ML Risks Associated with Carbon Emissions Trading Schemes
From: APG Yearly Typologies Report 2010. Methods and Trends of Money Laundering and Terrorist Financing
APG delegates to the 2009 Typologies Workshop gave some preliminary consideration to possible vulnerabilities from ML or TF associated with national and international carbon trading schemes. Delegates considered the very rapidly growing size of global carbon trading markets. The world’s carbon markets were expected to reach $122 billion by the end of 2009. One case was presented which involved the United Kingdom. In August 2009, UK Fraud investigators arrested nine people over a suspected £38m carbon credit trading scam. It is thought that the proceeds of this crime were used to finance lavish lifestyles and the purchase of prestige vehicles.
Commentators have highlighted vulnerabilities from corruption and bribery at the point of measuring carbon outputs or storage. Delegates also noted vulnerabilities highlighted in recent FATF work on ML vulnerabilities in the securities sector and cross over issues with trading in carbon emissions securities. Delegates to the 2009 APG Typologies Workshop noted that ML vulnerabilities in carbon trading markets may be an area for future study for the APG.
Experts warned that organised crime gangs are using carbon emissions trading schemes as fronts for money-laundering. APG executive secretary Gordon Hook said one "issue that we've looked at closely is money laundering associated with carbon emissions trading schemes”. Emissions trading schemes place a limit on the amount of greenhouse gas pollution which companies can produce, forcing heavy polluters to buy credits from companies that pollute less -- thereby creating financial incentives to fight global warming.
Investigators say that the ETS is open to abuse by criminals engaging in what they call a "missing trader" scam.
Criminals establish themselves in one EU member state and open a trading account with the national carbon credit registry. They then buy carbon credits in a different country, which makes them exempt from VAT. These are then sold to buyers in the original country, but with VAT slapped on, although the VAT then just disappears along with the trader and the money never arrives in government coffers.
Some member states including France, the Netherlands, Spain and the UK, but not all, changed their taxation rules on such transactions to prevent further losses.