German carbon fraud investigation moves to UK

German prosecutors today confirmed they have arrested four people in Germany and the UK following raids on more than 50 homes and offices this week in connection with an alleged €180m (£156m) carbon fraud.

A spokesman for prosecutors in Frankfurt told news agency Reuters that in addition to the arrests, a further 50 people were still being investigated on suspicion of tax evasion.

He also confirmed that the investigation had quickly spread across Europe and that there had been raids and other measures in Britain, Denmark, Belgium, Finland, the Netherlands, Norway, Portugal, the Czech Republic and Cyprus, all in connection with alleged carbon fraud and money laundering.

The investigation centres on what is thought to be one of the most wide-ranging instances of so-called carousel fraud to be uncovered in the European emissions trading scheme. The fraud, which occurs when front companies collect VAT on traded carbon allowances and then disappear without passing the money the tax man, is believed to have cost the German exchequer up to €180m.

Some of Germany's largest firms, including Deutsche Bank and RWE, were caught up in the raids on Wednesday, although both companies said they were not the focus of the investigation.

Subsequently, a Deutsche Bank spokesman told Reuters that seven of its staff are suspects in the investigation, but he added that the bank remains confident the allegations "can be rebutted".

The investigation is the latest step in an EU-wide crackdown that has already seen arrests in a number of countries and culminated last month in the EU agreeing new regulations designed to eradicate carousel fraud in the carbon market.

Speaking to BusinessGreen.com in the wake of the raids earlier this week, Henry Derwent, chief executive of the International Emissions Trading Association, urged the authorities to step up efforts to tackle the crime, which has undermined confidence in the carbon market.

"We want to see the appropriate authorities effectively pursuing a fraud that has quite unfairly damaged the perception of the European emissions trading scheme and potentially carbon trading as a whole," he said.