Finland’s Economy Under Threat: The Hidden Costs of Economic Crime and Shadow Economy

In Finland, the economic landscape is undergoing a subtle yet significant transformation. The following issue, highlighted by the Finnish Ministry of the Interior, poses a mounting challenge to the nation’s prosperity: economic crime and the shadow economy.

Economic Crime: An Alarming Challenge

Encompassing activities such as money laundering, fraud, and tax evasion, economic crime has become a pressing concern for the Finnish economy. The Finance Ministry reports that the annual losses to financial crime in the EU, which includes Finland, amounted to €155.2 billion in 2019 ¹. This figure underscores the importance of continuous efforts to combat this issue and mitigate its damaging consequences.

The Shadow Economy: A Parallel Reality

The shadow economy, also referred to as the informal sector, represents a hidden economy where transactions occur outside the official channels of the legal economy. Estimated to account for around 14% of Finland’s GDP ², the shadow economy has a considerable impact on various sectors, including construction, retail trade, and services. This parallel reality distorts fiscal statistics and creates an uneven playing field, disadvantaging businesses that adhere to the rules.

Consequences of the Shadow Economy

• Hidden Financial Losses: The shadow economy obscures accurate financial reporting and revenue collection.
• Inefficient Resource Allocation: Resources are diverted to unrecorded activities instead of contributing to the formal economy.
• Erosion of Trust: Businesses and consumers are negatively affected when some entities engage in unfair practices by operating outside the official economy.

Combating Economic Threats

Tackling economic crime and the shadow economy calls for a united effort from government agencies, law enforcement, and the business community.

The Finnish Authorities’ Response to Economic Crime

• Inter-agency Collaboration: Increased cooperation between various Finnish authorities.
• Technological Advancements: Incorporation of technology to detect and prevent financial crimes.
• Public Awareness Campaigns: Raising awareness of economic crime and its consequences.
• International Cooperation: Working with international partners to combat economic crimes that transcend borders.

Addressing the Shadow Economy

• Root Cause Analysis: Addressing the underlying reasons for shadow economy activities, such as regulatory burdens and tax policies.
• Business-Friendly Regulations: Implementing reforms to create a more business-friendly environment and reduce the incentives for individuals and businesses to engage in the shadow economy.

Finland’s Ongoing Commitment

Finland’s dedication to addressing these concerns is apparent through ongoing efforts, including the launch of the National Strategy to Combat Economic Crime and the Shadow Economy, as well as the introduction of new legislative measures. Moreover, the government continues to collaborate with other countries and share best practices to create a more sustainable and equitable economic environment.

In conclusion, the Finnish economy faces the dual challenges of economic crime and the shadow economy. Overcoming these issues requires a collaborative and multifaceted approach from all stakeholders to ensure a prosperous and trustworthy economic climate.