We investigate a key paradox in Western democracies: even though objective crime rates are stable or declining, public fears about crime—particularly crime attributed to immigrants and ethnic minorities—are rising. These fears drive support for far-right populism and anti-immigrant sentiment. While prior research emphasizes the roles of the news media and far-right campaigns in shaping misperceptions about crime, we focus on a previously understudied factor: biased police reporting of out-group crimes. We argue that the police play a central role in shaping public perceptions of crime, as both the media and far-right actors rely on police-provided information to report and politicize out-group crime. By deciding which incidents to report and which perpetrator characteristics—such as nationality or ethnicity—to disclose, the police occupy a causally prior position in shaping crime narratives. We use GPT-4 to extract information from over two million German police press statements (2014–2024), verifying its performance against human coders. Using this data, we conduct the most extensive analysis of police reporting behavior to date. Our findings reveal that the German police overreport crime attributed to immigrants and ethnic minorities by a factor of ten, indicating substantial bias in reporting practices. In a second step, we evaluate how biased police reporting impacts public perceptions of crime and the formation of negative stereotypes about out-groups. Our study underscores the police's key role as information gatekeepers in shaping public crime discourse and highlights the urgent need for transparency and accountability in reporting practices to counter the spread of misperceptions that fuel anti-immigrant sentiment.