France begins trial over $5.8 billion cap and trade scam, though none of the money is expected be recovered-France 24

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5/3/16, "Multi-billion euro carbon-trading fraud trial opens in Paris," France 24, by Aude Mazque

"The trial of 12 people accused of involvement in a multi-billion euro carbon-trading fraud opened in Parison Monday, in a case that has been described by French authorities as “the heist of a century”.

Shady deals, offshore accounts, money laundering…The trial has all the hallmarks of a crime thriller and comes nearly seven years after French authorities cracked down on a carbon-trading scheme that cost the European Union €5 billion [$5.78 billion US]– including €1.6 billion in France – according to Europol.

The case dates back to October 2008, around the same time the European Commission introduced phase two of its EU emissions trading system (EU ETS), which was designed to combat climate change by reducing greenhouse gases.

The EU ETS was a simple “cap-and-trade” system. Under it, EU member states set a cap on the amount of carbon companies in specific sectors could produce. This could then be traded on the European market as emission allowances. Companies that did not use their entire allowance could sell the surplus, while those that had exceeded the limit could buy more. It was also possible to purchase international credits from emissions-saving projects abroad.

A ‘flawed’ system

Despite the good intentions behind the EU ETS, it was an imperfect system that was easily exploited.

“The structure was poorly conceived from the start and had some real flaws,” Katheline Schubert, an environmental economics professor at the Sorbonne university in Paris, told FRANCE 24.

Investigators believe that a group of three men – Mardoché Mouly, Arnaud Mimran and Samy Souied – realised this, and devised a scheme to defraud billions of euros by purchasing emission allowances on the European market from abroad, using a complex network of shell companies and offshore accounts in Latvia, Cyprus and Hong Kong.

Because the allowances were purchased outside of Europe, they were not subject to the European Union’s 19.6 percent value-added tax (VAT). Front men acting as brokers then resold the allowances in Europe, taxes included. But instead of handing the VAT over to the authorities, they pocketed the cash to use in future trades. But the money needed to be laundered before it could be reinvested. This involved placing it in a bank in China, where it was then handed over to businesses or transformed into playing chips at casinos, among numerous other ploys.

It wasn’t long, however, before the scheme caught the attention of French regulators, who reported their suspicions to the country’s anti-money laundering unit Tracfin as early as the fall of 2008. 

Although both the budget and finance ministries were promptly informed of the situation, nothing happened. It would take another six months and €1.6 billion in lost tax revenue for France before the authorities finally cracked down on the fraud in June 2009.

“Fortunately, [the system] has since been fixed and the same sort of fraud is no longer possible. But it is still vulnerable to other schemes. A swindler’s imagination has no limits,” Schubert said.

Of the 12 people on trial, only five appeared in court on Monday. Among them were two of the three suspected masterminds of the scheme, Mouly and Mimran. Their alleged partner, Souied, was gunned down by two men on a scooter on September 14, 2010, and will be tried posthumously. The other six defendants in the case are believed to have fled to Israel.

The trial, which will run until May 30, is not expected to recover any of the money lost in the scheme. “It’s extremely difficult to identify the assets of those behind the [fraud],” an investigator in the case was quoted by French daily L’Express as saying. “They’ve spread [it] out among incorporated companies and tax havens”."




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