A loaf of bread, a cheese pie or a coffee rarely leaves a trace. The customer pays, takes the receipt and leaves. It is precisely this everyday activity, involving low-value but highly repetitive transactions, that makes the bakery industry a particularly sensitive link in the tax enforcement system, with bakeries potentially becoming tax evasion factories.

Experienced tax enforcement officials explain to newmoney.gr how the so-called ‘bakery scam’ can operate: a legitimate business selling bread while simultaneously inflating expenses or turnover through fictitious invoices for tax evasion purposes or on behalf of criminal networks, thereby acting as a channel for laundering money of dubious origin from the shadow economy into the legal market.

‘The issue is much broader,’ says a tax enforcement official. ‘As long as there is a large volume of cash, thousands of low-value transactions (under €2 or €3) and opaque ownership structures, the scope for such practices increases. The bakery is merely the shopfront. Behind it, there may be an entire economic ecosystem. And we are only at the beginning,’ the official stresses.

Bakeries as ‘Laundromats’

The investigation is ongoing, and the charges brought have yet to be tried in court. However, tax enforcement officials point out that the issue is not confined to a single chain or business owner.

It has been an open secret in the market for years why certain people open bakery chains: ‘A bakery is the ideal environment for anyone who wants to present money as turnover,’ says a highly experienced law enforcement official with an extensive track record of investigations into food businesses.

Why do they get away with it? Because inspections are difficult. ‘You do not need to prove that you sold, for example, 10,000 cheese pies. You only need to issue receipts to make it appear that you sold them. The product is consumed on the same day; there is no stockroom, no serial number and no customer who can easily be traced,’ the official explains.

According to the same source, the scheme relies on a simple model: illicit money — from the nightlife industry, drugs, weapons, pimping and so on — needs ways to circulate without being detected during inspections or through banks, or when used to buy cars, houses, expensive watches or jewellery. Those who possess ‘black money’ are also fans of all the things they want to acquire with it — as evidenced by the findings of investigations into pizzerias, where dozens of watches were found hidden in trapdoors.

The method devised by those desperate to dispose of such funds is to put the money into the cash register of a food-service business and mix it with revenue from legitimate sales of bread, confectionery, coffee or prepared meals. Once declared as taxed profit, the money can immediately circulate legally.

The aim is not always to conceal tax. On the contrary, it is to increase turnover using money over and above what the business has actually received. In this way, money that should never appear anywhere acquires a ‘tax identity’ and is declared through invoices and receipts as legitimate income, allowing it subsequently to circulate freely from hand to hand.

‘Illicit capital becomes “turnover”. The business then pays VAT and tax on part of it, making it appear to operate legally,’ the same official explains. ‘That is the price of laundering. Not all the money is laundered, but a substantial portion acquires a legitimate route into the economy, enabling transactions and purchases that would otherwise be out of reach,’ the official adds.

Fictitious Purchases and Inflated Costs

The reverse also applies, of course: a bakery inflates its costs to reduce its tax bill.

‘You enter invoices for flour, oil, packaging, repair work and machinery maintenance. Some are genuine, some are overvalued, and some are entirely fictitious,’ explains a source from another tax enforcement agency. ‘This allows you to reduce declared profits, lower your tax bill and, in some cases, reduce the VAT payable as well.’

At the same time, hundreds of other companies within the network that supply invoices to the bakery also launder money.

The same official points out that inspections become difficult when suppliers are small companies, when transactions are conducted in cash or when prices cannot easily be compared with market rates.

The burden of proof rests with the tax authority, and a case may collapse in court ‘due to reasonable doubt’.

‘If a bakery claims to have bought twice as much flour as it needs for production, it can justify this by citing wastage, returns, donations to third parties or accounting errors. The inspectors must prove that the explanation does not hold up. That takes time and evidence,’ the same source says.

In practice, the fraud can only be established through surveillance and the interception of telephone conversations. For example, if ten sacks of flour were allegedly thrown away, an inspector cannot challenge the claim that they had indeed spoiled and been destroyed. Unless a wiretap catches those involved telling one another that the quantity of flour stated on an invoice issued by a cooperating supplier involved in the network was never actually purchased, exposing the fraud is difficult.

The ‘Guilty’ Franchise Model: Many Bakeries, One Management Structure

As in the case involving the pizza chain, the investigation concerns tax violations, failure to remit VAT and unpaid social security contributions, with the estimated loss to the state exceeding €100 million. However, the investigation could also be extended to other business activities belonging to the same owner or to other people involved.

In the case of large chains, the structure becomes even more complex. According to information available, the investigation into the ‘Horiatiko’ case and related companies belonging to the same owner is focusing on a network that may include hundreds of companies, with outlets in various areas and individuals appearing as managers or owners.

‘Franchising itself is legal and a very useful business model,’ says a tax enforcement official. ‘The problem begins when outlets appear to be separate businesses, but decisions, procurement, revenue and actual control all converge on a single center.’

In such cases, the network can operate as an ‘umbrella’: each outlet has its own company, its own bank account and its own accounting records. Behind this fragmentation, however, the actual flows of money are essentially one and the same, moving from headquarters throughout a network of numerous different companies.

‘If you have 50 or 100 outlets, you do not inspect 50 or 100 bakeries separately. You examine the parent company, suppliers, banking transactions, lease agreements and share transfers. That is where the real picture emerges,’ the source says.

‘Front Men’ and the Veil of Ownership

A third element emerging from the investigations is the use of individuals who appear as owners or managers without exercising actual financial control. In the terminology used by tax inspectors, they are known as ‘front men’.

‘The front man signs documents, appears in the General Commercial Register (GEMI) and assumes responsibility, but does not make the decisions,’ explains a tax enforcement official. ‘The real owner retains control, the money and the decision-making power, while the “front man” — the public face of the business — bears the risk.’

According to the same source, this arrangement complicates not only tax inspections but also efforts to trace the ultimate beneficial owner.

‘If you have 10 or 20 companies with different managers, different addresses and different accounts, you need time to identify the common denominator. And often, that common denominator does not appear anywhere in the official records.’

Why the AADE Faces Difficulties

Tax enforcement officials point out that the system has improved significantly in recent years, mainly through electronic receipts, electronic invoicing and cross-checking of data. Nevertheless, the bakery and food-service sectors remain particularly challenging to monitor.

‘The problem is not a lack of tools. The problem is that the volume of transactions is enormous and the receipts are for small amounts,’ says an official with experience in inspecting medium-sized and large businesses. ‘When you have thousands of transactions worth €2, €3 or €5 a day, you cannot check them one by one. You need indicators, comparisons and statistical models.’ Above all, however, information and complaints are needed: an inspector will impose a fine if they find an individual receipt that has been falsified, but that alone does not automatically prove tax evasion worth €100 million or money laundering involving, for example, drug proceeds.

Using risk analysis, inspections focus on anomalies: a sudden increase in turnover without a corresponding rise in staff numbers or raw material purchases; discrepancies between purchases and sales; recurring suppliers; unusual banking transactions; or company transfers to individuals with no apparent business profile.

Nor is that all. When a business conceals revenue or launders money, it may also conceal unpaid social security contributions, payroll taxes, workers’ wages and other obligations. This means an employee may be left without full social security coverage, while the state loses revenue that would otherwise go towards pensions and healthcare.

When an inspection is eventually carried out to put a stop to these practices, the business owner often uses employees and their anxiety over losing their daily wages and facing an uncertain employment future as a ‘shield’.