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Fraud: Carbon trading VAT fraudsters foiled by Customs officers

Three men were jailed at Southwark Crown Court this month for a combined total of 35 years after being found guilty of a £39m VAT fraud executed on sales of carbon credits.

Sandeep Singh Dosanjh, Navdeep Singh Gill and Ranjot Singh Chahal set up a chain of businesses to import carbon credits from the EU paying 0% VAT.

The group sold the credits on to unsuspecting businesses with VAT added to the bill but failed to pass the VAT collected to the Exchequer.

The money was then traded between several fraudulent companies before being laundered in the United Arab Emirates. The group then spent vast sums back in the UK on luxury items including a Rolls-Royce and a £1m Bayswater property.

The carbon credit scheme is the EU's flagship legislative vehicle designed to create an open market for the trading of carbon emissions permits for big businesses. The scheme aims to incentivise major polluters by charging them for each ton of carbon dioxide they produce. Efficient firms can then sell their credits to those in need, creating a strong financial incentive to 'go green'.

In recent weeks the Financial Services Authority has flagged up a large number of bogus companies being set up to trade in carbon credits, flaunting the fact that the law is new and many businesses are unaware of how it operates.

Customs officials were alerted to the scam by Europol, the European police agency, which estimated that EU nations were losing billions of Euros in traded carbon credits. Aware that allowing companies to charge VAT on the credits could contribute to a massive VAT fraud, customs officials asked for the items to be zero rated.

The Trade Minister Stephen Timms was able to change the VAT at short notice, effectively ending the VAT scam which it is thought could have cost the UK Government up to £2bn. Once the trades were zero rated, trading in the credits collapsed by 90%.

Investigators into the fraud were damning of the major banks that had helped to finance the fraud.

"There was a massive failure on the part of the financial institutions to 'know your customers', which allowed this to happen," one investigator told The Independent newspaper.

Sources:

Carbon credit scam would have cost Britain £2bn (The Independent)

Fraudsters turn to carbon credits, according to FSA (The Telegraph)