The Grey Economy 2016

The Grey Economy 2016 GREY ECONOMY INFORMATION UNIT FINNISH TAX ADMINISTRATION

CONTENTS NEWS ABOUT THE GREY ECONOMY.................................................................................. 3 RESEARCHED AND MEASURED........................................................................................ 7 COMBATING THE GREY ECONOMY.................................................................................... 13 THE NEW OCCUPATIONAL ACCIDENTS, INJURIES AND DISEASES ACT AND COMBATING OF THE GREY ECONOMY.................................................................................................. 23

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1. NEWS ABOUT THE GREY ECONOMY This is an annual publication discussing topical issues concerning the grey economy and its prevention.

This year, combating of the grey economy is the main theme of the publication.

On 28 April 2016, the Government issued a resolution on a national strategy for tackling the grey economy and economic crime for 2016–2020. The steering group for the prevention of economic crime prepared, in a manner laid down in the resolution, a separate action plan to combat the grey economy and economic crime. The action plan was approved by the Cabinet Committee on Economic Policy on 7 June 2016. The new strategy and the action plan are described in more detail in chapter 3 of this publication.

In addition to discussing strategic level issues, the publication also examines the prevention and combating of the grey economy from the perspective of wage earners and consumers. The grey economy can affect wage earners in many different ways. Individuals working in the grey economy often have problems with their pension and insurance matters.

In Finland, the pension security of employees working for an employer committing an employment pension insurance fraud will have full pension security even if their employer has neglected its statutory obligations. In such cases the name of the employer is known to the authorities. However, no pension is accrued if the grey economy is the only source of earnings. The costs arising from the failure to meet pension security, unemployment and accident insurance as well as other statutory obligations are shifted to other parties financing the system (such as taxpayers).

Many authorities in Finland, such as the Finnish Centre for Pensions, occupational safety and health authorities, Unemployment Insurance Fund, pay security authority of the ELY Centres and the Workers’ Compensation Center help to improve employees’ rights and combat the grey economy. The tasks of the authorities listed above in the field of the grey economy are briefly described in this chapter.

Universities and the Finnish Institute of Occupational Health carry out research on the employees’ situation. Some of the recent research results are presented in chapter 2 of this publication (Researched and measured). The same chapter also describes how requiring an operating licence in certain business sectors and the checking of the financial standing of the operators help to safeguard the rights of the consumers.

Chapter 4 contains presentations of the new Occupational Accidents, Injuries and Diseases Act and the Workers’ Compensation Center and its activities.

Occupational safety and health authorities and the grey economy From the perspective of the occupational safety and health authorities, the grey economy is a system where companies try to gain economic advantage by neglecting their statutory payments and other obligations. Undeclared work and misuse of social benefits are also part of the grey economy. A situation where companies try to gain economic advantage by using leased employees and subcontractors that have not met their obligations is also a grey economy phenomenon. There is close cooperation between the authorities in the combating of the grey economy.

The occupational safety and health divisions at the Regional State Administrative Agencies combat the grey economy under the auspices of the Ministry of Social Affairs and Health as part of occupational safety and health enforcement. Occupational safety and health inspectors are responsible for enforcement in areas where not meeting obligations may give a business operator significant economic advantage over companies that observe the law.

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Finland’s Occupational Safety and Health Administration is closely involved in the combating of the grey economy. It will take part in the implementation of the national strategy for tackling the grey economy and economic crime for 2016–2020 and the associated action plan. For the Ministry of Social Affairs and Health, the most important projects in the plan are easier access to information on compliance with the law, establishment of the national income register, cooperation at EU level in the combating of undeclared work, strengthening of authorities’ powers and information exchange provisions, wider application of administrative sanctions and overall improvements in cooperation between the authorities.1 Occupational safety and health divisions take part in the combating of the grey economy by ensuring that employers only use workers who have the right to work in Finland and that minimum statutory requirements are observed in employment relationships. Occupational safety and health authorities are responsible for enforcing compliance with the Act on the Contractor’s Obligations and Liability. The aim is to ensure that companies using leased employees or subcontractors only conclude contracts with partners that meet their statutory obligations. Occupation safety and health authorities and the Finnish Tax Administration are jointly responsible for ensuring that employees working at construction sites carry a photo ID displaying their tax number.

The main tasks of the occupational safety and health authorities in the combating of the grey economy:

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Employers must only use foreign workers that have the right to work in Finland.

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Working hours and overtime hours worked must be in accordance with the law and relevant contracts.

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The employment terms must be at the minimum level required under law. In its enforcement work, the occupational safety and health authorities focus on ensuring that the minimum employment terms of foreign workers are observed.

This means that for work done in Finland, foreign workers must receive the pay laid down in generally binding collective agreements.

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Employers acting as customers must only use leased workers and subcontractors that fulfil the obligations laid down in the Act on the Contractor’s Obligations and Liability.

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Construction sector actors (constructors, project supervisors and employers) must ensure that all employees working at the site carry a photo ID displaying their tax number.

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The project supervisor must have an up-to-date list of the employees working at the construction site.

For work done in Finland, workers must receive the pay laid down in generally binding collective agreements (including overtime pay and supplements).

UNEMPLOYMENT INSURANCE FUND – SUPERVISION OF THE PAYMENT OF INSURANCE CONTRIBUTIONS The task of the Unemployment Insurance Fund is to ensure that the employers fulfil their obligations concerning unemployment insurance contributions. The supervision of the payment of unemployment insurance contributions covers all employers and it is mainly on the basis of comparison of unemployment insurance information and the payroll data received from the Finnish Tax Administration. Employers are also supervised on the basis of the information received through cooperation between the authorities.

Most of the errors discovered in the supervision are the result of human errors by the employers. A common error is that self-employed persons have erroneously declared their own salary to the Finnish Tax Administration as an employee’s salary or a self-employed person’s salary has been declared as part-owner’s salary.

The task of the Unemployment Insurance Fund is to ensure that the employers fulfil their obligations concerning unemployment insurance contributions.

The supervision unit of the Unemployment Insurance Fund cooperates with such bodies as the Finnish Centre for Pensions and the Workers’ Compensation Center. The Unemployment Insurance Fund has been cooperating with the Grey Economy Information Unit since 2015 and as a result the fund now has better access to detailed information about the cases selected for supervision.

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See for example Ajankohtaista työsuojelun kehittämisestä (Latest in occupational safety and health) 7/2016 (in Finnish). Ministry of Social Affairs and Health

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PAY SECURITY SYSTEM The purpose of the pay security system is to ensure payment of employees’ claims arising from an employment relationship in the event of the employer’s insolvency. A pay security application may be submitted by the employee or an employee organisation, which has been authorised by the employee to collect the claims. When the employer has been declared bankrupt, pay security may also be applied for by the bankrupt’s estate. The provisions on this procedure are laid down in the Pay Security Decree.

The claims paid as pay security and the interest on them will be recovered by the state from the employer or its bankrupt’s estate. The Unemployment Insurance Fund pays to the state the difference between the amounts paid as pay security and the capital amounts recovered from the employers. The payments are made each year on an ex-post basis. The funds required for this are collected from employers as unemployment insurance contributions.

The ELY Centre for Uusimaa is the national authority responsible for all pay security matters.

Info box Government proposal to Parliament on amending the Pay Security Act, sections 7 and 26 of the Seamen's Pay Security Act and section 6 of the Act on the Grey Economy Information Unit The Government proposes changes to the Pay Security Act, Seamen’s Pay Security Act and the Act on the Grey Economy Information Unit. The purpose of the proposed changes to the acts on pay security is to provide employees with adequate legal security so that the pay security system would not become an obstacle to the adjustment agreements referred to in the social contract between social partners. Under the proposal, the pay security authority would also have the right to use the obligation compliance reports produced by the Grey Economy Information Unit.

The acts are intended to enter into force on 1 January 2017.

