UK arrests seven in £38m VAT fraud investigation
19 August, 2009
The UK today arrested seven people suspected of committing value added tax (VAT) fraud in the carbon market.
In early morning raids, the UK tax authority HM Revenue & Customs (HMRC) searched 27 properties across south-east England and made seven arrests, six men and one woman. HMRC said the raids were part of an investigation into a £38 million ($63 million) suspected VAT fraud.
HMRC added that further arrests are likely as the investigation continues.
“Those arrested are believed to be part of an organised crime group operating a network of companies trading large volumes of high-value carbon credits,” HMRC said in a press release. “It is thought that the proceeds of this crime have then been used to finance lavish life styles and the purchase of prestige vehicles.”
The tax authority was unavailable for comment, and no further details about the arrests were available.
The arrests come three weeks after the UK government announced it was applying a zero VAT rating to carbon units, in response to concerns about missing trader, or carousel, fraud. This involves buying goods from another EU country, which are thus VAT-free, and selling them on domestically, charging the tax. The fraudster then disappears, without paying the tax to the government.
Norton Rose tax lawyer Dominic Stuttaford said the crackdown was expected. HMRC has learnt from previous VAT frauds involving mobile phones that “if you want to stop it, you have to stop it quickly”.
While France, the Netherlands and the UK have changed their VAT rules to avoid this fraud, other authorities across Europe will probably be on the lookout for similar criminal activities. “These things spread like a pandemic,” he said. Participants have told Carbon Finance that inquiries from Germany-based participants have been surging, prompting suspicions that fraudsters have moved on from the UK.
“HMRC are kicking some ass, while the French authorities are navel-gazing,” said one London-based carbon trader.
Early rumours of carousel fraud focused on the French spot carbon market, prompting the French government to make carbon exempt from VAT in June. The Paris prosecutor’s office confirmed in June that it was investigating a suspected multi-million euro fraud, but no further details have been forthcoming.
