The European Public Prosecutor’s Office (EPPO) in Berlin, Germany has filed an indictment against six people in connection with its ongoing investigation into a large-scale VAT fraud scheme involving the sales of diesel.
The investigation was code-named ‘Water into Wine’.
This is the second indictment in the case and among the six accused are two managing directors of an oil distributing company in northern Bavaria, two lawyers, one tax accountant and one office manager.
They are charged, depending on their respective roles, with offences including tax evasion, membership in a criminal organisation, breach of trust, bankruptcy and obstruction of law enforcement.
Those behind the fraud scheme are believed to have distributed so-called designer fuels, which are chemically modified products designed to elude taxation.
They did so by allegedly using a complex chain of triangular transactions via several companies; in this case in Lithuania, Latvia and Hungary.
The designer fuels are entering the German market via Poland, falsely declared as lubricating oil.
Once they reach Germany, the products are allegedly relabelled and re-declared as diesel, to bypass energy taxes.
This tactic breaks the traceability of the supply chain and conceals the true nature and origin of the products, according to the EPPO.
Fraud and VAT evasion on diesel
According to the investigation, between November 2023 and November 2024, the two managing directors purchased large quantities of these products.
The bought from companies that were not the actual suppliers, but so-called missing traders and intermediary entities used to disguise the fraudulent scheme.
They are alleged to have knowingly relied on false invoices issued by these entities, which falsely described the products as diesel.
On this basis, the individuals involved resold the products to customers in Germany and other EU member states, while unlawfully deducting VAT.
In total, more than 3,000 deliveries of fuel products were supplied to the company.
They are suspected of having used the fraudulent invoices to deduct VAT totalling €23.7 million.
In addition, a third accused person is alleged to have acted on behalf of the distributors, coordinating pricing and issuing false invoices on behalf of several buffer companies.
Through these actions, they are suspected of contributing to the evasion of nearly €8 million of the total damage.
Furthermore, the managing directors, in consultation with the indicted lawyers and tax accountant, are alleged to have transferred company assets, including a vehicle fleet, to a newly established entity.
These transfers, amounting to over €9.5 million, are believed to have rendered the original company unable to meet its financial obligations, leading to inability to pay all debts.
All parties involved are believed to have been aware that the energy tax due on diesel fuel had not been paid either; the corresponding case is led by the Hof public prosecutor’s office, and they are currently being heard before the Hof Regional Court.
EPPO investigation
This EPPO-led investigation was mainly carried out by tax investigation officers from Bayreuth and supported by tax investigation offices from Magdeburg, Bayreuth and Berlin, Potsdam, and customs investigation officers from Hannover/Magdeburg, Hamburg and Munich.
If convicted, the main offenders risk charges of up to 10 years in prison.
All persons concerned are presumed innocent until proven guilty in the competent German courts of law.
The EPPO is the independent public prosecution office of the European Union.
It is responsible for investigating, prosecuting, and bringing to judgment crimes against the financial interests of the EU.
