Five people have been arrested in Cyprus, Germany and Italy as part of a European investigation into an alleged €114 million VAT fraud operation involving the cross-border smartphone trade.
The European Public Prosecutor’s Office (EPPO) announced on 16th October that three suspects had been detained in Cyprus, one in Germany and one in Italy following an investigation coordinated by its Munich office.
Investigators believe the suspects established and controlled a network of companies designed to exploit the tax treatment of goods traded between EU member states.
The alleged operation involved smartphone transactions through businesses and so-called missing traders operating in Germany, Albania and Sweden. Prosecutors estimate that the activities caused VAT losses of approximately €80 million in Sweden and €34 million in Germany.
According to the official announcement of the arrests, the operation forms part of a wider investigation known as Midas, which is examining organised cross-border tax fraud.
Searches across several countries
The arrests were accompanied by searches and seizures in Cyprus, Greece and Italy, conducted with the assistance of national police, financial investigators and tax authorities.
Prosecutors said 12 searches had been carried out at premises connected with the suspects and companies under investigation.
Assets of up to €80,000 were frozen, while investigators also seized or took action against bank accounts, vehicles and property.
The operation involved cooperation between Germany’s tax authorities, Cyprus’s financial intelligence and cybercrime units, the Greek financial police and Italy’s Guardia di Finanza.
The suspects are believed to have played leading roles in organising and controlling the alleged scheme, although prosecutors have not publicly established their individual criminal responsibility.
The investigation remains subject to proceedings before the competent German courts. All suspects are presumed innocent unless proven guilty.
How the alleged fraud operated
The case concerns a form of tax evasion known as missing-trader intra-community fraud, commonly described as carousel VAT fraud.
Under the EU’s VAT system, qualifying business-to-business transactions involving goods transported between member states are generally exempt from VAT in the country of dispatch.
The purchaser accounts for VAT under the rules applicable in the destination country, while subsequent domestic sales normally involve VAT being charged to the buyer.
Fraudsters can exploit those arrangements by establishing companies that purchase goods through cross-border transactions before reselling them domestically.
A missing trader collects VAT from the purchaser but fails to remit it to the relevant tax authority. Other companies in the transaction chain may then seek deductions or refunds.
The same goods can pass through several businesses and, in some arrangements, move repeatedly between countries, allowing the fraud to be repeated.
Smartphones and electronic equipment are particularly attractive because they are relatively expensive, easily transported and can be traded in large volumes.
The complexity of the arrangements makes investigations difficult when businesses are established in several jurisdictions and transactions move rapidly between companies.
A wider European problem
The latest arrests follow another substantial VAT fraud operation announced earlier this month.
That operation, known as Hermes, involved searches across eight countries and allegations concerning the sale of mobile phones and other electronic devices.
Although separate from Midas, the investigation illustrates the scale and organisation of suspected VAT fraud involving internationally traded consumer electronics.
According to the EPPO‘s 2025 annual report, prosecutors were handling 3,602 active investigations at the end of last year, with estimated potential damage exceeding €67 billion.
Of that amount, more than €45 billion related to suspected VAT and customs fraud.
Those figures concern estimated losses under investigation, rather than sums established by final court judgments or amounts that have already been recovered.
Protecting European tax revenues
The financial consequences extend beyond the immediate losses attributed to individual schemes.
VAT is a major source of revenue for national governments and forms part of the system used to calculate certain contributions to the EU budget.
Fraudulent transactions can also distort competition by allowing dishonest operators to offer prices that legitimate businesses cannot match.
The Commission’s 2025 VAT gap report estimated that EU countries failed to collect approximately €128 billion in expected VAT revenue in 2023.
That broader figure includes losses arising from several causes, including administrative errors and insolvency, and cannot be attributed entirely to criminal fraud.
The latest arrests also demonstrate the importance of cross-border investigative cooperation when suspected financial offences involve companies, transactions and assets located in different countries.
In the Midas investigation, prosecutors must now establish the precise roles of the suspects, prove the alleged transactions and determine whether criminal proceedings can result in convictions and financial recovery.
The arrests represent another stage in the investigation, not a judicial finding that the alleged €114 million fraud has been proved.
A new Council of Europe protocol is intended to strengthen cross-border investigations, confiscation and the recovery of criminal wealth. European authorities currently recover only a small proportion of the proceeds generated by organised and financial crime.
