Crypto fraud: mining farm built with illicit proceeds

Crypto Fraud: According to the latest sources, assets worth approximately €5.5 million have recently been seized in a tax and money laundering case involving a miningfarm financed through tax evasion.

See below for full details.

Summary

• Mining farm fruit of tax evasion: the latest crypto fraud
• The role of the intermediary body between cooperatives and clients in the work process
• Mining farm and NFT purchases: the elaborate tax evasion operation

Mining farm fruit of tax evasion: the latest crypto fraud

As expected, the financial authorities of the Padua Provincial Command and the Special Unit for the Protection of Privacy and Technological Fraud in Rome, in close collaboration with the Padua Public Prosecutor’s Office, recently carried out a preventive seizure operation.

The purpose of the operation was to confiscate the assets and financial resources of two businessmen and their companies involved in a tax evasion and money laundering investigation.

The case of tax evasion, estimated at around EUR 5.5 million, arose from the simulation of service contracts which in reality concealed an illegal supply of labour.

It is important to emphasise the distinction between the two types of contract: management involves the supply of labour by an authorised agency for the benefit of a company, whereas contracting involves the fulfilment of the client’s requirements using the contractor’s own resources and organisation.

It follows that, in the case of contracting, the workers are answerable to the contracting company, whereas in the case of leasing, it is the user who gives instructions to the workers.

The contracting companies, operating mainly in the provinces of Padua and Verona, allegedly recruited the staff through a consortium company operating in Veneto.

However, this company was not authorised to manage the workforce, but rather to assist the companies with advice and business planning.

According to official records, this company can be traced back to the two suspects involved in the preventive seizure operation.

The role of the intermediary body between cooperatives and clients in the work process

According to the sources, the body in question officially acted as an intermediary between the client companies and a number of workers’ cooperatives located in Milan, Monza, Naples, Varese, Parma, Turin and Rovigo.

According to the indictment, these cooperatives, which apparently lacked structures, resources and management skills, were effectively directed by the two main suspects.

Their role therefore appeared to be that of real “labour reservoirs”, designed to supply staff to client companies and bear the associated wage, tax and social security costs.

Through interviews with more than a hundred employees and the analysis of communications and digital company documentation, evidence emerged to support the hypothesis that the contracting cooperatives did not have a substantial independent existence, as they were allegedly involved in a mono-contractual labour supply relationship with the said consortium.

Furthermore, it was found that the cooperatives only charged the consortium for the net wage-related costs, thus allowing the consortium to remain competitive in the labour market by offering lower prices to clients.

However, the cooperatives did not pay their tax and social security debts, causing considerable damage to the public purse.

The investigating authorities believe that the savings resulting from the non-payment of tax liabilities constitute a form of illicit wealth, some of which may have been transferred to foreign accounts linked to the two main suspects.

Mining farm and NFT purchases: the elaborate tax evasion operation

In addition, we see that it was also suspected that part of the profits generated was used to purchase graphics processing units (GPUs) for the creation of a mining farm.

This facility, characterised by high performance and significant energy consumption, was used to solve complex mathematical algorithms in a distributed consensus technology such as blockchain.

This enabled the validation of other users’ transactions and the creation of new blocks within the chain, contributing to the functioning of the entire crypto ecosystem.

The facility, which had an annual energy requirement of almost €100,000, was located in a prefabricated building on the company’s premises.

It was equipped with ventilation, cooling and fire suppression systems, and consisted of a management PC connected to over 350 graphics cards, each complete with mining-capable motherboards. These video cards were divided into 31 processing groups, the cost of which was included in the consortium’s accounts.

Investigations revealed several virtual wallets linked to the initiator of the circumvention mechanism, in which cryptocurrencies produced by the IT structure were deposited.

Further investigation revealed the purchase of digital artwork in the form of NFTs (Non Fungible Tokens) from the Bored Ape Yacht Club collection.

Based on the evidence gathered, it appears that the cryptocurrency production activity was carefully planned to make it difficult to identify the illicit origin of the substantial tax evasion proceeds.

These funds were then used to purchase electricity, ostensibly for the business activity, but in fact also for the mining activity.

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