U.K. regulators may take a further two years to complete an investigation into fraud in the carbon market as it seeks data from companies including Royal Bank of Scotland Plc and CarbonDesk Group Plc.
The U.K. tax office is examining whether trading companies, motivated by transaction fees and discounted prices offered by fraudsters, continued buying and selling permits even as the doubling of volumes around June 2009 was suspicious, according to Cedric Andrew, a former investigator at HMRC, the British agency. Based on parallel cases in the mobile-phone industry, the inquiry into so-called missing-trader frauds may not be resolved until 2015, according to Jonathan Grant, a director of sustainability and climate change at PricewaterhouseCoopers LLP.
“The carbon market was particularly vulnerable to missing-trader frauds because spot trading and the delivery of the allowances and cash can be very rapid,” Grant, who has advised the European Commission on some of its carbon programs, said June 3 by e-mail.
HMRC served an 86 million-pound ($133 million) assessment in September related to value-added-tax fraud on a European unit of RBS Sempra Commodities LLP, a venture between Edinburgh-based RBS and Sempra, the San Diego-based company said May 2 in a filing to the U.S. Securities and Exchange Commission.
RBS is cooperating with the agency, Linda Harper, a spokeswoman for the bank in London, said May 31 by phone, declining to elaborate.
According to the Sempra filing, a letter from HMRC to RBS states that “HMRC believes it has grounds to deny RBS the ability to reduce its VAT liability by VAT paid during 2009 because it knew or should have known that certain vendors in the trading chain did not remit their own VAT to HMRC.”
CarbonDesk, which bought and sold carbon permits on behalf of clients, is contesting an assessment received from HMRC in January for 95.5 million pounds, its founder Brett Stacey said June 4 by e-mail. Neither RBS nor CarbonDesk has been accused of fraud.
Buying and selling of EU allowances for immediate delivery jumped to 38 percent of the total market in May 2009, up from 26 percent in April and 18 percent in March, Barclays Plc estimated at the time. Permits are traded electronically between accounts held by companies that keep track of ownership.
Crimes in the greenhouse-gas market will take more time to prosecute because regulators need to investigate whether buyers, sellers and brokers improperly took advantage of surging volumes, London-based Grant said.
HMRC has limited its VAT losses to less than 300 million pounds and is “taking action to recover amounts properly due,” Andrew Bennett, a spokesman for the tax office in London, said April 23 by e-mail.
The claim against RBS Sempra is one of “a number of investigations into VAT tax-refund claims” in the carbon market by HMRC, according to the Sempra filing. Art Larson, a company spokesman in San Diego, said June 7 by e-mail that RBS is handling the case on behalf of the venture.
RBS Sempra is being liquidated after its European power and natural gas business was bought by JPMorgan Chase & Co. in 2010. Patrick Burton, a spokesman for JPMorgan in London, declined to comment when reached June 4 by phone.
JPMorgan has indemnified the unit for “certain items” as the RBS Sempra venture is liquidated, excluding the HMRC assessment, Sempra’s Larson said.