Under the action plan to combat the grey economy and economic crime, the exchange of information between the authorities should be improved. The pay security authority is mentioned in the action plan as an authority in whose case the powers concerning the combating of the grey economy and the need to change the information exchange provisions should be reviewed.

The Government proposes that paragraph 17 should be added to section 6(1) of the Act on the Grey Economy Information Unit (1207/2010). Under the new paragraph, obligation compliance reports would also be prepared for the enforcement of the Pay Security Act and the Seamen's Pay Security Act. The right of the pay security authority to obtain obligation compliance reports would reduce the amount of administrative work. It would also make it easier for the pay security authority to investigate suspected irregularities and would support the efforts to combat the grey economy.

FINNISH CENTRE FOR PENSIONS – SUPERVISION OF EMPLOYMENT PENSIONS One of the statutory tasks of the Finnish Centre for Pensions is to supervise compliance with the insurance obligation of employers and self-employed persons laid down in the employment pension legislation. The aim of the supervision is to ensure that employees and self-employed persons have the pension coverage that they are entitled to and that pension insurance companies can collect the pension contributions in the correct amounts.

Cooperation has helped the Finnish Centre for Pensions to obtain control data from different authorities that it has used in its supervisory activities. In cooperation with the Regional State Administrative Agencies, occupational safety and health authorities and the Finnish Tax Administration, the Finnish Centre for Pensions has carried out control visits at construction sites as part of joint national inspections.

One aim of the joint inspections has been to make the employment pension insurance scheme more widely known and to make supervision more visible. Joint inspections involving several authorities also make the supervision more effective.

In the investigation of cases involving employment pension insurance fraud, the Finnish Centre for Pensions cooperates with the police and pension insurance companies. A criminal investigation is

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often triggered by a tax audit in which undeclared payroll has been uncovered. The Finnish Centre for Pensions investigated a total of about 50 cases of employment pension insurance fraud during 2015.

The Finnish Centre for Pensions has increased awareness of the employment pension insurance fraud by training for the police and other actors.

Info box Employment pension insurance fraud An employer or employer representative who - by neglecting the employee’s pension insurance obligation or another reporting obligation referred to in the law; or - by falsely giving the information that influences the amount of the insurance contribution or the allocation of costs due to pensions: or - by refusing to provide the information referred to above; or - by neglecting to account for an employee’s employment pension insurance contribution that the employer or the employer representative has collected from the employee, to the pension institution managing the pension insurance causes or attempts to cause a failure to assess an employment pension insurance contribution, such contribution to be assessed too low or such contribution to be unduly refunded, is guilty of employment pension insurance fraud.

The punishment for employment pension insurance fraud is a fine or a maximum of two years’ imprisonment. If the act is deemed petty as a whole and a punitive insurance contribution increase is deemed a sufficient sanction, the report of, prosecution for or punishment for the offence may be waived.

WORKERS’ COMPENSATION CENTER The Occupational Accidents, Injuries and Diseases Act (459/2015) entered into force on 1 January 2016.

The act contains new provisions on obtaining information from other authorities. In the supervision of insurance companies and the supervision of statutory accident insurance by the Workers’ Compensation Center, established under the Occupational Accidents, Injuries and Diseases Act, there is also cooperation with the Grey Economy Information Unit.

For a more detailed description of the operations of the Workers’ Compensation Center, see chapter 4.

Info box Accident insurance fraud An employer or employer representative who by 1) neglecting the obligation to provide insurance in accordance with section 156 of the Occupational Accidents, Injuries and Diseases Act (459/2015) or the reporting obligation provided in section 159 or 160 of the said Act; or 2) providing to a person carrying out a function in accordance with the Occupational Accidents, Injuries and Diseases Act false information necessary on the basis of the said Act and affecting the insurance contribution or by refusing to provide information referred to in this paragraph or attempting to avoid the imposition of the insurance contribution, have it imposed too low or have it unjustifiably returned, shall be sentenced for accident insurance fraud to a fine or to imprisonment for at most one year.

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2. RESEARCHED AND MEASURED WORK SAFETY OFFENCES IN FINLAND AND CORPORATE FINES IMPOSED FOR THEM BETWEEN 2010 AND 2014 This article has been jointly written by Anne Alvesalo-Kuusi, Professor in Sociology of Law, and Liisa Lähteenmäki, Senior Research Fellow at the University of Turku.

Only employers can be guilty of work safety offences in Finland. In 2003, provisions were added to the law under which fines for work safety offences can also be imposed on corporations (companies, associations and public sector organisations). Until then, penalties could only be imposed on individuals representing employers. This is called corporate criminal liability and the penalty imposed for such offences is called corporate fine. The purpose of introducing corporate criminal liability was to emphasise corporate liability in offences where the liability of individuals would have become unreasonable.

The aim was also to draw attention to the fact that blameworthy and punishable action by a corporation is often the result of decisions, action or negligence by more than one individual.

It is common that workers are not provided with adequate guidance or familiarised with work procedures

Under the Finnish Criminal Code, there are a total of 80 different offences that are punishable by corporate fine (including economic and environmental offences). However, a corporate fine is usually imposed for work safety offences. In fact, work safety offences account for between 80 and 90 per cent of all corporate fines each year.

In 2014, the Finnish Work Environment Fund, the Finnish Institute of Occupational Health and the University of Turku launched a research project in which the 22-year long legislative history of the corporate fine, and the work safety offences between 2010 and 2014 resulting in corporate fines were examined.

The image of the offences conveyed by the penalties was also examined. Corporate fines are often imposed for negligence concerning the functioning and protection of work equipment and machinery.

Checks on work equipment and machinery are often neglected and it is also fairly common that the dangers and risks arising from the work are not assessed or reviewed. It is also common that workers are not provided with adequate guidance or familiarised with work procedures or that compliance with the working practices observed in the work community is not supervised.

For example, not designing and installing protection against falls will give a company substantial economic advantage, which should be considered when penalties are imposed. Attempts to avoid compliance with statutory work safety provisions can be considered to be part of the grey economy and such action also helps the offenders to gain unfair competitive advantage over other operators.

Number of cases in which the offenders were sentenced to a corporate fine and effectiveness of the sanction Each year, there are about 100,000 accidents at Finnish workplaces resulting in disability or death.

Slightly more than 1,200 of them are registered by the police as work safety incidents and about 200 of this total are processed as offences. Each year about 100 sentences for work safety offences are imposed and in slightly more than 30 of them the penalties are imposed on a corporation (company or organisation).

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Between 2010 and 2014, there were a total 154 work safety offences, which resulted in a corporate fine. The number of corporations sentenced to corporate fine totalled 161. During the same period, district courts and courts of appeal sentenced 805 individuals to penalties for work safety offences.

A total of 773 of them received a fine. In fact, on average, between 2010 and 2014, only one in four work safety offences resulted in a corporate fine.

Under the Criminal Code, the corporate fine is at least EUR 850 and at most EUR 850,000. The average corporate fine between 2010 and 2014 was EUR 10,700 but in most cases the fine amounted to EUR 5,000. The largest fine imposed for a work safety offence during the period in review was EUR 180,000 and the smallest EUR 500.

More than half (54%) of all companies sentenced for work safety offences had a turnover of more than EUR 10 million and only 20 per cent of the companies had a turnover of less than two million.

Corporate fines were also imposed on companies that had made a loss in the accounting period preceding the sentence. There were a total of 48 such companies. However, only 13 per cent of the companies receiving corporate fines did not have any distributable funds and only two of the companies have subsequently been declared bankrupt. The average solvency ratio of the companies sentenced for work safety offences was 33 per cent.

The corporate fines imposed for work safety offences over the years have been quite small. Their guidance impact on the operations of corporations is often negligible because the corporate fines imposed between 2010 and 2014 only accounted for an average of 0.15 per cent of the turnover and for an average of 3.5 per cent of the yearly profits of the corporations in question.