The European Union has signed an international agreement strengthening the recovery of criminal assets, as Brussels seeks to address the failure of national authorities to confiscate the overwhelming majority of wealth generated through organised crime, corruption and money laundering.
The agreement, opened for signature in Strasbourg on Wednesday, 14 October, introduces additional provisions governing the identification, freezing, confiscation and management of assets held across national borders.
It supplements the Council of Europe’s Warsaw Convention, which established an international framework for cooperation against money laundering and the financing of terrorism.
The Additional Protocol adopted by the Council of Europe extends existing asset-recovery mechanisms and strengthens the ability of national authorities to cooperate when criminal proceeds are transferred beyond the country where an offence occurred.
The financial foundations of organised crime
European authorities have long struggled to deprive criminal organisations of the profits generated by their activities.
An estimate frequently cited by European institutions suggests that only around one per cent of criminal proceeds are ultimately confiscated.
The figure highlights a persistent weakness in criminal enforcement. Police and prosecutors may identify offenders and secure convictions without recovering the money used to finance further criminal operations.
Organised crime networks can distribute their assets through bank accounts, companies, property holdings and intermediaries operating in different jurisdictions.
Investigators must establish the origin and ownership of those assets, obtain the necessary legal orders and secure cooperation from foreign authorities before funds or property can be transferred again.
The problem has become increasingly serious as criminal organisations operate across several countries while enforcement powers remain largely national.
The financial structures supporting trafficking organisations can survive the prosecution of individual members, allowing criminal enterprises to replace personnel and continue operations.
New powers for cross-border investigations
The protocol is intended to address practical obstacles encountered when authorities seek assistance from another country.
Its provisions cover international cooperation in asset recovery, the management of seized property and the execution of confiscation decisions.
They also address circumstances in which confiscation may be possible without a conventional criminal conviction, subject to the safeguards and legal requirements established by participating states.
Such arrangements can be particularly relevant when suspects have fled, proceedings cannot be completed or assets are held through structures designed to conceal their ownership.
The protocol also provides for improved cooperation between designated asset-recovery authorities.
These mechanisms are intended to reduce the delays that can arise when investigators must navigate different national procedures while attempting to secure property that may be rapidly moved or disposed of.
The Council of Europe’s treaty documentation explains that the protocol seeks to update the Warsaw Convention in accordance with developments in international anti-money laundering standards.
The revised framework has also been developed with reference to EU rules and the recommendations of the Financial Action Task Force.
Existing European legislation
The agreement builds on legislation already adopted within the European Union.
The 2024 Asset Recovery and Confiscation Directive established stronger provisions concerning the tracing, freezing, confiscation and management of assets associated with criminal activity.
That directive is intended to improve national asset-recovery systems and strengthen cooperation between authorities.
The authority has responsibilities concerning the supervision of high-risk financial institutions and coordination between national bodies combating illicit financial activity.
The new Council of Europe protocol addresses a related but distinct problem: how authorities recover assets once suspected criminal proceeds have been identified, particularly when those assets are located in another jurisdiction.
Although sanctions enforcement and organised crime investigations operate under different legal arrangements, both can require authorities to identify property, obtain judicial orders and prevent assets from being moved beyond their reach.
Ratification and implementation
The protocol was adopted by the Council of Europe’s Committee of Ministers on 15 May 2026 and opened for signature on 14 October.
The European Union’s participation requires further legal procedures before the new provisions become binding.
The Commission had previously submitted proposals authorising the EU to sign the agreement, reflecting the division of responsibilities between the Union and its member states in criminal justice and financial regulation.
Individual governments must also determine how the international obligations interact with national procedures governing investigations, property rights and confiscation.
The effectiveness of the agreement will depend on the speed of its implementation and the resources available to investigators, prosecutors and financial intelligence authorities.
Criminal organisations can transfer funds internationally through transactions completed in minutes. Judicial cooperation and the enforcement of confiscation decisions frequently require considerably longer.
The protocol offers governments additional instruments for narrowing that gap, but cannot eliminate the administrative and legal obstacles without corresponding improvements in national enforcement.
For European authorities, the practical measure of success will be the amount of criminal wealth that can be identified and recovered.
The Strasbourg agreement provides a wider legal framework for that task at a time when the profits generated by organised crime continue to exceed the assets confiscated by enforcement agencies.
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