Berlin – German authorities have filed indictments against six individuals accused of orchestrating a large-scale value-added tax (VAT) fraud scheme involving the sale of diesel fuel, the European Public Prosecutor’s Office (EPPO) announced this week. The case, dubbed “Water into Wine,” centers on the alleged distribution of illegally modified fuels and a complex network of transactions designed to evade taxes, highlighting the ongoing challenges of cross-border financial crime within the European Union.
The investigation, which has been ongoing for over a year, alleges that the scheme involved the manipulation of diesel fuel to avoid energy taxes, resulting in a significant loss of revenue for the German government and potentially other EU member states. The EPPO estimates the fraudulent VAT deductions to total over €32.2 million, with the overall damage potentially reaching higher figures as the investigation continues.
Among those indicted are two managing directors of an oil distributing company located in northern Bavaria, alongside two lawyers, a tax accountant, and an office manager. They face charges including tax evasion, membership in a criminal organization, breach of trust, bankruptcy, and obstruction of law enforcement, reflecting the breadth of the alleged conspiracy. If convicted, the main offenders could face up to 10 years in prison, according to the EPPO.
The ‘Designer Fuel’ Network
At the heart of the alleged fraud lies the distribution of what authorities are calling “designer fuels” – chemically altered products intended to circumvent taxation. These fuels were reportedly introduced into the German market via Poland, falsely declared as lubricating oil to avoid scrutiny. Once inside Germany, the products were allegedly relabeled and misrepresented as standard diesel, allowing the perpetrators to bypass energy taxes and VAT obligations. This process effectively broke the chain of traceability, concealing the true origin and nature of the fuel, according to the EPPO.
The scheme relied on a complex series of “triangular transactions” involving companies in Lithuania, Latvia, and Hungary, designed to obscure the flow of funds and the origin of the fuel. Investigators allege that the two managing directors purchased large quantities of these products from so-called “missing traders” – entities that exist solely to facilitate fraudulent transactions – relying on false invoices that misrepresented the goods as legitimate diesel. These invoices were then used to unlawfully deduct VAT when reselling the fuel to customers in Germany and other EU countries.
More than 3,000 deliveries of fuel products were reportedly supplied to the company during the period between November 2023 and November 2024, according to the EPPO. A third accused individual allegedly coordinated pricing and issued false invoices on behalf of several “buffer companies,” contributing to the evasion of nearly €8 million in VAT.
Asset Transfers and Bankruptcy
The investigation further alleges that the managing directors, in consultation with the indicted lawyers and tax accountant, transferred company assets – including a vehicle fleet – to a newly established entity. These transfers, totaling over €9.5 million, are believed to have deliberately rendered the original company insolvent, preventing it from meeting its financial obligations and shielding the illicitly gained funds. The EPPO’s statement details these alleged actions as a deliberate attempt to conceal the proceeds of the fraud.
Authorities believe all parties involved were aware that the energy tax due on the diesel fuel had not been paid. A parallel case led by the Hof public prosecutor’s office is currently underway before the Hof Regional Court, addressing the unpaid energy taxes. This demonstrates a coordinated effort between the EPPO and national authorities to address all facets of the alleged criminal activity.
A Multi-Agency Investigation
The EPPO-led investigation involved a collaborative effort from tax investigation officers in Bayreuth, Magdeburg, Berlin, Potsdam, and customs investigation officers from Hannover/Magdeburg, Hamburg, and Munich. This multi-agency approach underscores the complexity of investigating and prosecuting cross-border financial crimes, requiring coordinated action across multiple jurisdictions.
The EPPO, established in 2021, is the independent public prosecution office of the European Union, responsible for investigating, prosecuting, and bringing to judgment crimes against the financial interests of the EU. Its website provides further information on its mandate and ongoing cases.
All individuals indicted are presumed innocent until proven guilty in the competent German courts. The case is expected to proceed through the German legal system, with further hearings and potential trials scheduled in the coming months. The next scheduled action is a preliminary hearing before the Hof Regional Court, date to be determined, where the court will review the indictment and schedule further proceedings.
This case serves as a stark reminder of the vulnerabilities within the EU’s tax system and the lengths to which criminals will go to exploit them. It also highlights the importance of international cooperation in combating financial crime and protecting the financial interests of the European Union.
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