Carbon Traders Arrested for Tax Fraud in London


Photo via Metro

Seven carbon traders were arrested outside of London yesterday, on the charge that they sold huge numbers of carbon permits then dodged the taxes that should have been paid on them. Green Inc. reports that the alleged fraudsters ripped off a total $38 million euros, or $63 million US dollars. So how did they do it? Authorities believe the suspects purchased the carbon permits outside of Britain, where they didn't need to pay Britain's Value Added Tax (VAT). But they proceeded to sell the permits in Britain with the price of the VAT tacked on, and disappeared without paying the necessary tax to British officials.

According to Green Inc, the traders bought themselves a taste of the high life by selling companies right-to-pollute permits:

"It is thought that the proceeds of this crime have then been used to finance lavish lifestyles and the purchase of prestige vehicles. Further arrests are likely and the investigation continues," the [British tax] agency said.

Cue the cap and trade opponents' 'I told you so's. One of the biggest and most common gripes with the proposed cap system in the US is that Wall Street fat cats will hijack it and exploit it for loopholes. On Green Inc's post about the story, there are already 5 or 6 such comments at time of writing (one of which also somehow implicates Al Gore).

But I take this story to the opposite conclusion--as evidence that the system can be controlled and regulated strictly and successfully. After all, the suspects have been located and caught with an extensive investigation, HM Revenue and Customs, the British tax agency, was able to swiftly locate the discrepancies in tax reportage, and most importantly, Britain has already reformed its carbon trading system by exempting it from the VAT to prevent further abuses.

What purveyors of the 'cap and trade will surely be abused' argument seem to forget is that there already happen to be a number of tax laws that can be manipulated, happens pretty frequently. Businesses could neglect to pay, or find loopholes to weasel their way around flat carbon taxes, too. But with a solid regulatory system, carbon trading would be no more vulnerable to fraud than any other commodity trading. The possibility that scofflaw traders will violate the regulations should certainly be a consideration--but not an argument against using the system.

More on Carbon Trading:
Bad News for Cap and Trade Foes: Europe's Emissions Trading System WORKS
Cap and Trade Won't Break the Bank: Climate Bill Would Actually Cut the Deficit

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