Buffer Companies involved in complex fiscal frauds – an Italian view

FISCAL FRAUD - WHAT DO CRIMINALS THINK  

• Fiscal fraud is particularly appealing to criminal organisations because, as stated by a cooperative witness during an investigation conducted by the European Public Prosecutor’s Office (EPPO),
• “You risk nothing, you just need to find an accountant, a good lawyer and someone who knows how to talk, and you can make big money”.
• In contrast, drug trafficking is seen as less attractive,
• “With its very severe prison sentences in the event of conviction”.
• Moreover, drug-related crimes draw significant public attention, often prompting a strong response from authorities.

FISCAL FRAUD PAPER

• Marco De Simoni and Antonio Pellegrini have published a Fiscal fraud paper titled
• "Not a dog. Not a wolf. All he knows is what he’s not:
• Detection indicators for BUFFER COMPANIES involved in complex fiscal frauds".

BUFFER COMPANIES (BCs)

• BCs are used in complex fiscal frauds, where they obscure the link between illicit transactions and their final beneficiaries.
• They help extend the fraud chain and shield Real and Operating Companies (ROCs) from direct involvement, while these latter ultimately benefit from illicit activities.
• This makes detection more difficult for AML functions of financial intermediaries.

THIS STUDY

• In this study, the authors build and analyse a unique dataset of BCS, sourced from Italian Supreme Court rulings and suspicious transaction reports submitted to the Italian Financial Intelligence Unit (UIF).
• The findings reveal that BCs exhibit an “amphibious” behaviour, combining Shell Companies (SCs) and ROCs features.
• The authors develop a composite indicator for identifying potential BCs, offering a screening tool for AML functions of financial intermediaries.
• This tool can support more effective detection and timely reporting of suspicious entities to UIF, reducing the risk of serving potential criminal clients.
• This study, released by the Italian Financial Intelligence Unit (UIF—Banca d'Italia), examines the role of buffer companies in sophisticated tax fraud schemes.
• These companies obscure the link between illicit transactions and their ultimate beneficiaries, complicating financial institutions' detection of suspicious activities.
• The paper introduces a synthetic indicator designed to help distinguish buffer companies from shell entities or legitimate businesses, enhancing AML screening and tax risk management across the financial sector.
• Overall, this study aims to address a gap in the literature by providing practical tools for FIs to detect and report BCs to the Financial Intelligence Unit promptly, thereby mitigating potential financial and reputational risks.
• Nevertheless, it is acknowledged that this is a preliminary pilot study and not exhaustive; additional data and analyses are needed to validate the proposed indicator.
• It's a significant step forward in combating financial crime.

References

• No. 28 - “Not a dog. Not a wolf. All he knows is what he’s not ...
• https://uif.bancaditalia.it/pubblicazioni/quaderni/2025/quaderno-28-2025/QAR-28.pdf