Between 2010 and 2014, a total of 25 per cent of all corporate fines arising from work safety offences were imposed by the District Court of Pirkanmaa. Ostrobothnia came second (23%) but this was the result of the work of two district courts: District Court of Ostrobothnia (13%) and the District Court of South Ostrobothnia (10%). During the same period, the District Courts of Vantaa, Southwest Finland, Lapland and Espoo imposed only one corporate fine each. The substantial differences in the number of sentences in the form of corporate fines cannot, however, be explained by differences in crime rates. It is probably a question of the competence of the Regional State Administrative Agencies, their willingness to pursue the cases and the efforts of the prosecutors and the police.

To a large extent, the size of the fines imposed by the courts depends on what the prosecutor demands.

The consequences of the offence are also a determining factor: If the victim of a work safety offence had died, the fine was almost twice as high as the average of all cases. Likewise, if there were several victims suffering disabilities as a result of the offence, the fine was almost as high as in cases involving deaths. During the period in review, penalties were imposed in only 11 cases where there were no direct victims. In such cases, the average fine was EUR 3,500 smaller than in all cases. In cases where the duration of the offence had been given, the average duration was 525 days. However, the duration of the offence did not seem to have any impact on the amount of the fine.

Economic advantage As stated above, corporate fines are often imposed for negligence concerning the functioning and protection of work equipment and machinery. Not carrying out the necessary supervision, familiarisation, risk assessment and checks may also help a company to gain substantial economic advantage. Such negligence may benefit companies for many years before an accident resulting in injuries or death occurs.

The problem is that it is difficult to determine the value of such benefits by reviewing a company’s accounts because they are not entered in the books.

Determining the benefits arising from non-compliance with a statutory obligation is also problematic in the light of the cases examined in the project. For example, the structures providing protection against falls referred to above (such as scaffolding and guardrails) must not only be purchased and installed.

They must also be dismantled and taken away. All these work stages require staff inputs and take time.

Trying to avoid such expenses is part of the grey economy.

However, during the period in review, the prosecutors demanded a forfeiture order (confiscation of the proceeds of crime) in only 16 cases, or ten per cent of the total. The proceeds of crime were ordered forfeit in 60 per cent of the cases in which it was demanded (ten cases). This means that the proceeds of crime were ordered forfeit in only six per cent of all cases. On average, prosecutors demanded that EUR 1,900 should be forfeited but the sum actually ordered forfeit only averaged EUR 230. Thus, it seems that there is no clear idea of how companies actually benefit economically by ignoring work safety legislation or how the savings arising from the violations should be calculated.

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OUTSTANDING EMPLOYMENT PENSION CONTRIBUTIONS Employers are by law obliged to take out employment pension insurance for their employees. The purpose of the scheme is to secure the livelihood of the employees after they have retired. At the end of 2014, the outstanding collectible employment pension contributions to pension insurance companies totalled about EUR 304 million. In 2014, employers paid about EUR 11.7 billion in employment pension contributions.2 A company is operating in the grey economy when it neglects its statutory reporting and/or payment obligation for reasons other than insolvency in order to avoid the payment of employment pension contributions. When acting in this manner, the company may also be guilty of employment pension insurance fraud under the Criminal Code. The employment pension scheme is jointly supervised by the Finnish Centre for Pensions and pension insurance companies.

In 2015, the Grey Economy Information Unit investigated the amount of the outstanding employment pension contributions, typical features of the debtors and compliance with the obligations in cooperation with pension insurance companies and the Finnish Centre for Pensions. The investigation was carried out in companies that had outstanding pension contributions and whose insurance contract was in effect at the end of 2014. A total of 17,300 companies and self-employed individuals with outstanding pension contributions totalling about EUR 190 million were selected for the investigation.

Employers with outstanding employment pension contributions are typically small enterprises Limited liability companies accounted for 88 per cent of all outstanding employment pension contributions. Most of the debtors were relatively small enterprises (turnover less than EUR 400,000).

More than 60 per cent of the debtor companies were established businesses that had existed for at least ten years.

Typical grey economy sectors are well represented Of the companies in the target group, 18 per cent operated in the construction sector, 17.5 per cent in the trade sector and 10 per cent in industries. However, the hotel and restaurant sector accounted for the largest proportion of companies with outstanding pension contributions. A total of 22 per cent of the hotel and restaurant enterprises with pension insurance contracts had outstanding liabilities.

In euro terms, industrial companies accounted for the largest proportion of outstanding employment pension contributions.

Companies with outstanding pension contributions owe money to many creditors According to enforcement information, a company with outstanding employment pension contributions typically owed money to a large number of creditors. In many of these companies, there are also irregularities concerning the management of other statutory obligations. There were irregularities in such areas as the declaration and payment of taxes.

About half of all the companies investigated also had tax debts, which totalled about EUR 288 million. The tax debts of the companies in the target group grew rapidly during the monitoring period. In October 2015, they totalled about EUR 375 million, which was twice as much as the outstanding pension contributions. These companies also had other substantial debts subject to enforcement.

A company that has not paid its pension contributions typically owes money to a number of creditors.

In about nine per cent of the companies with tax debts, tax debts accounted for more than ten per cent of the turnover. The investigations carried out by the Grey Economy Information Unit have shown that if the tax debts account for more than ten per cent of a company’s turnover, the company will be in a much weaker position to manage its tax debts.

Networking under a single manager The financial standing and other business contacts of the senior managers of the targeted companies were also examined in the investigation. There were only a few company clusters in the target group.

However, more than half of the senior managers of the companies in the target group also held responsible positions in other enterprises. The proportion of the other companies in which these persons also held responsible positions was significantly higher than the average for senior managers of companies entered in the Trade Register.

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This is the total sum given by the five biggest pension insurance companies.

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The tax debts of the companies in the target group and other companies in which the persons in question held senior positions were also investigated. If the company in the target group had tax debts, about 46 per cent of the other companies in which the targeted company’s senior manager held senior posts also had tax debts. The realised business risks increase the risk of over-indebtedness in the senior manager’s other companies.

Failure to comply with obligations has wider implications Failure to comply with statutory obligations has an impact on the competition between companies as it gives a competitive edge to enterprises that have no intention of meeting their obligations. Such companies are grey economy operators. This is one reason why in a situation where a company’s debts are growing at a rapid rate, public sector creditors must remain alert and have the instruments to intervene at an early stage.

Info box Corruption offences reported to the police in Finland The characteristics of and changes in corruption offences were examined in the surveys published by the Police University College in 2015 and 2016. Corruption means misuse of a responsible position for private gain.

According to a survey published in 2015, public procurement, political operating environment, construction sector and urban planning are some of the areas in which there is a high risk of corruption. According to a survey published in 2016, misuse of funds remains the most common type of corruption offence. Misuse of information is the other important corruption category. In fact, the role of information as a benefit offered in corruption cases has increased. The suspects are often men, middle-aged individuals and senior salaried employees.

Nowadays, suspected cases increasingly involve business operations (transactions inside and between companies). Petty corruption has decreased while corruption taking place in the corporate world is playing a greater role.

In the investigation of corruption cases, the biggest challenge is to get evidence as the cases are often vague. The fact that less than 60 per cent of all suspected corruption offences progress to consideration of charges gives some idea of the situation.

On 20 September 2016, Finland’s anti-corruption cooperation group published a draft strategy for combating corruption in the years 2016 - 2020. The draft strategy and the comments on it can be viewed at lausuntopalvelu.fi (in Finnish).

EXCHANGE OF INFORMATION BETWEEN THE AUTHORITIES IN SECTORS WHERE OPERATING LICENCES ARE REQUIRED Many of the investigations carried out by the Grey Economy Information Unit have been prompted by the strategy to step up activities to prevent grey economy activity and economic crime for 2012-2015 under which obstacles to exchange of information between the authorities will be dismantled and the necessary registers will be made available to the authorities combating the grey economy in a flexible manner.

A similar objective was contained in the Government’s proposal for the 2016 state budget to Parliament: The combating of the grey economy will be made more effective by improving taxation procedures, controls and cooperation between the authorities.

