. The cross-border and anonymous nature of carousel fraud offers fewer opportunities for personalized reporting.

The lack of statistical data collection in Germany further contributes to the topic's absence from public debate. Without official figures and regular government reports, there are no triggers for recurring news coverage. In contrast, the Cum-Ex scandal involved concrete damage assessments, court cases, and parliamentary inquiries that continuously generated new information.

Another factor is the international dimension. While Cum-Ex was primarily perceived as a German scandal with international entanglements, carousel fraud is a pan-European problem without a clear national focus. This complicates media analysis and reduces the potential for national identification.

The role of investigative journalists and the challenges of reporting on suspected wrongdoing should not be underestimated. In the Cum-Ex case, there were compelling documents and insider information that allowed for clear narratives. In carousel fraud, the perpetrators are often located in Dubai or other jurisdictions outside the EU, making reporting legally riskier and practically more difficult.

Finally, the speed of the investigation also plays a role. Cum-Ex developed into a recurring issue over the years, with regular new revelations, trials, and political consequences. Carousel fraud, on the other hand, has been combated for decades, but without the high-profile events that would generate media attention.

What role does the European Public Prosecutor's Office (EPPO) play?

The European Public Prosecutor's Office (EPPO), which began its work in June 2021, marks a turning point in the fight against cross-border tax fraud. The organization has demonstrated that coordinated European investigations are significantly more effective than unilateral national efforts.

The success of Operation Admiral underscores the power of the EPPO. What began in April 2021 as a routine review of a small Portuguese company evolved within 18 months into the uncovering of the largest VAT carousel fraud ever investigated in the EU. Through cross-border cooperation, the EPPO was able to establish links between nearly 9,000 companies and over 600 individuals, spanning 22 EPPO member states as well as third countries such as China, the United Arab Emirates, Switzerland, and the United Kingdom.

On November 28, 2022, the EPPO conducted coordinated raids in 14 EU Member States, involving over 200 searches. The criminal activities included not only tax fraud but also money laundering and links to organized crime. The investigation revealed evidence of Russian organized crime, with assets being contributed to the operation in exchange for payments and influence over management.

The EPPO achieved its first convictions in Portugal as part of Operation Admiral in May 2025. Ten individuals and 13 companies were found guilty of organizing one of the largest international VAT fraud cases. These convictions represent the first legal outcome of a comprehensive, cross-border investigation that continues to be conducted by the EPPO.

A tolerated billion-dollar fraud?

Carousel fraud represents the largest ongoing tax fraud in Europe, causing annual damage of at least €50 billion across the EU and up to €15 billion in Germany alone. Over three decades, this amounts to €1.5 trillion in stolen tax revenue. This money is then unavailable for investment in education, healthcare, infrastructure, and security.

The low public awareness of this phenomenon stands in stark contrast to its scale. While Cum-Ex, with total damages of approximately €150 billion over 20 years, received intense media attention and led to political consequences, carousel fraud remains largely unknown despite comparable annual losses. This is due to the complexity of the fraud, the lack of personalization, the inadequate statistical recording, and the cross-border nature of the problem.

Germany is lagging massively behind in the fight against crime. The lack of statistical data, hesitant participation in European early warning systems, and inadequate IT infrastructure allow criminal organizations to steal billions every year. The German government has not commissioned any studies on the topic since 2005.

Effective solutions do exist. The reverse charge mechanism has proven effective in the areas where it is applied. Extending it EU-wide would eliminate the incentive for carousel fraud. Furthermore, the successes of the EPPO demonstrate that cross-border investigations can work when the political will is there.

The question of whether carousel fraud is a tolerated form of tax evasion cannot be answered definitively. On the one hand, there are dedicated investigative authorities like the Augsburg public prosecutor's office and successful operations like Admiral. On the other hand, the lack of data collection, decades of inaction regarding effective countermeasures, and low public awareness suggest that the problem is not given the priority it deserves. Every day, around €136 million in tax revenue is lost in the EU—money that citizens ultimately have to bear through higher taxes or reduced public services.

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