Criminal Networks Drain €45B from EU Through Systematic VAT Fraud

The Portuguese Tax and Customs Authority and customs authorities across the European Union are confronting an unprecedented crisis: criminal networks predominantly composed of individuals of Chinese origin have systematically captured control of the entire VAT and customs duty fraud supply chain, siphoning an estimated €45 billion from EU and member state budgets in 2025 alone. The European Public Prosecutor's Office (EPPO), in its 2025 annual report released this week, warns that this type of organized crime has been "ignored or tolerated for too long" and now threatens to suffocate legitimate European businesses through ruthless, artificially low pricing.

Why This Matters:

• Portugal's tax receipts are directly impacted—VAT and customs fraud drains national and EU budgets that fund infrastructure, healthcare, and public services.

• Legitimate Portuguese businesses face unfair competition from criminally subsidized goods, particularly in textiles, electronics, and e-commerce sectors.

• Border security weaknesses at major European ports enable these networks to infiltrate the single market, with Piraeus port in Greece emerging as the central entry point for fraudulent imports.

Criminal Control From Factory to Market

Unlike traditional tax evasion schemes, the networks identified by EPPO operate with industrial sophistication. They manage the entire criminal value chain: sourcing goods directly from factories, deploying underground banking systems to repatriate profits, and establishing complex front-company structures across multiple EU member states to handle logistics, customs clearance, and distribution.

According to the EPPO report, these organizations are "largely present in the main ports and commercial terminals in Europe, where they seek to control the customs entry process." Investigators have documented how individuals of Chinese origin have been identified staffing and managing operations at critical bottlenecks—customs brokers, warehouse facilities, and transport hubs—effectively converting legitimate infrastructure into nodes of organized crime.

The fraud mechanism is multi-layered. Merchandise entering the EU from China is systematically undervalued or misclassified on customs declarations. A shipment of electric bicycles might be declared as spare parts; high-value electronics are labeled as low-tariff consumer goods. False documentation accompanies the goods across borders.

Once inside the EU, criminals exploit Customs Procedure 42 (CP42), a legitimate mechanism designed to facilitate intra-EU trade. Under CP42, importers can defer VAT payment in the country of entry if goods are destined for another member state. The fraud occurs when merchandise is instead released into the domestic market of the entry country and sold at artificially suppressed prices—no VAT is ever collected, and the paper trail points to nonexistent or shell companies in other member states.

Bulgarian and Spanish companies frequently appear as "missing traders" in these schemes, their identities usurped without their knowledge to create the appearance of legitimate intra-community transactions. Portuguese authorities have participated in several multi-country investigations targeting these operations, including cases where Portugal-based shell companies were used to launder fraudulent invoices.

Operation Calypso and the Piraeus Gateway

In September 2025, EPPO executed Operation Calypso, the largest container seizure operation in EU history. Acting on intelligence gathered across 14 countries, investigators impounded 2,435 containers at Piraeus port, containing textiles, footwear, e-scooters, and e-bikes. The estimated loss from that single operation: €700M to €800M in unpaid customs duties and VAT.

The choice of Piraeus was not accidental. The port, majority-owned by the China Ocean Shipping Company (COSCO) since 2016, has become the primary gateway for Chinese imports entering Southern and Central Europe. EPPO's investigation revealed that Greek customs officials and private clearance agents were complicit in the scheme. Authorities arrested several customs officers; one had €2.7M in cash in his office during a June 2025 raid.

Beyond Piraeus, fraudulent goods flow to distribution centers in France, Italy, Poland, Portugal, and Spain, where they enter the retail market. The scale of underreporting is staggering: in some cases, only 5% of actual unit quantities were declared, allowing criminals to evade not just VAT but also anti-dumping tariffs designed to protect European manufacturers.

Laura Kövesi, the European Chief Prosecutor, warned that "the EU is being invaded" by these organizations and that VAT and customs fraud has become "the most powerful crime" in the Union, displacing traditional illicit activities because it offers "very high profits with relatively low risks."

Impact on Portuguese Residents and Businesses

For individuals and companies in Portugal, the consequences are both fiscal and economic. National tax revenues that should fund pensions, healthcare, and education are diverted into criminal hands. Meanwhile, Portuguese manufacturers and retailers—particularly in textiles, footwear, and electronics—must compete against goods sold at prices that factor in zero tax compliance.

The Portuguese textile industry, represented by the National Association of Clothing and Apparel Industries (Anivec), publicly accused Chinese e-commerce platforms such as Shein, Temu, and Alibaba in February 2025 of perpetrating "the biggest tax fraud of the century," alleging these platforms fail to provide proof of VAT or customs duty payment on goods shipped to Portugal.

