In the last 8 years Romania established counteracting measures for tax evasion. The criminal cases are a hot topic for the criminal justice system. The prosecution and fiscal bodies are working together and the companies are facing oversight for periods going back 10 years. The previous cases are re-opened and the results are sent to the prosecution bodies. The defenses approach involves the myth of the “lonely wolves,” criminal lawyers have been hindered by the requirement of using a team of commercial-fiscal-tax specialists led by a qualified multidisciplinary criminal lawyer to drive the legal approach.
From a chronological perspective, in 2010, tax evasion was inducted into the agenda of the Supreme Council for National Defense, and it stayed there for several years. Inter-institutional cooperation, including the contribution of the Romanian Intelligence Service, was committed to taking effective means of mitigating the phenomenon.
In 2013, statistics revealed that tax evasion represents 16.2% of the Intern Gross Income of the state, amounting to EUR 22 billion, compared to 14 years ago where the percentage was 9.1. Thus, in June 2013, the Romanian Government took a strategic initiative and the visibility was marked by the criminal cases worked by the Directorate for Investigating Organized Crime and Terrorism.
Complex cases of tax evasion associated with organized and cross-border crimes have seen a real boom in the Romanian criminal justice system. Romanian citizens have grown accustomed to watching TV reports of publicized searches and arrests of both famous Romanian and foreign businessmen accused of causing millions of EUR damages to the state’s budget. Additionally, the General Division of Fiscal Antifraud was subsequently vested with special control power upon companies, linking their findings to the criminal files or even working under the supervision of the prosecution body.
The years 2014 and 2015 have marked the ending of the public prosecution stage in many files by resolving the cases through court indictments. Such cases are still pending before the first or appeal courts given their complexity, as well as the errors and abuses triggered by the rush of the public prosecution stage.
In the later part of 2016, the law regulating the Directorate for Investigating Organized Crime and Terrorism eliminated its power to work tax evasion cases, with the exception of completing active matters. At that time, this specialized prosecution body had around 350 cases of tax evasion among which 74 dealt with damages of over RON 3 million. On the one hand, the reason for this change of law was to emphasize the main focus of the Directorate as being body to fight against terrorism. On the other hand, the possibility of the regular prosecution bodies to work tax evasion files was observed and the prosecutorial bodies attached to the Courts of Appeal were vested with the power to handle such cases involving damages over EUR 1 million. As a result, specialized fiscal inspectors were brought in to work inside the prosecution bodies.
Nowadays, complex tax evasion cases are on the top of business crime files. The investigations cover industry areas such as food, construction and IT. Still, the arrest numbers slowed down a bit and the rush of the prosecution turned into a lengthened documentation procedure of the case before sending it to court.
From fiscal to criminal cases
The fiscal and prosecutorial bodies trend is to consider what was done and what should have been done. In their opinion, from a fiscal and accountancy point of view, this means that fictitious transactions and criminal tax evasion cases are readily sent to the prosecution bodies instead of being handled through fiscal inspection and possible fiscal sanctions.
The so-called traditional “legal tax evasion”, or the taking advantage of the deficiency of the fiscal legislation, no longer exists. It has been replaced by fraudulent tax evasion only on grounds of bad faith. The change in the nature of these cases reveals why a multidisciplinary legal and tax approach is needed to structure the defense. Further, the business reasoning for choosing a certain contractual mechanism is needed in order to be thoroughly explained to the fiscal inspectors or prosecutors.
The judicial financial expertise in criminal cases
The evidence consisting of judicial financial expertise is often ordered within the public prosecution or court stage. The parties have the right to appoint their own expert to attend the proceedings and complete the judicial report together with the official expert appointed by the prosecutor. However, this is not enough for a proper defense.
Setting the scope of work of such judicial expertise is also altered from the beginning by the prosecutor or judge that may be tempted to obtain from the judicial expertise the “queen of evidence”. For example, the expert is required to determine what the damage would have been had the transactions been fictitious. Or, according to the professional standard of experts, they are compelled to state their opinion based solely on financial documents and accountancy, and not based on assumptions, hypothesis or witness statements.
Recently, the defense stressed this point in a conclusively solved criminal case. The Court of Appeal of Alba Iulia took the initiative to sanction the above mentioned apportionment of a judicial expertise, by way of a definitive court decision. The court concluded that the judicial bodies cannot expect that the real versus fictitious character of the transactions can be established by way of a financial judicial expert. The same decision also held that the fictitious character of the transactions cannot be set by an expert from his office. Rather, it can only be checked by the judicial body through the assessment of the other evidence.
It remains to be seen whether this particular court decision will change the current course of action in criminal investigations and trials, as far as the role and scope of work of the judicial expertise is concerned.
The controls performed by the General Division of Fiscal Antifraud
Regarding the controls performed by the General Division of Fiscal Antifraud, it is important to mention that 5 years is the maximum period of time allowed to fiscally check back in time.
In practice, we often see the inspectors asking for accountancy and contractual documents older than such period, going back up to 10 years. This indicates that the Antifraud inspection targets a criminal side of the findings, because according to the law periods of time greater than 5 years may be re-opened only in cases of public prosecution based on indication of fraud.
This is why it is advisable that a criminal lawyer attend – together with a tax specialist and a fiscal lawyer – the legal assistance of the client. For example, the procedure applied by the Antifraud inspectors involves the taking of explanatory notes from the management and accountancy personnel. Considering that the Antifraud control might be the preamble of a potential criminal file, it is recommended to pay great care in assisting the client regarding such explanatory notes, because of their potential to be used as initial statements in a possible future criminal file. Considering that, generally, the first reaction of a possible defendant is very important for the prosecutor, any change of statement regarding such explanatory notes could be used as evidence against the potential defendant.
The current pattern of work of the Antifraud inspectors is grounded, almost in all the cases, on a public prosecution opened in rem (considering the facts), which is not acknowledged to the parties involved, before the Antifraud inspectors come to control. Often, they are even sent by the prosecutor, without any involvement in this respect made available for the company.
The recommended way to act for the controler company is to be aware of future potential criminal case, and to prepare from the very beginning of the Antifraud control. The defense in such cases could be successfully accomplished only through a team of commercial-fiscal-tax specialists working together with a criminal lawyer. Such a legal team should elaborate on unitary comprehensive legal strategies with criminal, fiscal, and business arguments. The legal team should also keep in mind that sometimes there are more companies involved, as well as individuals belonging to the management of these companies.
The experience of the past years showed that the traditional defense made by the “lonely wolves” is not the proper defense required in such complex cases. The key-point of the defense should be the integration of knowledge and experience in various fields of law into a sole case management. In such a system, the criminal lawyer should be the driving force of the criminal procedures, but not necessarily the key-person in making the argumentation on the merits of the case.