One of the main aims of the strategy for tackling the grey economy and the economic crime for 20162020 is to make the activities of the authorities combating the grey economy and economic crime more effective by improving cooperation between them. Under the strategy, the exchange of information between the authorities will be improved by identifying the barriers to the exchange of information, by developing information exchange practices and by allowing the authorities to use the information in the identification of grey economy operators by means of analysis.

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In its reports, the Grey Economy Information Unit has also discussed the issue of whether the information access rights of the licensing and supervisory authorities are adequate from the perspective of combating the grey economy. Some of these reports are presented below.

Reports on companies supervised by Regional State Administrative Agencies Regional State Administrative Agencies serve as the regional expert, licensing and supervisory authorities in competition and consumer protection matters.

In the competition and consumer protection administration and in the supervision of business operations, the aim is to promote healthy and effective competition, safeguard consumer rights and financial security of citizens and to provide a fair playing field for self-employed persons. The tasks of the Regional State Administrative Agencies range from the supervision and licensing of debt collection agencies, creditors and real estate agents to the manner in which these operators give their prices. The activities of the Regional State Administrative Agencies in matters concerning business operations are guided by the legislation, ministries and cooperation with other agencies, such as Valvira and the Finnish Competition and Consumer Authority.

The Regional State Administrative Agency for Southern Finland is also responsible for supervising compliance with the Act on Detecting and Preventing Money Laundering and Terrorist Financing (503/2008) (hereafter the Act on Money Laundering)Â and the provisions issued under it on a nationwide basis. Money laundering means activities the aim of which is to conceal or obliterate the origin of property acquired through an offence or proceeds of crime so that the appearance is that the property or proceeds are obtained in a legal manner.

Under the Act on Money Laundering, businesses operating in certain sectors are obliged to report on their activities to the authorities. Regional State Administrative Agencies are responsible for ensuring that the operators subject to the reporting obligation comply with the provisions of the Act on Money Laundering. The operators supervised by the Regional State Administrative Agencies include currency exchange agencies, providers of asset management and business services, debt collection agencies, providers of consumer credit, pawnshops, real estate businesses and apartment rental agencies.

Reports During 2016, the Grey Economy Information Unit investigated currency exchange agencies and providers of asset management and business services, which are regulated under the Act on Money Laundering. The manner in which the registered companies comply with their obligations was also examined from the perspective of the combating of the grey economy. The money laundering provisions apply to currency exchange operations, asset management services and business services because the operations in question involve large transfers of money and assets.

Seeing the irregularities of a company's financial standing is an essential part of the prevention of grey economy operations

In the companies supervised by Regional State Administrative Agencies, the Grey Economy Information Unit also investigated the registration obligation prerequisites of providers of consumer credit, real estate businesses and apartment rental agencies, the registration process and inadequacies in the process. The prerequisites for granting operating licences to debt collection agencies, pawnshops and lost property offices, the licensing processes and inadequacies in the processes were also investigated. The manner in which the registered companies comply with their obligations was also examined from the perspective of the combating of the grey economy.

Conclusions Based on the investigations referred to above, the conclusion is that there are registered companies that do not manage their obligations in a manner required of companies entered in the registers. A large proportion of the companies entered in the registers could be classified as inactive. Many of the companies had also been removed from the prepayment register and a significant percentage of them had tax debts. Some of registered companies could also be characterised as grey economy operators.

The supervisory risks of the companies in the target group and new companies considered for registration and licensing are connected with registration, notification and payment irregularities that may also involve the risk of grey economy. For example, studies have shown that a company with substantial tax debts may at some point become a grey economy operator. For this reason, identifying irregularities (both tax debts and other matters concerning a company’s financial standing) is an essential part of the prevention of grey economy operations.

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The reports compiled by the Grey Economy Information Unit and referred to above clearly show that better access to information produced by different authorities would allow Regional State Administrative Agencies to supervise licence registers more effectively. Effective use of the information would limit the freedom of grey economy operators as businesses misusing the system would be forced out of the market. It would also provide a better basis for smooth and safe services for consumers.

Info box According to the International Monetary Fund, the tax gap in Finland is small3 The Finnish Tax Administration and the International Monetary Fund (IMF) have assessed the value added tax gap in Finland. The IMF’s method for calculating the value added tax gap is based on national accounting data as well as data from the Finnish Tax Administration and Finnish Customs on VAT returns and payments received. National accounting data is used to determine the tax revenues legally due. On the basis of taxpayers’ returns and payment data, the amount of value added tax declared that has been paid is calculated i.e. the actual revenue.

The value added tax gap means the difference between expected VAT revenue according to the law and actual revenue.

Compared with other countries, the value added tax gap in Finland is very small, about five per cent of the potential VAT revenue under law. In 2014, the VAT tax gap totalled about one billion euros.

When individual sectors are examined, the construction sector accounts for the highest proportion of the tax gap. However, there has been an increase in the accumulation of VAT revenue from the construction sector after the introduction of the reverse charge obligation for construction services in 2011. The trade sector accounts for most of the VAT payments. The concentration of the sector into a few large corporate groups with good obligation compliance record is an important reason why the VAT gap in retail trade is low.

GREY ECONOMY CONNECTED WITH THE TAXATION OF TOBACCO PRODUCTS The rise in the prices of domestic tobacco products boosts tax free imports, smuggling and other grey imports outside the scope of taxation. This is because the price differences between Finland on the other hand and Estonia and Russia on the other are substantial.

It is estimated that the consumption of untaxed cigarettes that is not entered in the statistics has remained more or less unchanged in recent years. In 2014, it accounted for between 13 and 15 per cent of the total consumption.

Supervising online commerce is difficult

VAT gap means the difference between expected VAT revenue according to the law and actual tax revenue.

Supervision of electronic commerce involves challenges from the perspective of the authorities. These include the identification of the taxpayers, supervision of payment transactions, collection of comparative data and the challenges arising from international legislation and administrative assistance.

The new Tobacco Act also helps in the combating of the grey economy Finnish Parliament approved the new Tobacco Act on 21 June 2016 549/2016. The act entered into force on 15 August 2016. The new Tobacco Act prohibits the online and other distance sales of tobacco products and electronic cigarettes. The time limit of 24 hours is imposed on the imports of tobacco products and nicotine liquids for electronic cigarettes from outside EEA countries. This means that in order bring such products into Finland, one has to stay outside the country for more than 24 hours.

The purpose of these reforms is to combat the grey economy and it will have an impact on consumption that is not entered in the statistics.

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To view the survey, go to https://www.vero.fi/en-US/Tax_Administration/News/News_from_the_Tax_Administration/ IMF_Report_Finlands_uncollected_tax_gap_(39259)

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3. COMBATING THE GREY ECONOMY STRATEGY AND ACTION PLAN FOR TACKLING THE GREY ECONOMY AND ECONOMIC CRIME For more than two decades, Finnish governments have prepared programmes for combating the grey economy and economic crime. In spring 2016, the Government issued a resolution on a national strategy for tackling the grey economy and economic crime for 2016-2020 and an action plan as part of the strategy. This was the seventh such strategy produced by Finnish governments.

Strategic objectives The strategic objectives of the action against the grey economy and economic crime are to 1.

promote healthy competition between companies

2.

prevent the grey economy and economic crime

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increase the effectiveness of the action taken by the authorities responsible for tackling the grey economy and economic crime by improving their cooperation, and

4.

enhance the process of combating crime related to the grey economy.

The grey economy is a significant factor in distorting competition. Reducing its size will increase not only Finland’s competitiveness but also our attractiveness as a good investment destination and a reliable investor. Honest competition between companies will be promoted so that illegally operating businesses do not gain undue competitive advantage in the market. The aim is to ensure corruption-free business and a level playing field for all companies.

Four key projects

Reducing the size of the grey economy will increase not only Finland’s competitiveness but also our attractiveness as a good investment destination.

