VAT fraud suspected 'for years'

Employees at the VAT department had suspected irregularities years before the recent arrests over fraud allegations, The Sunday Times has learnt.

One staff member said, "Some employees, including a clerk who is said to be the protagonist behind the embezzlement, would sometimes leave for hours, inexplicably."

This particular clerk is believed to be the kingpin of the scheme, roping in other colleagues and a number of intermediaries, some with a criminal background, in a three-way fraudulent deal. He is believed to have pocketed some €190,000 over three years.

"Some employees would be seen picking up a VAT return form from businessmen round the corner from the department building and then filing it in on their behalf... it's no conclusive proof of any wrongdoing but we knew there was something dodgy about it," another employee said.

The information gives further insight into the scale of the alleged fraud which has so far led to six employees being arrested and subsequently suspended.

The clerk coordinating the alleged fraud was the most noticeable of the lot. His absences for long hours stood out, the employees said, pointing out that "everyone knew about this".

The Sunday Times recently revealed the police gathered enough evidence to proceed against at least 25 individuals, including businessmen and even a criminal gang.

The main VAT official behind the scam initially requested bribes from businessmen to waive their accumulated fines and subsequently devised more elaborate schemes that involved illegitimate refunds being issued to businesses that agreed to be part of the scam.

The fraud is believed to run into hundreds of thousands of euros, possibly millions.

Asked whether any of these observations were formally reported to the department's management, the employees said it was unlikely that anyone reported anything.

"People there go to work, do their bit and go home. I don't expect anyone would have gone out of his way to flag something like this... there's nothing to gain and everything to lose. Plus, there was no conclusive proof so you're likely just to get the stick after reporting it," he said.

Still, one employee who left the department some time ago said his manager had warned him specifically not to emulate the behaviour of some employees and meet anyone outside the office building "because it looks bad".

Since the allegations first surfaced, security has been stepped up, particularly with regard to both employees and clients going in and out of the department. Customers are now being accompanied to officers' desks or to the lifts by security personnel, and nobody leaves their desk unless they have a meeting with someone.

"People are actually complaining about how strict things have become," one of the employees said. "Some are encouraging clients to complain so the situation can be loosened a little."

The case jolted confidence in one of the government's main revenue sources. The scandal came to light after a businessman who had been approached passed on the information to Finance Minister Tonio Fenech last December.

VAT Commissioner Joseph Sammut has so far refused to step down and the government has not asked for his resignation, saying it was premature given that police investigations were still going on.

Mr Sammut said he was the one who initiated the process that led to the investigation but given the scale of the alleged fraud, questions have been raised about how tenable his position is.