Carbon Credit Watch

Europe’s largest emissions-related tax fraud lands six in jail

(December 21, 2011) One of the European Union’s largest probes into carbon credit tax fraud places six traders from Britain, Germany and France behind bars.

Germany: Six men aged between 27 and 66 have been sentenced to jail by a German court for tax evasion following an international probe involving the Deutsche Bank.

Judge Martin Bach said the men were guilty of having participated in a conspiracy to evade around 300 million euros ($393 million) in value-added tax (VAT) between August 2009 and April 2010. The six helped to start a chain of trades with the sole purpose of evading value-added tax.

Bach said the Deutsche Bank, which bought the securities, should have known the trades were illegal. “These sales had no economic sense. The suspects knew or could have known they were part of a criminal scheme.”

No employees of Germany’s Deutsche Bank have been charged as part of the investigation to date, which at one point involved more than 1,000 police, tax officials and other investigators. During the trial, however, a prosecutor told the court the fraud could not have been carried out without the Bank’s participation, which was a partner in the trades involving emissions certificates.

German prosecutors are continuing to investigate 170 people, among them seven Deutsche Bank employees.

The case is part of the biggest crackdown on emissions-related tax crimes since Europe began its cap-and-trade system in 2005. The suspected tax evasion, which is accomplished when traders collect but pocket VAT rather than hand it over to tax authorities, is estimated to have amounted to 850 million Euros (or US$1.1 billion).

VAT fraud has plagued the EU’s emissions trading system which was set up in 2005 to reduce greenhouse gases by creating a price and a market for CO2. Europol calls CO2 an “intangible” commodity, which makes CO2 transactions particularly difficult to track and so an enticement to fraudsters and organized crime.

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