The strategy presented by the Government comprises four key projects. The aim of the first key project is to ensure well-functioning markets and healthy competition by providing companies and individuals with better opportunities to act honestly, by reducing their administrative burden and by enhancing anti-corruption action. Increasing the openness and availability of the information on the meeting of companies’ obligations (especially the information concerning contractor’s obligations) and the introduction of a national income register are two of the measures that will help to put the key project into practice. The legislation on the income register is under preparation in the Ministry of Finance.

In the second key project, proactive intervention in the phenomena associated with the grey economy and economic crime and influencing attitudes, the focus will be on a situation awareness function concerning the grey economy and economic crime. The function will be prepared by the management group on the fight against economic crime in the Ministry of the Interior.

In the third key project, the aim is to improve the exchange of information between the authorities.

Combating of the grey economy will be made more effective by increasing the exchange of information between the authorities in matters concerning the management of registration, declaration and payment

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obligations concerning taxes and other charges and fees collected by central and local government.

Providing occupational safety and health authorities, bodies granting public aid and parties involved in public procurement with more extensive access to information are some of the concrete projects in this area.

The focus in the fourth key project will be on making the process of combating the crimes committed as part of the grey economy and the administrative sanctions more effective. It involves a number of sub-projects the aim of which is to speed up and streamline the criminal procedure in economic offences and the process of recovering the proceeds of crime in connection with them. An example of the concrete measures connected with this key project is a joint action plan of the authorities in which the aim is to clarify and harmonise the work carried out by authorities in cases in which a pretrial investigation is launched.

Putting the strategy into practice will require a separate action plan for combating the grey economy and economic crime. The action plan will set out the concrete measures, their objectives, parties responsible for the measures, timetables and the tools for assessing the impacts of the measures.

The management group on the fight against economic crime will monitor the progress of the strategy and the action plan, assess the need for making changes in them and report on the progress of the projects to the Cabinet Committee on Economic Policy each year.

ACTION PLAN TO COMBAT THE GREY ECONOMY AND ECONOMIC CRIME FOR 2016-2020 The action plan contains a total of 20 projects, which are grouped in accordance with the key projects laid out in the strategy. The measures that are central to achieving the objectives set out in the national strategy for tackling the grey economy and economic crime and that will have the widest impact are included in the action plan.

The projects laid out in the action plan are grouped under the key projects as follows:

Ensuring well-functioning markets and healthy competition by providing companies and individuals with better opportunities to act honestly, by reducing their administrative burden and by enhancing anti-corruption action

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Increasing the availability of and free access to information on the fulfilment of obligations and on potential grey economy operators

• •

National income register

• •

More effective prevention, identification and uncovering of corruption

Regulatory burden arising from the tackling of the grey economy and economic crime and monitoring of the burden Cross-sectoral study on how to combat the grey economy in sharing economy

Proactive action against the phenomena associated with the grey economy and economic crime and influencing attitudes

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Situation awareness function to combat the grey economy and economic crime

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Tackling undeclared work and promoting cooperation at national level and internationally

• • • •

Action plan to step up the combating of money laundering Study on the suitability of type-approved point-of-sale systems in Finland Action plan to step up the combating of irregularities in the financial market Promoting the preparation of the control plans laid down in the waste shipment regulation of the EU (EC/1013/2006) so that international shipments of waste can be supervised

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Improving the exchange of information between the authorities

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Providing the authorities with more effective powers and introducing more effective information exchange regulations

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Study on the problems caused by companies declared insolvent during enforcement

Making the process of combating the crimes committed as part of the grey economy and the administrative sanctions more effective

• •

Extending the scope of application of administrative sanctions

• • • •

Study on the effectiveness of uncovering and investigation of tax abuses

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Enhancing enforcement procedures for confiscating the proceeds of crime after final judgment, especially in international cases

The pre-trial investigation authorities, the Office of the Prosecutor General, the Finnish Tax Administration and the Bankruptcy Ombudsman will create an operating model which can ensure the imposition of criminal liability by determining the scope of the pre-trial investigation and by applying effective administrative sanctions Reviewing the scale of punishments for economic offences Reducing the duration of the criminal procedure Cooperation project between the authorities responsible for enforcement, prosecution, pre-trial investigation and taxation to enhance the tracing, safeguarding and confiscation of the proceeds of crime

For more information about the background and implementation of the resolution, visit the website of the Ministry of the Interior at4

Info box Tackling undeclared work and promoting national and international cooperation Combating undeclared work is one of the projects included in the action plan against the grey economy for 2016-2020.

In spring 2016, the European Commission appointed a platform promoting cooperation in the tackling of undeclared work5 in which Finland is also represented. The Ministry of Economic Affairs and Employment has also appointed a national network of experts in which different authorities are represented and the task of which is to support the work of the platform and to help it to achieve its aims.

The platform and the national network supporting it will make it easier for the authorities in different countries to exchange experience in the efforts to combat undeclared work. Exchange of best practices and information between the Member States is one of the key tasks of the platform. Using the national network and the platform, Finland can encourage the Commission and other Member States “to mirror” individual projects and its own best practices and gather other Member States’ views and similar practices for information and evaluation.

The platform and the national cooperation network will serve as instruments for reducing undeclared work, for improving employees’ working conditions and for promoting integration and social inclusion in the labour market.

Introducing new legislation is one way of tackling the grey economy. Changes are planned in such areas as the legislation on public procurement, business prohibitions, money laundering and the authorities’ right to access information.

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http://www.intermin.fi/en/development_projects/reducing_economic_crime_and_the_shadow_economy

DECISION (EU) 2016/344 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

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LEGISLATION ON PUBLIC CONTRACTS TO BE OVERHAULED The Government has submitted a proposal for legislation on public procurement procedure to Parliament (HE 108/2016). Under the proposed new act on public contracts, the contracting authority would, notwithstanding confidentiality obligations, have the right to obtain information from other authorities and actors with public-service tasks. The right to access information would cover the necessary information on businesses and organisations referred to in section 3 of the Business Information Act (244/2001) so that the existence of the discretionary criteria for exclusion referred to in section 81(1) of the proposed act can be established. Under the Government proposal, the right to access the information would not apply to the senior management of businesses and organisations.

Under the proposed section 81(1), the discretionary criteria for exclusion would include grave professional misconduct, tenderer’s insolvency and non-compliance with obligations laid down in environmental, social and labour legislation. Failure to comply with the registration, declaration and payment obligations laid down in the tax and social insurance legislation may also be considered as discretionary criteria for exclusion. The proposed provision would give the contracting authority more extensive powers to examine how well candidates and tenderers have complied with their statutory obligations and whether they have committed other offences or violations defined as criteria for exclusion.

Under the proposal, a tenderer taking part in the competitive bidding could, on certain conditions, be able obtain the extract of the criminal records of its senior managers or persons with powers of control in respect of the tenderer, which the tenderer would then forward to the contracting authority for establishing the criteria for exclusion referred to in section 80 of the proposed act. Thus, the contracting authority would not be able to obtain this information directly as the tenderers would supply it at the request of the contracting authority.

It is also proposed that section 6 of the Act on the Grey Economy Information Unit (1207/2010) should be amended so that obligation compliance reports could be prepared for the contracting authorities referred to in this section. Using the obligation compliance reports, the contracting authorities could obtain information on compliance with the statutory obligations referred to in this section electronically and free of charge.

GOVERNMENT PROPOSAL FOR AMENDING THE ACT ON BUSINESS PROHIBITIONS Under the Government proposal for amending the Act on Business Prohibitions, the supervisory authorities would have the right to request the pre-trial investigation authorities to examine the prerequisites for imposing a business prohibition in situations which involve substantial non-compliance with statutory obligations in connection with business operations even though the actor in question is not suspected of any crime. The investigation could be carried out by any pre-trial investigation authority.

It is also proposed that the temporary business prohibition will expire if no charges for the criminal conduct used as a basis for the prohibition have been brought within two years of imposing the prohibition.

