Kosovo Whistleblower Lifts Lid on Huge Tax Scam

Murat Mehmeti, head of Kosovo's Tax Investigations Unit. Photo: BIRN

Details of a major tax fraud were revealed in Kosovo on Thursday by BIRN Kosovo's TV show “Jeta ne Kosove” after it broadcast the first episode of a trilogy on “Organized Tax Theft”, revealing how an estimated 25 million euros went missing. 

The show was partly the work of a whistleblower who decided to go public about four shell companies that issued more than 300 invoices to 300 [real] firms.

Murat Mehmeti, team leader of Kosovo's Tax Investigations Unit, who formerly worked for the Kosovo Police for ten years, revealed how until 2012 over 300 Kosovar businesses, many of which shared a single accountant, claimed big tax deductions by filing fake invoices issued by shell companies.

Mehmeti said the organised tax fraud reached “an industrial scale,” and cost the Kosovo budget millions of euros.  

While four owners of shell companies and the accountant are currently on trial, the Special Prosecution stopped looking into the actual companies that benefitted from the scam.

Ali Rexha, the Special Prosecutor, defended this decision to BIRN. “We ensured that 23 companies repaid 2.2. million euros into the budget, and did not chase the rest because I believed what tax investigators told me, that only small sums of money were involved there, so, according to the law, they could be given a chance to correct their bills,” he said.

Mehmeti decided to lift the lid and make the scam public by reporting it on the anti-corruption platform Kallxo and on the BIRN TV programme “Jeta ne Kosove.”

“In the beginning, in the first weeks the prosecutor was very interested and asked us to find the location of the phantom firms," he recalled.

"We already knew the location ... and he [the prosecutor] said they would proceed with arrests as of next week, because it was of a high [monetary] value and seemed like organized crime," Mehmeti said.

According to the documents he presented, tax inspectors from different regions, including Prishtina, found the invoices belonging to three of these companies, Flaka, Loni, Xoni, and other smaller firms.

"We gathered information on the people and the businesses. It could be that my experience at the Kosovo Police and my network enabled me to find these people and obtain their profiles quite quickly,” Mehmeti said, explaining how it all started.

Instead of supporting him, Mehmeti said his bosses in the Tax Administation harrassed him and even offered him other senior management posts, to get him to give up the investigation. But he continued.

“I thought there was a good intention behind the efforts to establish the Tax Investigations Unit, and that issues that fell beyond the competences of ordinary inspectors ...  gave us the responsibility to act as investigative police. But there was no will from the Tax Administration, TAK, especifically from the .... deputy director," Mehmeti said.

Nahit Sharku, deputy chief of TAK, who also guested at "Jeta ne Kosovo", denied the claims, however, and accused Mehmeti of slandering him.

He said Mehmeti "was taken to the disciplinary commission … because he collected information from banks without approval, because the law is clear on who can collect information and when,” Sharku said.

Mehmeti explained said the shell companies were registered but delinquent firms, existing mainly to issue invoices that met the needs of real businesses that wanted to lower their tax bills.

“They were used to create a place of origin for a commodity or to transfer tax duties to it, or to inflate costs in order [for the real firm] to declare less income to the TAK,” he explained.

Jeta Xharra, host and anchor of “Jeta ne Kosove” talked to Mehmet Gashi, the registered owner of Yllka.com, one of the firms used for this crime who denied knowing what was going on.

"I can’t even read or write properly. I was told to sign these papers by a man who had a fancy ring and called himself Mark,” said Gashi.

Another registered owner of a shell firm was a homeless person, Namon Pacolli.

The link person in the companies, the accountant, Lorik Jashari, whose office was only 100 meters from the Tax Administration of Kosovo, is now on trial.

Interviewed by “Jeta ne Kosove” Jashari denied having established shell companies and registered them in the names of poor people like Naman Pacolli.

Prosecutor Alan Edwards, former head of the unit established within the EU mission EULEX, to fight organized crime, said the TAK had deliberately ended the investigation.

“The investigation that we were carrying out never actually got to court ... They [TAK] did not want to do anything about it. In fact, they were trying to stop him from speaking,” he said, referring to Mehmeti.

After the show was aired, the UK ambassador to Kosovo, Ruairi O’Connell, wrote on Facebook that corruption in the form of tax evasion remained a problem for Kosovo.

“Whistleblowers must be fully protected, to encourage other whistleblowers to come forward and cooperate with the authorities,” he wrote.

Thomas Gnnochi, from the EU office in Kosovo, agreed that the issues must be investigated. Talking on Friday at Kosovo's National Anti-Corruption Council, established by President Hashim Thaci, Gnnochi said: “Corruption in Kosovo is not [just] a perception issue, as is claimed by the leaders of Kosovo institutions in their speeches.”

Kosovo Chief State Prosecutor Alexander Lumezi, said after the BIRN TV show was broadcast: “We must understand that justice ... depends on the work of police and courts.

"It is true that there has been fraud within TAK in previous years, I am talking about 2009, 2010 and 2011. But the prosecution handled this case and filed charges against several persons," he said.