Invoice fraud and pre-trial detention

Combating economic crime – especially offenses related to tax fraud – has long been one of the top priorities for both national law enforcement authorities and European Union institutions. Among the crimes that pose a particularly serious threat to the financial interests of the state are so-called invoice crimes, which involve the issuance or use of false invoices (“empty invoices”) with the intent to fraudulently obtain VAT refunds or understate tax liabilities. In response to the scale and recurrence of such practices, the legislature has introduced a series of legal amendments – both in substantive criminal law and in criminal procedure – aimed at more effectively prosecuting these offenses.

One of the most controversial issues in judicial practice is the use of pre-trial detention against suspects in cases involving invoice fraud and invoice-related crimes. This measure is meant to be exceptional and should only be applied when necessary to secure the proper course of criminal proceedings. However there is growing concern that it is being overused in economic crime cases.

The term ‘invoice fraud’ does not appear explicitly in legal regulations, but is commonly used in legal language. It refers to offences involving the issuance or use of fictitious invoices that do not document actual economic transactions for the purpose of obtaining financial gain. In the Polish legal system, such acts constitute offences under Articles 271a § 2 and 277a of the criminal code.

Pre-trial detention as a means of isolation should be treated as a last resort, in accordance with the principle of proportionality. However, in judicial practice – especially in cases of so-called invoice crimes (e.g. Article 277a of the criminal code) – there is a tendency to use it frequently.

Law enforcement authorities cite the high punishability of the offence (from 5 to 25 years’ imprisonment), the multi-faceted nature of the case, the complexity of the evidence and the fear of tampering. Issues relating to the value of losses to the State Treasury and the suspects’ links to criminal groups are also important.

It is worth noting that invoicing fraud related to so-called VAT carousels is very often cross-border in nature. Criminal structures operate simultaneously in several EU countries, exploiting differences in tax systems and control authorities. In the case of suspects who are abroad, law enforcement authorities are increasingly resorting to the European Arrest Warrant (EAW). From an investigative point of view, the EAW in ‘carousel cases’ can be a key tool in ensuring the effectiveness of the investigation. This measure allows for rapid extradition without the need to go through lengthy international procedures.

However, there are critical voices from legal scholars, non-governmental organisations and international courts. They point to the excessive use of detention against persons whose involvement in the scheme is incidental or formal.

Article is available in Polish here.