The pre-trial investigation authorities and the prosecutor would also get better access to information on expired business prohibitions. Under the proposed amendments, the act would also apply to the professional activities of self-employed persons, as referred to in the Accounting Act.

Authorities in different sectors are of the view that it is important that the information on business prohibitions is easily available and can be obtained free of charge

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Info box The authorities would like to have better access to information on business prohibitions One of the key projects contained in the action plan for tackling the grey economy and economic crime for 2016-2020 is to increase the availability of and free access to information on the fulfilment of obligations and on potential grey economy operators.

Authorities in different sectors are of the view that, from the perspective of the combating of the grey economy and the promotion of healthy competition, it is important that the information on business prohibitions is easily available to all those in need of the information and that the information can be obtained free of charge. In its current form, the Government proposal does not contain any provisions under which a publicly accessible electronic register providing free access to the information would be established.

For example, under the Act on the Contractor’s Obligations and Liability, the contractor must check whether any of the contracting partner’s senior managers are subject to a business prohibition. Despite this, it is not possible to obtain details of business prohibitions from the authorities electronically or free of charge.

An electronic public access service could be introduced without increasing the risk of identity thefts or other irregularities. Individuals could be identified in the electronic service in the same manner as in the Luottolista journal published by Suomen Asiakastieto. In this publication, individuals subject to business prohibition are identified by their full name, home municipality, date of birth, date of expiry of the business prohibition, links to other enterprises, Business ID, domicile of the enterprise (previous name and date of change) and position in the enterprise. If the details of business prohibitions could be directly obtained from the controller using the latest technology, they could also be kept up to date.

PROPOSAL TO AMEND THE MONEY LAUNDERING DIRECTIVE On 5 July 2016, the European Commission issued a proposal for amending the legislation on combating money laundering and terrorist financing. The purpose of the amendments is to prevent terrorist financing and to ensure the transparency of payment transactions and corporate ownership structures by legislative means. The Commission also aims to improve public access to beneficial ownership registers on companies and to facilitate the interconnection between national registers.

Cooperation between the financial intelligence units would be made more effective by providing them with wider access to information, both nationally and between the Member States. As a rule, financial intelligence units would have to provide register information to corresponding bodies in other Member States or other competent authorities. The purpose of the amendments is to ensure effective exchange of information so that money laundering and terrorist financing can be prevented and tax evasion and avoidance can be tackled more forcefully.

Money laundering and terrorist financing are closely linked with tax avoidance In connection with the proposals for amending the fourth Money Laundering Directive, the European Commission has also proposed that the Directive on Administrative Cooperation (2011/16/EU) should be amended. Most of the proposals concerning the last-mentioned directive concern the tax authorities’ right to access information and to obtain information on money laundering. The aim is that the tax authorities would be able to access the information specified in the EU legislation on money laundering, especially the details concerning customer due diligence and information on beneficial owners kept in national registers. Thus, the aim is not only to prevent money laundering and terrorist financing but also to combat tax evasion and avoidance. With this information, the authorities would be able to identify suspicious enterprises, their structures and the persons holding senior positions in the enterprises.6 The Commission makes a clear connection between money laundering and terrorist financing on the one hand and tax avoidance on the other. In the proposal, the tax authorities are explicitly mentioned

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Communication on further measures to enhance transparency and the fight against tax evasion and avoidance COM/2016/0451 final

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as the competent authorities in the prevention of money laundering and terrorist financing. The proposed amendments are welcome because not all tax administrations in the EU have equal access to information on the combating of money laundering, which has hampered the efforts to combat tax evasion and avoidance.

THE POLICE AND OCCUPATIONAL SAFETY AND HEALTH INSPECTORS HAVE BEEN CARRYING OUT JOINT INSPECTIONS AT CONSTRUCTION SITES In recent years, a large number of joint inspections with the police have been made at construction sites in the region coming under the Regional State Administrative Agency for Southern Finland. During the inspections, the focus has been on checks of the personal IDs and lists of workers required under the Occupational Safety and Health Act. The occupational safety and health inspectors are responsible for checking that personal IDs are used at the sites and that the tax numbers entered on the IDs have also been entered in the public register of tax numbers. The inspectors also check that the lists of workers contain the information required under the Occupational Safety and Health Act and that the lists are up to date.

If, during a joint inspection, the authorised inspector notices that there are clear and uncontested inadequacies in the use of the IDs and the list of workers at the construction site, the inspector may inform the accompanying police officers that the inadequacies are a violation of occupation safety and health, as laid down in the Occupational Safety and Health Act. In such cases the police may immediately impose a fine on the senior managers of the employer company. During the joint inspections, the police have mostly imposed fines on senior managers of the project supervisor company but in some cases, fines have also been imposed on the senior managers of the customer or other companies operating at the site.

The joint inspections with the police have proved to be an effective supervision instrument and have also led to substantial improvements in the use of IDs at the construction sites of the region, compared with previous years. Between 2008 and 2011, one in three or one in four of all individuals working at the construction sites did not possess the statutory ID. Joint inspections in the region coming under the Regional State Administrative Agency for Southern Finland were started in autumn 2012. In the years 2013-2015 only between 7.5 and 8.3 per cent of all persons working at the construction sites in the region had inadequacies concerning their IDs. A quick fine procedure is also cost-effective, compared with the time-consuming pre-trial investigation process.

Info box Government is proposing extensions to the right of occupational safety and health authorities to access information7 The extended right to access information would be part of the measures to tackle the grey economy and it would also put the operations of the occupational safety and health authorities and the cooperation between different authorities on a more effective basis. Under the Government proposal, the occupational safety and health authorities would get wider powers to obtain confidential information from other authorities and other actors with public-service tasks. The occupational safety and health authorities would be able to obtain confidential information when enforcing compliance with the Act on the Contractor’s Obligations and Liability, minimum employment terms and the use of foreign workforce.

7 http://valtioneuvosto.fi/artikkeli/-/asset_publisher/1271139/hallitus-esittaa-laajennusta-tyosuojeluviranomaisten tiedonsaantioikeuksiin

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AUTHORITIES RESPONSIBLE FOR COMBATING THE GREY ECONOMY AND ECONOMIC CRIME

Valvira

Licensing and permit authorities

National Supervisory Authority for Welfare and Health

Public contractors

Finnish Border Guard

State aid authorities

Prosecution Service

TVR

Unemployment Insurance Fund

TVK

Workers’ Compensation Center

ETK

Finnish Centre for Pensions

AVI

Regional State Administrative Agencies - supervision of sales and serving of alcohol - supervision of contractor’s obligations and liability - occupational safety and health

FIVA

Police

Financial supervision

Finnish Tax Enforcement Administration authorities

GREY Finnish Customs ECONOMY Pension insurance companies

KKV

Competition and Consumer Authority

Courts

PRH

Accident insurance companies

Supervision of foundations

Bankruptcy Ombudsman Environmental authorities

As part of public procurement and the granting and supervision of licences, permits and subsidies

Combating and investigation of crime and enforcement of obligations

Supervision of compliance with statutory declaration and payment obligations

As part of their supervisory duties

A large number of different authorities with a broad range of tasks take part in the combating of the grey economy and economic crime. This publication gives a short description of the work of such authorities as the Finnish Centre for Pensions, occupational safety and health authorities, Unemployment Insurance Fund, Centres for Economic Development, Transport and the Environment (ELY Centres), Workers’ Compensation Center, Finnish Police and Finnish Customs.

In addition to ordinary tax audits, the control activities of the Finnish Tax Administration also include a broad range of different projects. Some of the topical audit issues relevant to the combating of the grey economy are presented below.

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RISK PHENOMENA IN INTERNATIONAL TAXATION There is a wide variety of different risks in the international operating environment, which result in a tax gap. The Finnish Tax Administration is developing new methods for identifying, analysing, steering and monitoring tax risks. Both individuals and companies are affected by the risk phenomena. In cross-border cases it may, in addition to tax planning, also be the case of grey economy and tax avoidance.

