Prague - From every two bottles of alcoholic beverage sold in the Czech Republic, one comes from the black market, with no consumer tax paid for its production.

Aktuálně.cz has learned that the state loses 10 billion CZK (400,000,000 EUR) in consumption taxes every year due to the activities of a well-organized group. The massive scope of the fraud is comparable only to the infamous tax evasion cases of the 1990s.

Read more: FBI to probe Gripen scam

Switzerland connection

In addition, it appears that one of the masterminds of the alcohol scam is Tomáš Pitr, a Czech entrepreneur convicted for tax evasion who is currently in hiding, presumably in Switzerland.

There is an international warrant issued for Pitr's arrest.

The investigation shows that Pitr uses middle-men to invest into large warehouses and some distilleries which are, in addition to legal production and distribution of alcohol, involved in large-scale tax evasion. 

This means that Pitr - from abroad - indirectly controls the production and distribution chain of untaxed alcohol in the Czech Republic.

Read more: Convicted tax evader not to be extradited by the Swiss

Too big to fail?

After a period of relative stagnation, the black market with alcohol has grown into such dimensions that it is already threatening the legal producers, which complain about the inactivity of the state.

In fact, Aktuálně.cz has learned about the alarming scope of the alcohol tax evasion not from police sources, but from a team of private detectives hired by a group of important alcohol producers to map the problem.

Their investigation shows that those involved in the illegal activity cooperate with and are protected by corrupt policemen, state officials and customs officers. 

"The frauds are getting more and more complicated, the groups involved have already created a web of contacts - when you let things get so far, it is hard to fight it," said Vladimír Steiner, the president of the Distillery Union. The union estimates that roughly 15-20 percent of the alcohol sold in the Czech Republic come from the black market.

Light oil fuels revisited

It appears that their estimates are rather optimistic. Aktuálně.cz spoke to some of those involved in the illicit alcohol production: they estimate that every second bottle of alcohol in the Czech market comes from them.

However, both illicit and legal producers agree that the black market has grown in response to the growth of the tax imposed on alcohol production. "If the consumer tax decreased dramatically, (the fraud) would no longer be profitable for me," said a person involved in the scam.

The results of the investigation available to Aktuálně.cz show clearly that the enormous scope of the alcohol fraud and the problem it causes to the state is comparable only to the infamous light fuel oil scam from the 1990s. At that time, the state lost billions as diesel imported to the country was declared as light fuel oil which was not subjected to consumer taxation.

Read more: Czech Pink Panther to take their fight to Strasbourg

The alcohol fraud takes advantage of similar gaps in the law, above all the fact that trade with denatured alcohol requires no official permit from the state and is not taxed. Denatured alcohol can be relatively cheaply turned into alcoholic beverage and sold as an original product. This simple production scheme has given birth to a gigantic tax-evading machine.