Carbon trading fraudsters in Europe pocket €5bn

  • Date: 10/12/09

The Daily Telegraph: Carbon trading fraudsters may have accounted for up to 90pc of all market activity in some European countries, with criminals pocketing an estimated €5bn (£4.5bn) mainly in Britain, France, Spain, Denmark and Holland, according to Europol, the European law enforcement agency.

The revelation caused embarrassment for European Union negotiators at the Copenhagen climate change summit yesterday, where they have been pushing for an expansion of their system across the globe to penalise heavy emitters of carbon dioxide.

Rob Wainwright, the director of serious crime squad, said large-scale organised criminal activity had “endangered the credibility” of the current carbon trading system.

“We have been talking to Europol over the last weeks,” said one EU senior delegate, after she was asked whether the European Union-run scheme was still viable. “We are making some fixes.”

Yesterday, the UK delegation released a paper calling for the “expansion of carbon markets”, in order to use the profits for a fund to help developing nations tackle climate change.

Suspicions about an unprecedented level of carbon crime over the last 18 months have led investigators to believe criminals are using “missing trader” techniques to buy up carbon credits elsewhere in Europe where there is a cheaper rate of VAT.

Then they sell on the credits in the UK, charging the domestic rate, and pocket the difference. This has been commonplace among trading of very mobile commodities across European borders, such as phones, computer chips and cigarettes.

British investigators made seven arrests earlier this year over a suspected £38m VAT scam.

The London platform, the ICE European Climate Exchange, where the big banks and energy companies tend to trade, is not affected by the fraud because it does not offer spot contracts – the only form of emissions trading on which VAT is payable.

But British traders can still defraud HM Revenue and Customs by buying and selling permits on other European exchanges.

Europol said it had reason to believe the sophisticated techniques developed in the carbon market could soon “migrate” to the gas and electricity sectors.

“It is estimated that in some countries, up to 90pc of the whole market volume was caused by fraudulent activities,” a Europol spokesman said, after Britain, France, Spain and the Netherlands

brought in emergency VAT suspensions on carbon allowances to limit the fraud this year.

Figures from New Energy Finance show the value of the global market falling from $38bn (£23bn) in the second quarter to $30bn in the three months to the end of September after several countries cracked down, with volumes falling from 2.1bn tonnes to 1.7bn tonnes.

Europol has now set up a special unit to “identify and disrupt the organised criminal structures behind these fraud schemes”.

Copyright 2009, Daily Telegraph

Europol: Carbon Credit fraud causes more than 5 billion euros damage for European Taxpayer

Europol: The European Union (EU) Emission Trading System (ETS) has been the victim of fraudulent traders in the past 18 months. This resulted in losses of approximately 5 billion euros for several national tax revenues. It is estimated that in some countries, up to 90% of the whole market volume was caused by fraudulent activities.

Indications of suspicious trading activities were noted in late 2008, when several market platforms saw an unprecedented increase in the trade volume of European Unit Allowances (EUAs). Market volume peaked in May 2009, with several hundred million EUAs traded in e.g. in France and Denmark. At that time the market price of 1 EUA, which equals 1 ton of carbon dioxide, was around EUR 12,5.

As an immediate measure to prevent further losses France, the Netherlands, the UK and most recently Spain, have all changed their taxation rules on these transactions. After these measures were taken, the market volume in the aforementioned countries dropped by up to 90 percent.

With the support of Belgium, Denmark, France, the Netherlands, Spain and the United Kingdom Europol has set up a specific project to collect and analyse information in order to identify and disrupt the organised criminal structures behind these fraud schemes. There are reasons to believe that fraudsters might soon migrate towards the gas and electricity branches of the energy sector.

Mr. Wainwright, Director of Europol, says “These criminal activities endanger the credibility of the European Union Emission Trading System and lead to the loss of significant tax revenue for governments. Europol is using its expertise and information capabilities to help target the organised crime groups involved”. Europol has therefore offered its support to the European Commission – DG Environment to safeguard the integrity of the Community Independent Transaction Log.”

Background information

Missing trader intra-community fraud (MTIC) is the theft of Value Added Tax (VAT) from a government by organised crime groups who exploit the way VAT is treated within the member states of the EU.

The EU has the objective of limiting global warming to 2 degrees Celsius above pre-industrial levels, to reduce climate change and meet its obligations under the Kyoto Protocol. Each MS has granted its emitting facilities a certain amount of emission rights by means of a National Allocation Plan. These emission rights can be traded like any other commodity on the market. The transfer of greenhouse gas emission allowances is a taxable supply of services.

In Europe there are 6 trading platforms: European Climate Exchange (London, UK), Nordic Power Exchange (Oslo, Norway), European Energy Exchange (Leipzig, Germany), Energy Exchange Austria (Graz, Austria), Climex (Amsterdam, the Netherlands) and BlueNext (Paris, France) and various other market platforms such as SENDECO2, Italian Power Exchange GME and most recently Greenmarket, set up by Deutsche Bank at the Munich exchange. More than 2 billion EUAs have been allocated to 12.000 emitting facilities in the 27 MS. The EU carbon market is estimated to be worth about €90 billion a year!

The Emissions Trading Scheme (EU ETS) was created as a cap-and-trade system for transactions of European Unit Allowances. Each transfer of EUAs is recorded in a national registry before it is centrally stored in the Community Independent Transaction Log (CITL) at the EU Commission.

Carbon credit fraud is a variation on the VAT carousel fraud. The attached graphic shows how carbon credit carousel fraud works.

 

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