Portuguese Customs and the Portuguese Tax and Customs Authority are under pressure to tighten controls, but the EPPO report makes clear that purely national efforts are insufficient. These networks operate transnationally, exploiting regulatory gaps and information silos between member states.

José Ranito, the Portuguese European Prosecutor attached to EPPO, has consistently flagged external border controls at ports and airports as a critical vulnerability. His warnings have now been vindicated by the operational findings from Calypso and related investigations.

What Portuguese Consumers Should Know

If you purchase from Chinese e-commerce platforms like Shein, Temu, or Alibaba, here are key points to understand:

• Verify VAT compliance: Legitimate retailers should clearly show VAT details at checkout. If a platform fails to itemize or charge VAT on shipments to Portugal, this may indicate tax evasion.

• Consumer protections remain: Portuguese consumer law protects you regardless of whether a seller has complied with tax obligations. Defective goods can still be returned within statutory periods.

• Report suspicious activity: The Portuguese Tax and Customs Authority encourages residents to report suspected tax fraud on imported goods. Suspiciously low prices on mainstream products (textiles, electronics, footwear) can warrant reporting.

• Watch for counterfeit goods: Fraudulent shipments often include counterfeit products. Report suspected fakes to local authorities and the platform.

Neither Shein, Temu, nor Alibaba have formally responded to the Anivec accusations as of late 2025. The Portuguese government has not taken direct enforcement action against these platforms, though ongoing investigations by EPPO may result in operational consequences.

Broader Fraud Landscape and New Rules

VAT and customs fraud represents 67% of the total €67.27B in estimated damages under investigation by EPPO, even though it accounts for only 27% of the 3,602 active cases. In contrast, subsidy and payment fraud—including abuse of the EU's Recovery and Resilience Facility (RRF)—makes up 68% of investigations but only 27% of financial damage.

EPPO opened 2,030 new investigations in 2025, a 35% increase year-over-year. Cases tied to Recovery and Resilience Programs surged 66.7%, with 512 investigations now active. EPPO warns that the December 2026 disbursement deadline for RRF funds carries "elevated risk for fraud and corruption."

On the enforcement side, EPPO achieved a 95% conviction rate in 2025 and filed 275 indictments, up 34% from 2024. Courts authorized the freezing of €1.13B in criminal assets, though only €288.93M has been successfully seized so far.

In response to the fraud epidemic, the European Commission introduced new transparency rules for e-commerce VAT on January 1, 2026. Payment service providers must now track cross-border transaction beneficiaries and report data to member state tax authorities. Additionally, the EU is moving to eliminate the €150 VAT exemption for small parcels from third countries—a loophole heavily exploited by Chinese platforms. A transitional flat-fee system is expected in 2026, with full enforcement by 2028.

Portugal is also implementing a mandatory real-time e-invoicing system in 2025, aligning with broader EU digitalization efforts. The goal: enable tax authorities to cross-reference VAT declarations, customs data, and electronic invoices in real time, flagging discrepancies automatically.

A Criminal Industry That Dominates Entire Sectors

EPPO's report uses unusually stark language, noting that in certain economic sectors, criminal organizations have moved "beyond mere infiltration" to outright dominance, "suffocating legitimate economic operators with unfair competition." The reference is to textiles, consumer electronics, and e-mobility products—categories where imports constitute a significant share of the EU market.

The criminal model is appealing because it combines low enforcement risk with extraordinary profitability. Unlike drug trafficking or human smuggling, VAT fraud rarely results in violent confrontations and often goes undetected for years. Investigators have found links between these networks and higher-risk activities, including narcotics and human trafficking, suggesting a blurring of criminal specializations.

Underground banking systems—known as "hawala" or informal value transfer networks—allow profits to be repatriated without passing through regulated financial channels, further complicating law enforcement efforts.

Portugal's Response and What Residents Can Expect

EPPO's investigations continue, with follow-up operations targeting additional criminal networks identified during Calypso. The agency currently includes 24 EU member states and operates as an independent, specialized prosecutorial body with jurisdiction over crimes damaging the Union's financial interests, including cross-border VAT fraud exceeding €10M.

For Portugal, the stakes are clear: stronger customs controls, enhanced digital tools, and deeper cooperation with EPPO and Europol are essential to prevent the country from becoming a conduit or victim of these schemes. The Portuguese government, through its Tax and Customs Authority, is implementing real-time e-invoicing and strengthening border inspections at major ports and airports. Residents can expect tighter scrutiny of cross-border e-commerce purchases and, eventually, more consistent VAT charging on goods from third countries.

The alternative to robust enforcement is a continued erosion of tax revenues and the slow strangulation of industries that operate within the law.