Federal Police cracks down on tax litigation fraud

Federal Police have seized more than 1.3 million reais ($400,000) cash in a raid Thursday (Mar. 26) in the Federal District, São Paulo, and Ceará, in collaboration with the Federal Revenue Service, the Public Prosecutors Office, and the Inspectorate-General of the Ministry of Finance.

Details of the investigations are confidential, so the names of the companies and people implicated have not been disclosed. Suspects include financial institutions and big banks, automotive, manufacturing, steel, and agricultural companies, law and accounting firms, plus ten members of the Ministry of Finance Board of Tax Appeals (CARF) which hears tax litigation appeals.

According to the Federal Police, the gang would look for hefty cases filed with CARF, contacted businesses with substantial tax liabilities, and offered “facilitation” services including write-offs. As Federal Police Chief Marlon Staff explained, the criminals used their close links with CARF members to approve requests to review the case records (pedidos de vista), thus halting the process and making time for them to obtain other legal remedies favorable to the debtors, and then offered the review requests to these debtors in exchange for money.

According to him, the kickbacks charged by the gang varied depending on the procedure. In one case, the police chief reported, around $90,000 was paid for an admissibility assessment (which decides whether the appeal has grounds to be heard). In other examples, review requests (pedidos de vista) were sold at $9,000, $15,000.

According to the investigation, which began in 2013, the gang is estimated to have attempted to defraud more than 70 cases, causing losses to the public coffers potentially in excess of $6 billion.

The police chief said there is “compelling evidence” that five trials were manipulated causing nearly $2 billion in losses. “This is one of the largest, if not the single largest, criminal organization specializing in tax evasion in the country,” said Oslain Santana, director of the Criminal Organization Division of the Federal Police.

According to Fabiana Lima, Ministry of Finance Inspector-General, if the cases already tried are proven defrauded, the decisions can be repealed. “If legal defect is verified, the cases will be revised and retried,” she said.

Potential charges include influence peddling, bribery, corruption, criminal conspiracy, and money laundering.

The raid is part of a police investigation known as Operação Zelotes (Operation Zealots), in a reference to fake zeal or pretended care and the failure of CARF board members to exercise the appropriate zeal and neutrality.

Translated by Mayra Borges