Northern Data AG is currently at the center of a criminal investigation focusing on allegations that the company illegally claimed tax breaks on approximately €500 million ($586 million) worth of high-performance computing chips. European prosecutors are scrutinizing Northern Data's acquisition of graphics processing units (GPUs) for a facility located in northern Sweden. The core of the investigation revolves around whether Northern Data, which is majority-backed by stablecoin issuer Tether Holdings SA, obtained tax incentives by asserting that these chips were designated for artificial intelligence (AI) applications when they were, in fact, utilized for cryptocurrency mining.

This investigation unfolds against the backdrop of Sweden's fluctuating regulatory stance on cryptocurrency operations. Initially, Sweden had embraced crypto mining, but it performed a significant policy reversal in 2023, discontinuing tax incentives for companies establishing mining operations while maintaining them for data centers. Since this shift, Swedish tax authorities have reportedly been probing multiple crypto miners for allegedly providing misleading information to unlawfully benefit from these tax advantages, a trend highlighted in a statement last year.

Responding to the allegations, a spokesperson for Northern Data stated, “Northern Data believes there is a misunderstanding of tax treatment of its GPU offering, which is solely dedicated for cloud computing, and the economic and legal structure of the company’s legacy crypto mining operations.” The European Public Prosecutor’s Office (EPPO) conducted raids in both Frankfurt, Germany, and Boden, Sweden. These operations led to the arrest of four individuals in connection with a large-scale VAT fraud investigation, which the cross-border agency estimates to amount to over €100 million in damages. Furthermore, a senior Northern Data employee in Sweden was interrogated as part of the ongoing probe. Jerker Asplund, a delegated prosecutor for EPPO, confirmed to Bloomberg that the case primarily focuses on the activities of three of Northern Data’s subsidiaries in Sweden between 2021 and 2024, with investigators examining potential tax crimes and money laundering. Northern Data's spokesperson refrained from commenting on the money laundering aspect of the inquiry.

Northern Data's operational history began with crypto mining, where it promoted itself as a more environmentally friendly option for the energy-intensive process of minting cryptocurrencies like Bitcoin. However, with the advent and rapid growth of generative AI, which has dramatically increased demand for computing power, the company, like many of its contemporaries, has shifted its focus. It now largely provides resources for building, training, and running AI systems. The company previously employed Nvidia Corp. GPUs for mining the cryptocurrency Ether until a significant software update to Ether’s blockchain in 2022 made these powerful chips obsolete for that specific purpose. In 2023, Northern Data invested approximately €400 million to acquire 10,000 Nvidia H100 GPUs, specifically to bolster its European AI offerings.

As the majority owner of Northern Data, Tether Holdings SA finds itself indirectly linked to the investigation. Tether, which also has investments in other ventures like the conservative YouTube alternative Rumble Inc., was recently reported to be in talks with investors to raise up to $20 billion. Last month, Bloomberg reported that Rumble was considering an all-stock offer to acquire Northern Data, valuing it at roughly $1.17 billion. A Tether spokesperson commented on the situation, stating, “Tether is not involved in the day-to-day management of this company and was not aware of any such investigations prior to these reports.” The spokesperson further emphasized, “This company is a small part of our overall portfolio of investments and has no impact or bearing on Tether’s business or operations.”