Estonian Firm Charged With Subsidy Fraud in the Garb of IT Development; Here are the Allegations

The threat of scams taking shape in the e-commerce universe

As the world embraces digitization and businesses also want to upgrade their infrastructure for the future, the need to develop an IT framework also opens doors to innovative fraudulent schemes. In a significant development, the European Public Prosecutor's Office (EPPO) based in Tallinn, Estonia, has initiated legal proceedings by filing an indictment in the Harju County Court. This indictment targets five individuals and five companies, accusing them of fraudulent activities related to a project aimed at developing IT systems. Notably, this project was co-funded by the European Union (EU).

The origins of the alleged fraud

The roots of this alleged fraudulent activity can be traced back to the year 2018, when a company with expertise in transport, warehousing, and customs services within the e-commerce industry submitted an application to Enterprise Estonia (EAS), the national agency responsible for awarding and disbursing EU funds. The application sought a subsidy from the European Regional Development Fund to support the creation of an IT program and the execution of IT development activities. These IT initiatives were intended to enhance the company's value-added sales and marketing strategies by providing an end-to-end service.

The total cost of this project was approximately $784,500, with EU funds contributing around 45% of this amount, which is equivalent to roughly $351,600, while the remaining project expenses were covered by the company.

False invoices and misleading transactions

To secure the EU funding, the recipient of the funds submitted invoices and documentation that purported to show that payments had been made to other service providers using the company's resources. But, an investigation revealed that these payments were never actually executed.

Instead, the evidence shows that the recipient redirected the money to affiliated companies while issuing false invoices to fabricate the appearance of legitimate commercial transactions. This deceptive strategy was designed to mislead the agency responsible for managing the funds. Ultimately, it was discovered that the money ended up being returned to the firm or to companies that were under the control of the beneficiary.

Charges and potential penalties

In light of the fraudulent activities uncovered, the legal representatives of the company that received the funds and the company itself are now facing charges of subsidy fraud. Three other individuals and four companies have also been charged as accomplices to the fraud. If convicted, the defendants face prison sentences of up to 5 years, while the companies may be slapped with pecuniary penalties.

The preliminary investigation into this case was conducted by the Department of Cyber and Economic Crimes of the Criminal Bureau of the Estonian Police and Border Guard Board, under the direction of the EPPO.

Earlier in the course of this investigation, in May 2023, searches were conducted at the residences of the suspects and the locations of the companies involved, in which substantial documentation was seized. The initial court hearing for this criminal case is scheduled to take place in the Harju County Court on November 14, 2023.

The EPPO, as the independent public prosecution office of the European Union, has a mandate to investigate, prosecute, and bring to justice crimes against the financial interests of the EU.