The carbon abatement market has acted like a magnet to international criminal groups as well
as opportunists and it will get much worse.
In 2009 a number of very serious frauds were discovered in the European Union’s Emission
Trading Scheme (EUETS) which allegedly incurred losses of VAT 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.
The frauds were so extensive that six countries had to change their tax regimes and remove the
VAT liability on carbon credit transactions. European political leaders, who do not fluoresce with
unbounded eagerness to reduce taxes or cut back on red tape, had to admit that the fraudsters
were “unstoppable” in the systems as designed.
Rob Wainwright, the director of Europol, effectively the European Union’s elite police force,
stated:
"These criminal activities endanger the credibility of the European Union's Emissions
Trading System and lead to the loss of significant tax revenues for governments"
Peter Younger, Interpol’s Environmental Crime Specialist, said:
“The carbon market would be irresistible to criminal gangs”
CSR programs are part of the bigger carbon fraud picture and are proving massively profitable
for an array of vendors, consultants, non-governmental and charity organisations and operators
many looking for, and getting, windfall profits or grants so long as the global warming scare
can be inflamed. Already, the Carbon World has been hit by massive investment, Ponzi
schemes and share ramping scams, few of which fall under the control of financial regulators.
One Internet company is currently offering returns of 300% on green investments but if you
look closely at the prospectus it is a scam.
In Italy members of a Mafia gang (including the President of the Italian wind energy federation)
were arrested for allegedly bribing national and local politicians to gain approval for wind farm
projects, some of which were never built although successfully sold to overseas investors. In
the USA there are scandals involving offset providers who divert up to 70% of green
investments into their own pockets – including the one that supposedly provided offsets for
Gory Al’s film - and another involving a multi-million non-existent “biochar” installation. In
another case a vendor is alleged to have supplied redundant wind turbines that fell far short of
the specification agreed. The Carbon World has been described as “heaven for crooks” and it
is.
One offset provider’s website offers to fix its price of voluntary carbon credits at around £8 and
to sell them to anyone for resale. The idea is that airlines, travel firms and others will buy them
to provide offsets for their customers. But it is a very tempting proposition for any crooked
employee with enough authority. He can set up his wife or mistress in business (or both if he is
also a professional footballer): she buys the credits at £8 and sells them to his employer for
£20 plus VAT. He approves the purchase invoices; she pockets the profit and has a further
option of disappearing without paying the VAT. Simple!
Distorted Authority
The problem is that the manic environmental zeal that motivates many CSR investment
decisions obscures good commercial judgement and, anyway, there is little evidence that tree
huggers are the most risk aware group on the planet. After all, most have beards and wear
“Hush Puppies” and anoraks, thereby proving the point. The exposure to fraud increases in any
operation where big procurement or investment decisions are made outside of a professional
purchasing context. Examples include advertising, consultancy, capital and construction
projects or financial investments, usually because the normal criteria applied for competitive
tendering is overridden by complex subjective factors.
Poor Decisions: Quickly Forgotten
It is also astonishing that poor sustainability decisions are quickly forgotten. One company
converted its 100 vehicle fleet – at considerable gain to the vendor - to gas but then had to
change them back again when the fuel’s inefficiency was exposed. Another company found
that converting to biomass energy did not reduce its carbon footprint once land clearance
emissions were taken into account. David Cameron’s famous mini-turbine was removed when
he was told it generated less power than a gerbil on a treadmill. Bad decisions will always be
forgiven, providing they were made on environmental grounds.
ACTIONS THAT WILL GET YOU FIRED (WITH COMPENSATION)
Most CSR programs are honestly run, with good intentions but do managers and shareholders
really have any idea over the fraud exposures or do they just leave Dracula in charge of the
bloodbank? Internal Audit and Corporate Security should take a very close interest in
everything to do with CSR.
But care is recommended because any questioning will be as welcome as asking to review the
Managing Director's expenses for his extended trip to Mauritius with his mistress, but claimed
for as a fully offset business trip (one of 2.5 million) to New York. The good news is that if
Corporate Security people or Internal Auditors are fired for asking questions, they can always
claim compensation under the “religious belief” rule.
The main areas to consider are;
• What – precisely - is the CSR policy and its objectives?
• What attitude do CSR professionals have to risk and control?
• What authority (real or contrived) do they have?
• What accounting processes exist to capture the true costs?
• How are the costs and the tangible benefits measured and reported internally?
• Who is responsible for administering the CSR programme and to whom do they report?
• What discretionary decisions are taken in respect of the program including:
o selection of advisers
o selection of vendors
o selection of offset projects
o other decisions ?
• What capital projects have resulted from CSR initiatives, including the building of
renewable energy facilities, disposal of waste, renewable energy contracts?
• How were these decisions evaluated, by whom and what justification audit trail exists?
• What effect does the CSR programme have on supply chain decisions
o which vendors have benefited and which have not
o what financial investment criteria have been overridden?
• What CSR decisions and investments have failed or been reversed. In such cases, who
benefited?
• Is there any evidence that the program has been manipulated for personal gain?
Finally, how are the results of the CSR programme reflected in statutory accounts and
company annual reports and do they expose the company to complaints of false accounting?

Cobasco Group Limited is an established consultancy that has recently launched a new division specialising in preventing, detecting and investigating fraud in the Carbon World.