Preventive measures best way to tackle the shadow economy and economic crime

Ministry of the Interior 12.4.2016 14.00
News item

Press release of the Government Communications Department
Translation. Originally published in Finnish on 12 April

The government wants to tackle the shadow economy and economic crime especially by means of preventive action. The purpose of the 'Strategy to tackle the shadow economy and economic crime', published on 12 April, is to prevent and reduce activities involving the shadow economy and economic crime in the business environment. The aim is to promote projects that help make it easier for businesses to take part in healthy competition and enable businesses to fulfil their public obligations more easily.

The Strategy was endorsed by the Ministerial Committee on Economic Policy on 12 April. It encompasses both national and international activities. An action plan will be drawn up in the course of the spring to translate the objectives of the Strategy into concrete terms.

The Government has produced six government resolutions since 1996 for programmes to tackle the shadow economy and economic crime. The most recent one expired at the end of 2015. Tackling the shadow economy is a coordinated collaborative effort involving eight different branches of government and over 20 different authorities. Approximately 540 police are involved in tackling the shadow economy and economic crime.

It can be tacked by means of preventive action, supervision by authorities and with the help of legislative amendments. The Strategy aims to shift the focus in tackling the shadow economy more towards preventive measures by creating new preventive operating models. One example is that there is substantially more action against the shadow economy in real-time. The occupational safety and health administration, the tax administration and the police have stepped up cooperation, and joint supervision checks to construction sites are now carried out on a regular basis. On the whole, collaboration between the construction sector and the authorities has become closer in recent years.

Internationalisation generates new challenges in tackling the shadow economy

The shadow economy and economic crime constantly take on new forms. One important element in combating the shadow economy and economic crime is to tackle harmful phenomena brought on by internationalisation. Finland's links to foreign businesses have grown substantially. Supervision faces challenges in access to information on foreign businesses and employees, for instance, which increase the risk of the shadow economy.

One particular area that is problematic in terms of supervision is the chains of subcontracting in foreign companies. Another challenge for supervision is the international nature of e-trade in goods and services, the use of virtual currencies and the use of different intermediaries. With monetary flows being transferred effortlessly abroad beyond the reach of the authorities, it is difficult for enforcement authorities and recoupment.

Loss of tax revenue and distortion of business competition

The shadow economy and economic crime are detrimental to the society in many ways. They constitute a wide entity where the focus is on non-compliance with statutory obligations. The shadow economy results in losses in tax revenue and statutory contributions, such as employment pension contributions, and competition between businesses is distorted. In many cases employees are also treated in ways that are against the law.

The 'Strategy to tackle the shadow economy and economic crime' is a temporal continuation to the earlier programmes to combat the shadow economy and economic crime, the most recent of which terminated at the end of 2015. In line with the requirements of the Parliamentary Audit Committee, the strategy includes internationalisation, a holistic approach to the formulation of the Strategy, consistency in the efforts to tackle the shadow economy and its anticipated progress in the long term. The strategy aims to shift the focus especially on international monetary and goods flows and on questions related to mobile workforces.

To be successful in tackling the shadow economy and economic crime, authorities need to collaborate and have a common view of the situation. The private sector is instrumental in preventing the shadow economy and economic crime. To combat the shadow economy and economic crime effectively, there must be efficient cooperation between public authorities and the private sector.

A parliamentary working group will be set up to monitor the shadow economy.

The draft strategy for tackling the shadow economy and economic crime 2016-2020 endorsed by the Ministerial Committee on Economic Policy on 12 April 2016 (in Finnish).

Inquiries: Sanna Heikinheimo, Police Director, tel. +358 295 488 553 and Mikko Kortelainen, Special Adviser, tel. +358 50 456 8334, Ministry of the Interior