Page 46 - Carbon Frauds and Corruption

Corruption of Bribery

Chapter 6 : Corruption in the “Carbon World”

 Almost unlimited potential for windfall profits not commensurate with the investments
or efforts involved
 A fragmented and ineffective regulatory environment with virtually no enforcement or
meaningful sanctions

The astonishment with which the European Union reacted to the massive VAT fraud – which should
have been eliminated at the risk assessment stage ‐ is an illustration of poor management or naivety.
Another example of poor security is the publication on the Internet of the detailed specification for the
Community International Transaction Log, which gratuitously provides most of the information required
by hackers and fraudsters.

 Investment in and cash flows to countries in which corruption is endemic
 Inconsistent and sometimes incomprehensible key performance drivers and metrics
 the potential for false accounting and window dressing corporate accounts
 the inflow and coming together of new entrants many driven by the “fast buck”
 reluctance to face problems

When hackers stole millions of Euro’s worth of credits from various National Registries, the EU would not list
the serial numbers because officials said this would undermine confidence in the market

When a leading Designated Operation Entity (an Inspection Company) was told by the UNFCCC to adjust
over‐claims on a CDM project it remained silent on an exactly equivalent exaggeration by the same
participant elsewhere. Both projects had been validated by the same inspection team. The benefits to the
participant ran into millions of Euros.

There is not a single document on any of the official “Carbon World” websites that mentions
anti‐bribery measures, incident reporting or any of the other controls suggested in the Ministry of
Justice Guidance. The “Carbon World” is “Oil for Food” all over again: lessons still have not been
learned.

There is nothing to stop anyone setting up a carbon exchange, registry or even an offset validation process. The
“Carbon World” is poorly regulated and an open invitation to skulduggery

7.2 Penetration of Organised Crime
Organised criminal groups have recognised the opportunities in the “Carbon World”:

In 2009, a number of very serious frauds were discovered in the ETS which allegedly incurred losses of VAT
(effectively a sales tax) in excess of €7.0 billion. The majority of the scams centred on a sophisticated carousel,
where fraudulent, dummy companies joined one or more of the European Union’s “Registries”, bought “carbon
credits”, and sold them +21% VAT before absconding without accounting for the tax.

When the fraud was brought to an end, by the arrest of the participants, the volume of transactions on the
Danish Carbon Exchange dropped by 90% overnight.

So far, little has been said about the investors (who apparently bought credits ostensibly with a face value of over
€35,000,000,000). But there are concerns that some are holding worthless instruments that may have been
bought through collusion by their own employees
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