In 2005, President George W. Bush signed a law creating the Renewable Fuel Standard program. The program requires fuel producers to incorporate specific target amounts of renewably-produced ethanol or biodiesel into their products. Unfortunately, the way the system was set up enabled shady biodiesel producers to sell counterfeit credits to producers who needed to make their quotas—leading to financial losses and possible regulatory fines for fraud victims.
|
Here’s how the scheme worked: Each gallon of biodiesel is assigned a renewable identification number (RIN), which can be sold separately from the actual fuel as a “credit.” Some biodiesel producers sold the same RINs more than once; others simply stopped producing biodiesel entirely and just sold the RINs.
Eventually, the U.S. Environmental Protection Agency (EPA) caught on, and began tracking down and prosecuting the counterfeiters. To date, the agency has identified more than $220 million in biofuel scams. Major fuel producers, including Exxon, Shell, ConocoPhillips, BP, and Marathon have purchased—and then been forced to repurchase—tens of millions of dollars of fake RINs.
The RINs Cycle: A Money Laundering Scheme
In June 2016, the EPA convicted the latest biodiesel counterfeiters, Thomas Davanzo, of Estero, Florida, and Robert Fedyna, of Naples, Florida, who pleaded guilty to participating in a multistate scheme to sell fraudulent biodiesel credits and fraudulently claim tax credits.
Davanzo and Fedyna’s operation worked this way: The two men purchased renewable fuel on which credits had been claimed and that was ineligible for additional credits. The fuel was produced by their coconspirators in Pasco, Washington, and Dublin, Georgia. Once the credits were purchased, the men used a series of false transactions to transform the fuel back into feedstock needed for the production of renewable fuel, and sold it back to their coconspirators, allowing credits to be claimed again. This cycle was repeated multiple times, and the proceeds were laundered through a series of shell entities.
False paper trails, including false purchase orders and bills of lading, were generated in support of the fraud. Over a 2-year period, from March 2013 to March 2015, the coconspirators generated at least 60 million counterfeit RINs and received at least $42 million from sales to third parties. The coconspirators also received approximately $4,360,724.50 in false tax credits.
Don’t Buy Fake Environmental Credits
Biodiesel credits are not the only environmental compliance credits that can turn out to be counterfeit. Carbon emissions are the fastest growing commodities market in the world—and an easy target for fraudsters. In addition to buying fraudulent biodiesel credits, energy giant BP is known to have purchased 89,000 euros worth of fraudulent carbon credits. Unfortunately, because these credits exist as numbers in a computer, fraud is rampant and difficult to control. It will always be difficult to make sure you’re purchasing valid credits, whether you’re buying carbon credits on the world market or in a regional U.S. exchange or buying biodiesel credits here in the United States.
Here are some tips for reducing your exposure:
- Reduce your emissions. Many environmental advocates have expressed concerns about carbon credits amounting to “permission to pollute,” rather than a method for actually controlling carbon emissions. If you reduce your carbon emissions, you will both accomplish something that is definitely positive for the environment and also reduce your need to invest in a market rife with fraud.
- Audit your producer. One fraudulent biodiesel provider was selling counterfeit numbers out of his garage. Asked by the EPA to provide a tour of his production facility, he said that he had sold it, but couldn’t remember to whom. Many purchasers of carbon offsets purchased worthless promises to create forests for which not a single tree was ever planted. If you take the time to visit the production facility or the area where your carbon is supposedly being offset, you may find that it doesn’t actually exist. An audit can help you be sure what you’re buying.
- Look for third-party certifications. With respect to biofuel RINs, the EPA has created a voluntary Quality Assurance Program whereby third parties can audit and verify RINs. Companies that buy RINs that have been verified through the program can present an affirmative defense showing that they have done their due diligence if they are found to have purchased counterfeit RINs. Third-party verification is also available for emissions offsets.
Need more advice on how to spot a safety or environmental scam? Safety.BLR.com® will keep you in the know.