The pension system is designed to provide an automatic and secure flow of money for millions of retired people. It is so foolproof that it gives peace of mind to all those senior citizens, who know that they will receive their pension. However, sometimes this automatic system becomes the key to tax fraud.
This was the case of a man in Spain who, taking advantage of an administrative error, kept his deceased father alive for more than a decade and a half. This phantom pension has come to an end, and the Supreme Court has upheld the harshest sentence for the defendant: not only must he repay the public coffers all the money he took, amounting to approximately US$250,000 at the current exchange rate, but he will also have to serve time in prison.
Concealment for more than a decade
The whole problem originated five years earlier, in 1999. The husband of the couple, who was the original beneficiary of the retirement pension, died. The widow notified the Social Security agency of the death so that she could begin processing her own widow’s pension. That is where the first administrative error occurred, sowing the seeds of the crime. Despite the fact that the death had been reported, the original retirement pension continued to be paid month after month. The money continued to be deposited into a joint bank account that the widow held at CaixaBank—formerly known as Caja Canarias.
The woman died in 2005, at which point the couple’s son decided to take advantage of this anomaly years later. At that time, the son became the joint account holder and principal manager of the account. The flow of money from his father, who had been dead for six years, continued uninterrupted.
Unlike his mother, the defendant did not notify Social Security of his father’s death… nor did he notify the bank of the error in the payments. Thus, taking advantage of the complicit silence, Inés decided to continue to enrich herself with income that did not legally belong to her. She spent it on personal items, from food and supplies to leisure activities and durable goods. But good things don’t last forever, and in the end, she was caught red-handed.
The end of the pension fraud
The defendant did not wake up one day and have a change of heart; he was caught thanks to an internal audit by the Social Security Administration. Although the fraud extended until 2021 in terms of the availability of funds, automatic payments were suspended in 2015.
The bank itself, CaixaBank, had detected the anomaly and alerted the authorities. It was the bank itself that stopped the payments. From there, the legal battle began, which went all the way to the highest court in Spain. The defendant’s excuses could not be substantiated.
The defendant’s defense argued that the fraud was not intentional, but rather the result of passive exploitation of an initial “administrative error” by the Social Security system. However, the Supreme Court rejected this argument outright, since the defendant had remained silent for 16 years, showing a clear willingness to take advantage of the system. The Supreme Court ruling established that the defendant had not only benefited, but had caused direct and recoverable damage to the country’s public coffers. Pensions are not money that falls from the sky, but contributions from all other citizens.
The consequences of fraud
The defendant faced a triple sentence for his prolonged illegal activity: he was ordered to pay civil restitution, i.e., to repay €231,306.91 to Social Security, covering the exact amount stolen; an additional criminal fine of €400,000 ($464,000) for the crime committed; And finally, he was sentenced to two years in prison for a continuing offense against Social Security.
This is not an isolated case in Spain, but is also a frequent crime in the United States. One of the most famous cases is the $830,000 fraud in California, which occurred after 30 years of concealing the death of the pension beneficiary.