AOL News
written by James Graff
December 10, 2009
As negotiators grapple in Copenhagen over a global scheme to curtail carbon emissions, Europe's own iteration was revealed as an easy mark for organized crime. The development could lend fresh ammunition to congressional critics of the Obama administration's plans to limit carbon emissions through a cap-and-trade system.
Europol, the European Union's joint criminal intelligence agency, announced that in the last 18 months, criminals have gamed the EU's Emissions Trading System for a cool $7.4 billion in purloined tax revenues.
The EU's ETS, the world's largest existing carbon emissions trading scheme founded in 2005, serves as a model, for better or worse, for global trading schemes being discussed now in Copenhagen. After getting off to a slow start -- at first, European governments set the carbon caps so high that many power companies were profiting from the credits without having to cut their emissions -- the trade started to balloon suspiciously late last year. By the time volume peaked last May and early June, Europol investigators say, up to 90 percent of the trade in some European countries was totally bogus.
So how does a would-be Bernie Madoff make money trading intangibles like carbon credits? The scam was relatively simple: Fraudulent traders bought carbon credits tax-free in one European country, then sold them in another at a markup by including value-added tax, which varies from 15 to 25 percent among EU member states.
But the criminals simply never sent that money to tax authorities as required. The scam -- known as missing trader intercommunity fraud or, when done repeatedly, as carousel fraud -- had previously been run on easily transportable items like cell phones and computer chips. But carbon credits -- invisible, weightless and highly tradable -- have been like catnip for organized criminals.
As soon as volumes spiked on the French carbon exchange in June, authorities there moved quickly to change the tax treatment for carbon credits, effectively shutting down the trade as criminals ran it then. The United Kingdom, the Netherlands and Spain quickly followed suit.
But Denmark, which has the EU's highest value-added tax rate, remained an easy and lucrative target, according to Richard Ainsworth, an adjunct professor at Boston University and an international taxation expert. "To do this scam you have to get on the exchange, and Denmark was the doorway," he said. "They should have acted immediately on securing the market."
Europol specifically mentioned that Denmark had seen massive spikes in carbon trading in May, but it was only last week -- on the eve of the Copenhagen Climate Change Summit -- that the Danish parliament approved measures to tighten access to its carbon trading market. Kaj Henrik Ludolph, an official in the Danish Ministry of Taxation, said the new law was adopted "merely as a precaution," adding that his agency had so far found "no indications of fraud, but there need to be further investigations."
In August British police arrested seven people in an alleged $62 million tax fraud that targeted carbon credits; according to British tax authorities, the perps spent their elicit gains "to finance lavish lifestyles and purchase prestige vehicles." Ainsworth points out that more nefarious possibilities exist, too.
"The money is easy to get hold of," he said. "There is no proven case where terrorist organizations get that money, but there is no reason someone couldn't sit in the Swat Valley and do this."
The American version of cap and trade wouldn't necessarily be vulnerable to the same kind of tax fraud, which depends on Europe's rules governing cross-border transactions. But any truly global exchange would have to be a lot more vigilant than the Europeans have been, especially if it is going to assign value to complicated offsets such as rain forests that have not been chopped down or trees planted to soak up carbon over decades.
Many environmental economists advocate a straight carbon tax, arguing that cap-and-trade schemes expose businesses to volatile carbon prices and don't give governments a stream of predictable revenue. They haven't prevailed largely because the idea of cutting emissions through trade is considered more politically palatable than doing so through a tax. But now that opponents of any carbon mitigation scheme (such as the ubiquitous Sarah Palin) have taken to calling cap and trade "cap and tax," that argument may have lost some of its punch -- just as Europe's scheme has lost some of its innocence.
No comments:
Post a Comment