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
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”."