HM Revenue & Customs: Further arrests in multi-million pound carbon credit fraud investigation

Four people were arrested in early morning raids today by HM Revenue & Customs (HMRC) officers investigating a £38 million suspected VAT fraud. The alleged fraud involved the trading of emissions allowances (often called ‘carbon credits’). Criminal investigators also found firearms and large amounts of cash during the raids on seven properties in the London and Leicester areas.

The arrests are linked to raids that took place in August 2009 where nine individuals were arrested. All those arrested today and last August are believed to be part of an organised crime group operating a network of companies trading large volumes of high-value carbon credits.

The fraudulent companies allegedly purchased carbon credits from overseas VAT free sources and then sold them on to businesses in the UK at a VAT inclusive price.  The VAT charged by the fraudulent companies was never paid to HMRC.

Chris Martin, Assistant Director, London, Criminal Investigation for HMRC said:

““HMRC investigates all criminal attacks on the tax system, gathering evidence to prevent fraud and enabling prosecutors to bring offenders before the courts.

“These arrests are the result of the hard work that our investigators have carried out during a sustained and complex 15 month operation.”

Details

1.          The opportunity for Missing Trader Intra-Community (MTIC) VAT fraud arises where standard-rated goods or services can effectively be traded VAT free between EU Member States.  Up to now, most emissions allowances have been standard-rated in UK to UK transactions and VAT free when purchased from outside the UK by a UK based company.  It is this VAT free source that provides the opportunity to perpetrate MTIC VAT fraud.  It occurs where the UK company purchasing the emissions allowances from overseas sells them to another UK company, charges VAT but then fails to pay it over to HMRC and disappears.

2.           In response to cases of VAT fraud in connection with trading of emissions allowances legislation was introduced to zero rate the supply of emissions allowances within the UK; this took effect from 31 July 2009.  It follows similar action taken by France and the Netherlands earlier in the summer.  However, despite this change, HMRC still intends to pursue relentlessly those that may have used carbon credit trading to cheat the public purse.

3.           Particulars of arrests are as follows:

Male, 30 years old - arrested London
Male, 53 years old - arrested Midlands
Male, 31 years old - arrested London
Male, 29 years old - arrested London

Individuals were arrested on suspicion of cheating the revenue and/or laundering the proceeds of crime and have been taken to police stations for questioning by Revenue & Customs investigators.

Notes for editors

1.         Nine individuals from the Greater London and Gravesend areas were arrested in August 2009 in connection with alleged fraudulent trading of emissions allowances. They were questioned at police stations and subsequently released on bail.

2.         Carbon credits became zero rated for VAT purposes with effect from 30 July 2009.

3.         A zero-rate is still a taxable supply which means that although no VAT is charged, thereby removing the opportunity to steal VAT, the seller can generally reclaim VAT on any purchases that relate to those sales. This ensures that the legitimate trade will not incur additional tax costs from this change.

4.         Missing Trader Intra-Community (MTIC) VAT fraud is an organised criminal attack on the VAT system. HMRC estimates that the potential impact on VAT receipts in 2005–06 was between £2bn and £3bn.

5.         HMRC is tackling MTIC through:

·         better registration checks to identify fraudulent and bogus applications,

·         redeploying about 600 extra compliance officers to verify repayment claims from businesses trading in suspect supply chains and using barcode scanning technology to better identify goods involved in the fraud;

·         strengthened international co-operation with both EU Member States and non EU countries;

·         a tougher approach to litigation with increased specialist resource targeted at criminal investigation;

·         legislative measures in this year’s Finance Bill to clarify/strengthen UK powers;

6.         Anyone with information about activity they suspect may be linked to fraud should call Customs Hotline on 0800 59 5000.

NAT 25.10

Issued by HM Revenue & Customs Press Office

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