Improvements in international exchange of information mean that there is a considerable amount of information on foreign income and assets available

The purpose of tax control is to examine how to tackle tax avoidance arrangements in which use is made of countries with low tax burden or strict bank secrecy. Recent years’ experience in tax control has shown that the opportunities provided by tax havens and countries with strict bank secrecy are not only used by a small group of risk customers but that the overall picture is much more complicated. In addition to investments, substantial asset transfers (such as selling a company or part of it, other types of assignment of assets, inheritance and gifts) also constitute tax risks for private individuals. Inheritance tax planning has become a major sector in tax planning, as people are becoming wealthier and substantial benefits can be gained by making use of the opportunities arising as a result.

Extensive information on such issues as the use of foreign payment cards in Finland has been collected as part of international monitoring and as a result, the authorities have identified phenomena that until now have been outside the control. Typical irregularities uncovered include the failure to submit declarations in investments made through controlled foreign companies or pensions and investment income received from foreign insurance companies. Individuals may have carried out business activities in the name of a foreign company in Finland without submitting the necessary declarations and a small number of what are known as bogus moves to foreign countries have also been uncovered.

Improvements in international exchange of information mean that there is now considerably more information on foreign income and assets than before. In the next few years, the Finnish Tax Administration will be able to receive information from more than one hundred countries, which also include states and judicial areas classified as tax havens. Comparative data plays an essential role in the definition of the risk areas, in addition to which it is also important to obtain information on bank account transactions.

INTERNATIONAL VAT FRAUD AND COOPERATION BETWEEN THE AUTHORITIES Finland and more than 20 other EU Member States are combating organised and serious international crime connected with VAT payments in intra-community trade. Cooperation between the Finnish Tax Administration, Finnish Customs and the police in the combating of VAT fraud in intra-community trade has been significantly strengthened since 2014.

Cases involving VAT refund fraud and attempted fraud have kept the authorities, especially the Finnish Tax Administration, busy during the early months of 2016. An increasing proportion of the individuals behind the cases are foreigners. Professional criminals from Estonia in particular have been active in Finland,8 engaging in a broad range of tax evasion activities. Many of the cases involve fictitious cross-border business in which the perpetrators have attempted to get unfounded VAT refunds through fabricated transactions between shell companies registered in Finland and Estonia. Recent attempts have also involved identity thefts in which the perpetrators have used the details of reputable companieswithout the knowledge of the companies themselves.

It is estimated that the cases of VAT fraud committed in recent years are at least partly the result of reforms introduced in Estonia in which the aim is to ensure that grey economy phenomena can be tackled more effectively. As a result, criminals are moving to new countries. The Finnish Tax Administration invested heavily in combating VAT refund fraud in spring and summer 2016 and as a result, most of the fraud attempts have failed.

Recent fraud attempts have involved identity thefts in which the perpetrators have used the details of reputable companies without the knowledge of the companies themselves

There are also links to several Member States in the VAT fraud cases involving intracommunity trade investigated by the Finnish Customs. There have been pre-trial investigations in a total of six series of offences with international connections during 2016. In the investigation of international fraud in intra-community trade, there has been cooperation with such bodies as EUROJUST, the task of which is to coordinate prosecution in the EU. There is also cooperation based on international legal assistance procedure, joint investigation teams and exchange of intelligence information.

Finland is represented by Finnish Customs in the carousel and intra-community trade fraud sector included in the operational action plan of the European Union aimed at combating serious and 8

See the press release of the Finnish Tax Administration on 24 August 2016

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organised crime between 2014 and 2017. The programme is binding on Finland in the combating of fraud in intra-community trade. The measures are coordinated at national level between the Finnish Tax Administration and the police. In the combating of intra-community trade fraud, Finland is engaged in active cooperation with such states as Estonia.

Info box Tax control of taxi operators The project involving the tax control of taxi enterprises is directed at taxi operations, which is a licensed profession in Finland. The project was launched at the end of 2015 and the control measures are mostly targeted at operators selected on a risk basis and using comparative data. The aim is to get an idea of the tax gap in the taxi sector, make the sector more competition neutral and make taxi operators more positively disposed towards paying taxes.

By the end of August 2016, a total of more than 120 tax audits had been conducted as part of the project. In about 60 per cent of the audits, significant tax-related problems have emerged and more than 30 per cent of the audited operators have been extensively engaged in grey economy operations.

Most of the findings have involved irregularities in the declaration of cash payments as income and in the inclusion of taximeter reports in bookkeeping documents.

In 2016, there were about 8,000 holders of taxi licences in the registers of the Finnish Tax Administration. They have a combined turnover of more than one billion euros. The taxes, charges and fees subject to the controls total about EUR 190 million.

COOPERATION WITH CITIES IN THE COMBATING OF THE GREY ECONOMY Cooperation between the Finnish Tax Administration and the City of Helsinki in the combating of the grey economy started in the year 2000. The City of Helsinki has tackled the grey economy by introducing a broad range of preventive measures and by taking into account the role of the grey economy and the objectives set out for combating the phenomenon in its tax revenue and tax gap. In 2008, the City of Helsinki prepared guidelines for combating the grey economy in procurement. The City of Helsinki has been provided with statistical data for monitoring the success of its efforts and it has used the data in operational steering and planning.9 During 2016, the Finnish Tax Administration has also approached a number of other large Finnish cities with substantial procurement activities in matters concerning the combating of the grey economy.

The envisaged cooperation is part of a new proactive approach in which the Finnish Tax Administration aims, through preventive means, to increase tax revenue and ensure compliance with other statutory obligations.

The Act on Public Contracts and the Act on the Contractor’s Obligations and Liability lay down specific obligations for cities as contractors. When applying them, cities can, in addition to using legislative means, also introduce tools for combating the grey economy in such areas as organisation, working methods and criteria.

The aim of the cooperation is to produce information and provide training on the phenomena of the grey economy and procurement procedures and guidelines, especially from the perspective of the grey economy. The aim is also to ensure that contracting organisations take into account the combating of the grey economy, in addition to the other statutory obligations applying to them. Corruption is also one of the issues highlighted in this connection. The prevention, identification and uncovering of the phenomenon are included in the action plan for tackling the grey economy and economic crime for 2016-2020.

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An authoritative article on the procurement procedures applied by the City of Helsinki can be viewed on the website of the Finnish Tax Administration at https://www.vero.fi/download/Helsingin_kaupungin_hankinnat/%7BB98D2469-FEE0-43B4-8142-A8F74F359154%7D/10794

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Info box From cooperation between the authorities to international cooperation experience gathered from fur farming Nearly all fur farms in Finland are located in the region of Ostrobothnia. The sector is highly exportoriented and a significant source of economic growth in the region.

The Finnish Tax Administration, in cooperation with the Finnish Customs, has carried out checks on a number of fur farming operators. The cooperation was in the form of real-time tax audits and criminal intelligence and in some cases the information obtained through them resulted in pre-trial investigations. Individual cases of grey economy operations were uncovered at all levels of the sector, from production to exports and import operations in foreign countries.

It was found out in the joint checks by the Finnish Tax Administration and Finnish Customs that some operators had failed to enter all their domestic sales in the accounts or had double-invoiced some of their exports. There were also operators that had taken measures to avoid import taxes in the export countries. Some operators had received unspecified payments from tax havens and used large amounts of cash, which suggested that they had links with money laundering. The cooperation has been continuing for a number of years and tax audits have been made in several enterprises.

The joint control project between the Finnish Customs and the Finnish Tax Administration showed that cooperation between the authorities helped to reduce irregularities in both Finland and in the export countries. The view is that the cooperation between the authorities has been successful, both in Finland and internationally. The international exchange of information by the Finnish Tax Administration and the international cooperation in criminal investigation by the Finnish Customs have shown that the authorities have a broad range of tools for combating the grey economy. All this is based on reliable and target-oriented cooperation at national level between the authorities in tax audits, pre-trial investigation, consideration of charges and enforcement.

