INTERPOL report warns carbon trading at increased risk of criminal exploitation

The intangible nature of the global carbon trading markets puts them at risk for exploitation by criminal networks, according to a new law enforcement guide produced by INTERPOL.

The INTERPOL Guide to Carbon Trading Crime examines the areas within the industry which have the potential to be manipulated by criminals, through securities fraud, insider trading, embezzlement, money laundering and cybercrime. It also assesses the current vulnerabilities of the carbon market and provides information to support national authorities in establishing adequate policing measures.

Carbon trading is the world's fastest growing commodities market, with its current value estimated by the World Bank at around USD 176 billion. Differing from traditional markets in that there are no physical commodities, only "credits" for offsetting the output of carbon dioxide, it is this unquantifiable market combined with the large amounts of money invested and a lack of oversight which make it vulnerable to criminal activity.

"It is imperative that the carbon trading markets remain secure from fraud, not just to protect financial investment, but also because the global environment depends upon it," said Andrew Lauterback, Senior Criminal Enforcement Counsel at the US Environmental Protection Agency and Chair of the INTERPOL Environmental Crime Committee.

"The INTERPOL Guide to Carbon Trading Crime is an important resource for all organizations and agencies committed to protecting our environment and developing a cohesive global response to this crime," concluded Mr Lauterback.

An initiative of the INTERPOL Pollution Crime Working Group, the INTERPOL carbon trading guide was produced with contributions from partners including Environment Canada, the Norwegian Agency for Development Cooperation, the Netherlands Government and the US Environmental Protection Agency. The Pollution Crime Working Group will hold its 18th meeting during the INTERPOL Environmental Compliance and Enforcement Events in Nairobi, Kenya from 4 to 8 November 2013.

The guide includes several case studies from around the world where greenhouse gas accounting firms, national authorities operating in under-regulated jurisdictions, and individuals or companies claiming to offset emissions in return for investment have cut corners, falsified information or received bribes.

"Crimes that harm our environment have a wider impact on the health and safety of society as a whole, and therefore must be investigated and the perpetrators punished," said INTERPOL Secretary General Ronald K. Noble.

"INTERPOL will continue to fight the criminal networks which endanger our precious environmental resources and use their ill-gotten proceeds to fund other criminal activities," concluded the INTERPOL Chief.

With eight carbon credit trading companies operating on the European Union Emission Trading Scheme recently shut down for malpractice, the INTERPOL guide seeks to generate an international law enforcement response to these crimes.

"It is sad to see criminals using fraud and other crimes to make profit out of a commodity that was created to protect the environment. It is not just the financial harm it causes investors, but this criminal activity risks seriously undermining the environmental integrity of the carbon markets globally," said David Higgins, Manager of INTERPOL's Environmental Crime Programme.

"INTERPOL is supporting governments which are in the process of establishing or regulating the carbon markets to put an end to these types of crimes," he added.

INTERPOL also assists law enforcement agencies in policing the carbon market across borders and jurisdictions, in particular by identifying inconsistent regulations between countries and other legal loopholes which can be exploited by criminals.