The Danish tax authority has been robbed blind by a carbon trading scandal that has rocked the market for carbon off sets: while the story saw some press a year ago, significantly higher losses have since been reported and the MSM has ignored the story.
The Danish Auditor General is on the case now as the scope of the crime has become obvious, and grown exponentially since it was first reported. Originally discussed as a quasi-small-time dollar scam, the reality a year later is a lot larger: Europol is estimating a value on the case of 38 Billion Kronars and the values seem to keep going up.
Connie Hedegaard, then the Climate & Energy Minister for Denmark is now the EU Climate Commissioner. While she was with the Danish government, she helped set up and manage a system where there were no background checks on the listings of permitted traders. This removal of identification was done even though the EU requires at least passport. This helped a group of fake, rogue traders set up a program that looted the Danish economy of up to 2% of its gross GDP in lost VAT taxes.
The Denmark CO2 permit registry was setup with extremely lax rules and regulations, possibly intentionally. In 2007, Ms. Hedegaard removed the requirement for identification and in a very short period of time traders figured out the loopholes and started to back up the proverbial truck. How? To put it simply: you could round robin CO2 credits, booking the VAT as a bonus each time.
What is painfully obvious is that over 1,100 of the 1,256 (or about 88%) of the registered traders listed in their system were bogusly set up for fraudulent activity. The traders have since been delisted as the scope of the crime becomes obvious.
The fake but registered traders used made up, unique addresses for their business: in one famous case, a trader was listed as trading out of a parking lot in London. In another, the trader took the name of a dead Pakistani national.
The fraud centered on the use of VAT as a mechanism to generate real non-taxed cash flow. An international trader would buy VAT free credits from one nation, and then resell them to a VAT added customer in a second nation, pocketing as much as 25% of the cost of the trade as a personal commission. The trader then kept the VAT difference in lieu sending in the VAT to the necessary tax system, effectively arbitraging the VAT system (See, e.g., Cap and Trade; Leaving Las Vegas, “The Hole You’re In”).
This trade was coined a “carousel” as the traders would re-export the credits, claiming the VAT only to reimport the credits and reselling them again with a new VAT assigned. They could wash, rinse and repeat booking up to a 25% VAT in the process each time.
Here is the Danish Emissions Trading Registry CR User Manual. The how to manual.
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