Seven arrests in carbon trading inquiry

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HM Revenue & Customs officers swooped on homes in London and Gravesend yesterday and arrested seven people in connection with a suspected £38 million tax fraud in the carbon emissions trading market.

Officers with sniffer dogs searched scores of business premises and homes in Hounslow, Southall and Gravesend seeking evidence relating to a suspected VAT fraud in the complex world of trading carbon permits.

Officers from Europol, the EU police agency, assisted in the arrest of six men and one woman, who were taken to police stations for questioning. An HMRC spokesman said that two further arrests were made later in the day and that more are expected.

HMRC believes that a criminal gang operated a network of companies trading large volumes of high-value carbon permits. The alleged VAT fraud was conducted through companies that bought carbon permits overseas free of VAT and sold them to UK buyers at a higher price inclusive of VAT. The tax charged to the buyer was never paid to HMRC.

Dominic Stuttaford, a lawyer with Norton Rose, said that such a fraud would require understanding of the the carbon market’s complexity and involve “quite switched-on people”.

There have been such scams in France and the Netherlands. Fears of a wave of carbon trading tax fraud prompted the Government in July to zero-rate carbon permits for VAT purposes.

The carbon permit scam follows a wave of VAT frauds involving the purchase and sale of mobile phones. Known as “missing trader VAT fraud”, the criminals create a company to conduct the fraud across borders and then disappear after pocketing the VAT.

According to HMRC, missing trader VAT fraud cost the Government about £2 billion to £3 billion in 2005-6.

Mr Stuttaford said that carbon permits proved ideal for fraudsters because they were difficult to trace. He said: “They are not hard assets, they are intangible.”

Tagged as: Carbon Permits, Emissions Trading, U. K. Carbon, VAT fraud

Posted on August 22, 2009 · in UK