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5 BILLION € IN ANNUAL FRAUD

Rob Wainwright

But this is just the tip of the iceberg. The five billion is only part of an extensive organized crime in Europe estimated at 100 billion Euro in the form of VAT carousels and other fraudulent activities via the internet. Organized crime has gone on-line. A virtual underground economy has overtaken the old form of crime as Europol’s director Rob Wainwright points out.

By Peter Skeel Hjorth, Journalist 

The organized crime in Europe moved heavily into the carbon credit market in late 2008. Loopholes in the various countries’ different VAT charging systems and poor  IT security made it possible to steal carbon credits and carry out a devastating fraud amounting to billions of Euros that could have been used on welfare and to alleviate the financial crisis. The fraud may in some cases have amounted to as much as 90 per cent of the trade in carbon credits. The inter European police authority Europol’s Director Rob Wainwright puts it like this:

“We saw in some cases – when loopholes were closed down by changing – for example – the charging mechanism for VAT – then suddenly there was a 90 % drop in the trading on those exchanges.”

In 2008 organized crime moved into the carbon trade market, Rob Wainwright explains in the documentary “The Carbon Crooks“. Criminal networks employed most sophisticated techniques to defraud both the state and the private citizens. Europol worked hard on the case in 2008 and 2009 with an initial group of five or six countries, among them Denmark, the UK and France to identify who was behind the fraudulent activities, estimated at around 5 billion Euro.

“It’s worth noting as well that there are estimates at the time of 5 billion Euro damage which was met with some scepticism in the industry” Rob Wainwright points out and adds that the figure has since been validated by a researcher from the University of Sorbonne. The French academic thinks that the fraud may be as high as 8-10 billion Euro. In France alone he estimates the fraud to be 1,5 billion Euro.

A threat towards society

Rob Wainwright: ”And of course France is just one of 27 member states covered by the EU trading system and what is a very integrated European market that we live in, allows criminals to move across the national boundaries to exploit any differences that might exist as they did in the different VAT charging systems in different countries. And the criminals were very quick to move from one country to another to continue their fraudulent activities. So we worked hard – not only the law enforcement authorities – but also helping the European Commission for example – helping national authorities to close these loopholes down in every country in Europe so that it no longer could be a rich picking and an easy place for criminals to play in.”

I’m not an expert in the Danish system, but I’m sure that this was a major part of it. We saw criminals trying to find the weak spots in the European Union and then exploit it to the maximum to get what they can get out of it. And they generated huge volumes of illegal money. This has had a big effect on not least national government. It’s 5 billion Euro of government revenues that otherwise would be spent by governments to build hospitals and schools or to reduce debt right now. To help governments to cure their economic recovery.

“It’s 5 billion Euros going into the pockets of criminals who are using that to sustain other criminal activities as well – so this is a major threat to our society and it was important that we took strong action in 2009 and it is important that we continue to take that action today.”

15 years of imprisonment

Rob Wainwright goes on to say:

“It threw a light on the true nature of this modern organized crime phenomenon, and it invited in particular a strong participation of many, many national law enforcement agencies. We formed here – under Europol coordination – a new target group to focus in particular on this new organized crime activity. Ten member states together with other countries such as Switzerland participated actively. In 2009, 2010 and 2011 we helped to support 35 major investigations in this area and some of these investigations have led to multiple arrests. In Italy alone over a hundred people were arrested during the course of 2010. In the UK and Germany we’ve had some of the first cases now coming to court with sentences to up to 15 years of imprisonment, so it’s significant criminal sentences and that in a way shows how significant this criminal activity has been, but that’s just the tip of the ice berg. There are many more cases that will come to court.”

“The pace of that investigation now slows down because – I think – we have been very quick to penetrate the criminal groups involved. We worked very much to advice the commission and national governments to close their loopholes. And the commission has responded very strongly and now – it is not so easy – it is not the same picture as we had in 2009. This is much more difficult now for organized crime groups to operate in this particular market, but of course it is our concern that they move their interests to other markets, which is the new focus therefore of our work today.”

Poor security

The trade in carbon credits amounts to 180 billion USD (1060 billion DKK) that criminals are poised to lay their hands on. And the ingenuity is considerable.

In the Czech Republic a bomb threat was used to empty the entire country’s registry of carbon credits.

Rob Wainwright: “I’m not at all surprised that the organized crime groups will go to considerable length and will use – you know – significant criminal acts including levels of violence and corruption to secure their means. And as we made it harder for them to penetrate these systems – as we closed down loophole after loophole it forced them to take even greater risks in their own activities. And this is what we are seeing now with these extraordinary actions in the Czech Republic and elsewhere. That does not surprise me, but they are getting desperate. I think they are because of the effective actions that we have taken. We have also seen a move to more activity on the internet and in cyber space to sustain their activities. We had serious incidents around 2011 of hacking which led to the theft of about 4 million carbon emissions or credits rather. So we have seen them work online, and this is a new feature of organized crime as a whole actually and this shows how much more significant the internet has become as a primary facilitator of organized crime activity.

One of our challenges in this area at Europol is trying to prevent these organized crime networks using the internet to cause further damage to the emission trading system in Europe.”

Rob Wainwright does not make a secret of the fact that it has become easier to commit fraud online than to steal money from a bank or steal a car. Therefore a virtual underground economy has taken over the old form of criminality he says. A criminal economy that is sustained online allows the criminals to operate in this way.

Europol’s Director estimates that the 5 billion Euro carbon credit fraud is a part of the VAT fraud of 100 billion Euro in all kind of types of carousel and other online fraudulent activities.

“To find the loopholes is “huge business”, and the authorities in their eagerness to get their systems online have had too little focus on safety.”

Criminals have been quick to see the opportunity and how they can exploit that, Rob Wainwright points out.