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4. THE NEW OCCUPATIONAL ACCIDENTS, INJURIES AND DISEASES ACT AND COMBATING OF THE GREY ECONOMY This article has been jointly written by Niina Laakso, Kirsi Pohjolainen and Hanna Piha from the Workers’ Compensation Center and Mika Mänttäri from the Ministry of Social Affairs and Health.

The new Occupational Accidents, Injuries and Diseases Act entered into force 2016

The new Occupational Accidents, Injuries and Diseases Act entered into force at the start of this year. The introduction of the new act means that the legislation on compensations for occupational accidents, injuries and diseases has been extensively overhauled. However, the fundamentals of the compensation scheme remain unchanged. The insurance is still taken out by the employer and, in case of an occupational accident or illness, the employee is entitled to the compensation specified in the law. The implementation of the scheme is the responsibility of the insurance companies. The legislative reform will also have a major effect on factors concerning the combating of the grey economy. The obligatory provisions on supervision contained in the act will have a significant impact on the efforts to combat the grey economy. Under these provisions, comprehensive and systematic supervision becomes part of the workers’ compensation scheme, as is already the case with employment pension and unemployment insurance.

More clarity (replacing three acts with a single act) and restructuring of the legislation make it easier to read the text, to determine the content of the provisions and, consequently, to comply with the obligations. It is much easier to find the relevant provisions than before. Revised definitions of an employee, self-employed individual and the area of work mean that the insurance obligation is now more explicitly defined. The aim has been to achieve uniformity with the corresponding provisions in the employment pension legislation.

Managing workers’ compensation insurance is a public administrative duty and the parties responsible for it (insurance companies, State Treasury and the Workers’ Compensation Center) are bound by law when carrying out their duties. The new act includes provisions on the supervision of compliance with the insurance obligation and the policyholder’s reporting obligation. The insurance company that has granted the insurance must ensure that the employer that has taken out the insurance provides the correct information for such purposes as determining of the insurance contribution. The Workers’ Compensation Center is responsible for ensuring that the employers comply with the obligation to take out the insurance, as laid down in the new act. Occupational safety and health authorities are also responsible for enforcing compliance with the obligation. There are provisions in the act giving insurance companies and the Workers’ Compensation Center more rights to obtain information for supervision.

The insurance register, which contains up-to-date details of the employers that have taken out the insurance for their personnel, is a major tool established under the new act. Maintaining the insurance register is a statutory task of the Workers’ Compensation Center. No such centralised register of workers’ compensation insurance policies existed under the old schemes. In addition to being a supervisory instrument, the register is also used in the processing of compensation matters. Parties specified in the act (such as care institutions and occupational safety and health authorities) have the right to access information kept in the register.

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Supervising compliance with the obligation to provide workers’ compensation insurance With the introduction of the Occupational Accidents, Injuries and Diseases Act, the Workers’ Compensation Center has started supervising compliance with its provisions. There are no provisions in the act on how the supervision should be organised. The supervision must, however, be effective and be based on such tools as mass supervision of all employers.

The supervision carried out by the Workers’ Compensation Center can be divided into preventive and retrospective measures. Preventive supervision means the provision of information on the insurance obligation. In the processing of individual cases it has been noted that employers do not always have enough information on the basis of workers’ compensation insurance and their own obligations.

Other measures aimed at preventing non-compliance with the insurance obligation include making employers more aware of mass supervision underway and the sanctions arising from non-compliance.

The fact that the obligation compliance reports contain the details of the validity of the insurance policies also has a preventive effect.

Retrospective supervision means the investigation of cases that have prompted supervisory action and mass supervision based on the combination of register data. Supervisory action may be prompted by cases where an accident or occupational disease occurs and the employer is unable to produce a valid insurance policy. Supervisory action may also be prompted by occupational safety and health authorities, the Finnish Tax Administration or other outside parties. The employer may also notify the Workers’ Compensation Center of the absence of an insurance policy at its own initiative.

The data for mass supervision is produced by comparing the data on wage-paying employers kept by the Finnish Tax Administration with the data in the insurance register. If an employer has paid wages but there is no insurance, the details of the employer will be entered on the list collected for mass supervision. An employer must have workers in an employment relationship to whom it has paid a total of more than EUR 1,200 in wages and salaries during a calendar year (from 2016) or workers that have worked for the employer in question on more than 12 days during a calendar year (until 2015). The Workers’ Compensation Center checks the employer’s insurance details for the current year and the five previous years. Thousands of employers have been entered on the supervision list of the Workers’ Compensation Center as part of mass supervision.

SANCTIONS ARISING FROM NON-COMPLIANCE The sanctions arising from non-compliance with the insurance obligation may be substantial.

The employer that has failed to comply with its insurance obligation must pay a fee which corresponds to the insurance contribution for the uninsured period and a penalty fee that is up to three times the fee corresponding to the insurance contribution. The size of the penalty fee depends on the duration, intent and frequency of the failure and the amount of work without insurance cover. The fees may be charged for the year in question and the five previous years.

If the employee had agreed with the employer to not take out the insurance, the employee may lose their right to compensation

After having determined the facts behind the case and hearing the employer concerned, the Workers’ Compensation Center will submit an application to the State Treasury for imposing the fees. The State Treasury will hear the employer so that it can determine the facts concerning the fee and why the fee has been imposed. The State Treasury makes a decision on the matter and the Workers’ Compensation Center collects the fees from the employer.

If an employee suffers an accident during an uninsured period and receives a compensation, the employer must pay the insurance excess to the Workers’ Compensation Center. The maximum excess is EUR 5,090 (2016).

An employee may lose their right to compensation under the workers’ compensation insurance if the employer and the employee in question have jointly agreed not to take out the insurance. In such cases, the failure to take out the insurance must be part of more serious non-compliance with social insurance obligations. In practice, the provision mainly applies to cases that occur in connection with the efforts to combat the grey economy and where undisputable evidence of non-compliance can be obtained.

A provision on accident insurance fraud has been added to the Criminal Code. In accident insurance fraud, the employer or employer representative causes the accident insurance contribution not to be imposed, causes it to be imposed too low or causes it to be unjustifiably returned. Maximum penalty for accident insurance fraud is imprisonment of one year.

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SUPERVISORY COOPERATION BETWEEN WORKERS’ COMPENSATION CENTER AND OTHER AUTHORITIES The Workers’ Compensation Center cooperates with other supervisory authorities.

Occupational safety and health authorities may request details of workers’ compensation insurance policies taken out by an employer. If there are no details of the policy in the insurance register, the occupational safety and health authorities will report the suspected non-compliance to the Workers’ Compensation Center.

The information kept in the insurance register will also be included in the obligation compliance reports produced by the Finnish Tax Administration.

The Workers’ Compensation Center also cooperates with other authorities supervising social insurance schemes (Finnish Centre for Pensions and Unemployment Insurance Fund).

SOURCES AND ADDITIONAL INFORMATION: Regional State Administrative Agencies www.avi.fi/en/ Centre for Economic Development, Transport and the Environment https://www.ely-keskus.fi/en Police University College http://www.polamk.fi/ Ministry of the interior www.intermin.fi Workers' Compensation Center http://www.tvk.fi/en/ Finnish Institute of Occupational Health http://www.ttl.fi/en/ Ministry of Employment and the Economy www.tem.fi Ministry of Finance http://vm.fi/en/frontpage Finnish Government http://valtioneuvosto.fi/en/frontpage Tax Administration www.vero.fi

Enquiries and additional information htsy@vero.fi

Grey Economy Information Unit publications: h t t p s : / / w w w. v e r o . f i / e n - U S / Ta x _ A d m i n i s t r a t i o n / C o m b a t i n g _ t h e _ g r e y _ e c o n o m y / Grey_economy_snapshots(39806)

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