“Interpol warns of criminal focus on $176 billion carbon market”

RTCC.org on August 5, 2013 released the following:

“Crime agency says lack of oversight and transparency threaten the environmental integrity of the world’s carbon markets

By Ed King

Carbon trading schemes are at acute risk from criminal gangs and fraud, a new report from Interpol warns.

The police agency says uncertain regulations and a lack of oversight and transparency threaten the environmental and financial integrity of the world’s carbon markets, worth an estimated $176 billion.

And it says that there is a risk that if financial instruments related to carbon trading become too complex, the world’s carbon markets could spark a financial crisis on par with 2008.

The report says law enforcement agencies must be more aware of ‘carbon crimes’, improve communication between countries and impose tighter regulations on transactions and calculations of emissions reductions.

“Unlike traditional commodities, which at some time during the course of their market exchange must be physically delivered to someone, carbon credits do not represent a physical commodity but instead have been described as a legal fiction that is poorly understood by many sellers, buyers and traders,” Interpol says.

“This lack of understanding makes carbon trading particularly vulnerable to fraud and other illegal activity.”

Areas Interpol says criminals seek to exploit include over-claiming for credits, the sale of credits that do not exist, false claims relating to a project’s benefits, money laundering and online credit theft.

And it warns that even third party auditors, employed by schemes like the UN’s Clean Development Mechanism to verify projects, may be susceptible to “bribes or collusion” to manipulate the results.

“The discrepancy between the objectives of the financial players in the market – to maximize profit – and the overall objective of the Kyoto Protocol – to ensure overall greenhouse gas emissions are reduced – places diverse pressures on the regulation of the market when drawn alongside other typical commodity markets,” says the report.

Lucrative takings

High profile criminal cases include a 2010 hacking attack on cement maker Holcim, resulting in the theft of 1.6 million credits worth €23.5million, while in 2011 hackers stole two million carbon credits from registries in Austria, the Czech Republic, Estonia, Greece and Poland.

In 2012 three men in the UK were sent to prison after running a £39 million tax fraud related to carbon trading. And earlier this year one of Britain’s most prolific money launderers Ian Macdonald was jailed for eight years for an £18 million carbon credits scam targeting vulnerable UK investors.

“It is imperative that the carbon trading markets remain secure from fraud, not just to protect financial investment, but also because the global environment depends upon it,” said Andrew Lauterback, Senior Criminal Enforcement Counsel at the US Environmental Protection Agency.

“This criminal activity risks seriously undermining the environmental integrity of the carbon markets globally,” added David Higgins from Interpol’s Environmental Crime Programme.

Jamal Gore, Deputy Chair of the International Carbon Reduction and Offset Alliance (ICROA) welcomed Interpol’s drive to raise awareness of criminality in the sector, but told RTCC many of the issues raised in the report had already been resolved.

“ICROA’s Code of Practice, the governance mechanisms of the voluntary carbon credit standards and the emergence of professionally managed carbon credit registries together address many if not all of the issues related to the voluntary carbon market that the guide raises,” he said.

“The publication of the guide in its current form therefore represents a missed opportunity. By highlighting both the challenges facing the carbon markets and the work already being done to drive best practice, it could have better served its purpose of reducing carbon trading crime. Instead it risks sowing doubt just when we need to redouble our efforts to fight climate change.”

Large target

Carbon trading is the world’s fastest growing commodities market. In June, China launched the first of seven pilot projects, with an aim of developing a national emissions trading scheme (ETS) by the end of the decade.

The UN runs two schemes, the Clean Development Mechanism (CDM) and Joint Implementation (JI), which are targeted at improving low carbon investment in the developing world.

The EU ETS is worth an estimated $148 billion, the US-based Regional Greenhouse Gas Initiative (RGGI) $249 million and New Zealand’s market $351 million.”


Douglas McNabb – McNabb Associates, P.C.’s
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To find additional global criminal news, please read The Global Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


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