Life is a carousel of fraud and the people involved can be clever and very dangerous

Outlook

Carousel fraud sounds quite jolly, conjuring up images of painted horses and Victorian merry-go-rounds. But its consequences are far from fun. The billions of pounds and euros that organised crime gangs have defrauded from taxpayers through this nasty scam has found its way into some of the world’s most dangerous hands – none more so than the carousel scams carried out using carbon credits.

One investigation into carbon fraud traced the proceeds to Middle-Eastern terror groups, and was based on documents found by British special forces in a cave on the Afghan-Pakistan border. Other cases have been connected to serious crime gangs running robbery, extortion and murder rackets, according to HM Revenue and Customs.

It has emerged that seven Deutsche Bank employees had been indicted in Germany for their alleged part in a carbon credit carousel. Deutsche has already paid fines of $2.5bn (£1.6bn) in association with the Libor-rigging investigation.

I guess it was only a matter of time before banks started dipping their beaks.

But what is carousel fraud? In basic terms, it’s a way of nicking tax by exploiting the VAT-free trade arrangements between European Union member countries.

A British gang will import goods from the Continent VAT-free, then sell them on here, charging British VAT to the customer but absconding with the VAT instead of passing it on to the taxman.

To make it less obvious, the gangs have complicated the trick by buying and selling the goods multiple times between bogus companies before the final transaction where the VAT is stolen. The companies along the trail have been dissolved and the VAT spirited away to the United Arab Emirates, Dubai or other offshore havens.

Rachel Adamson, a lawyer at Stephensons Solicitors who has specialised in defending alleged carousel fraudsters, tells me it was especially prominent in the early 2000s. Predominantly Asian family-based gangs graduated from selling fake designer goods to carousel fraud, mostly using mobile phones as the goods bought and sold.

But after the taxman clamped down on how it demanded VAT, and investigators got wise to tracing the trades through cross-border paperwork, the phones scam was dead by around 2006.

The gangs realised that, to make the carousel safer, they needed an alternative product they could import VAT-free without having to physically move them.

Carbon credits – invisible, lightly regulated and with barely any paper trail – fitted the bill perfectly.

Authorities started noticing huge volumes being traded on France’s BlueNext carbon exchange in 2009. Subsequent probes revealed as much as 90 per cent of the trading was fraudulent, costing European taxpayers around €5bn (£3.6bn) over 18 months. There have been some convictions, but not nearly enough. And certainly nothing involving a prestigious organisation like Deutsche Bank.

Hopefully, this may be coming to an end. Don’t expect a landslide of convictions of the ringleaders, however. It’s likely that any bankers involved in a scam would be intermediaries helping cover it up, rather than the head honchos behind it.

As Ms Adamson said, from the experience of her own clients: “Those who get caught lower down the chain tend to be almost like patsies. The people at the top are far harder to catch. They’re very controlling and very, very clever.

“If they had chosen to become legitimate businessmen, they could have been brilliant.”