EU LAW NAILS EMISSIONS TRADE SCAMMERS, Part 1

Climate change campaign creates carbon crimes; Fraudulent Permit Trading Surfaces In Europe
Arthur Max, August 23, 2009 (AP via San Diego North County Times)

"Customs agents…arrested nine people in the London area suspected of a multimillion dollar fraud in trading carbon permits, bringing attention to a rich new field for crime sprung from the fight against climate change…[and confirming] fears among law enforcement officers that swindlers ---- operating from the trading floors of Europe to the tropical forests of the Pacific ---- are being attracted to a market that has grown to more than $100 billion.

"…[Carbon dioxide (CO2) is]… a pollutant derived from fossil fuels…[is regulated by] making permission to produce it a commodity that can be traded like gold, oil or hog futures…Trade in CO2 permits has expanded exponentially since the European Union required thousands of industries to limit carbon emissions to specified targets. Industries exceeding their ceiling can buy credits from companies that have held their emissions below target, acting through commodities exchanges. The average price this year for a ton of carbon is about $15…"

The carousel fraud diagrammed. (click to enlarge)

"That carbon market will get a lot bigger if the U.S. Congress passes its own cap-and-trade bill…And it will grow bigger still if a new international climate change agreement will include financial incentives for countries to protect their forests. Negotiators from 192 countries hope to conclude a global warming accord at a major U.N. conference in Copenhagen in December.

"…130 British customs agents raided 27 properties in and around London for evidence of a "carousel fraud" believed to have robbed the treasury of 38 million pounds ($63 million) in unpaid value-added tax. Seven men and two women were arrested and released on bail…[I]t was the first time the scam has been uncovered in the carbon market, expanding from the more established trade in mobile phones and computer chips…The carousel fraud, also known as a missing trader scheme, exploits VAT-free commerce between countries. Conspirators import goods free of tax, sell it domestically with VAT to another company, which exports the products to third country. Rather than pay the VAT owed to the government, the merchants pocket the tax and disappear."

The carousel fraud explained. (click to enlarge)

"In July, France, the Netherlands and Britain initiated action to pre-empt the swindlers. France and Britain set a zero VAT rate for carbon trading, while Holland transferred the obligation to pay VAT from the seller to the buyer…The British Treasury also warned last month that Britain would become a major target of tax theft in carbon emissions permits in the next few months…[S]uspicions of VAT fraud surfaced last May when the volume of carbon trade rose on the Paris BlueNext exchange from 27.2 million tons in October, spiking six months later at 186 million tons…[BlueNext] said the risk of fraud can be high in any new commodities market, and CO2 is no different in the need for high regulatory standards.

"When the carbon market was getting started, big companies were involved and the traders knew each other.. But it has grown so fast that small unknown operators are now doing big business, making self-policing more difficult…"
(Part 2 will be in MORE NEWS on Monday)