Isra-Mart srl: Carbon fraud suspects appear in Frankfurt court

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Six men accused of evading more than €200m in value-added tax (VAT) as part of a carbon market fraud yesterday appeared before a Frankfurt court for the first time.

According to Reuters reports, the individuals are aged between 27 to 65 and are from Germany, France and Britain. They are accused of conspiring to evade VAT on the trading of carbon credits between September 2009 and April 2010.

The trial represents the culmination of just one of a series of investigations into VAT carbon fraud scandals that rocked the EU Emissions Trading System.

According to European police agency Europol, widespread VAT fraud is thought to have cost member states an estimated €5bn in lost tax revenue in the 18 months up to the end of 2009.

Fraudsters are believed to have exploited a technique known as "carousel fraud", whereby front companies were used to trade carbon credits. The fraudsters then pocketed the VAT levelled on the trades before then closing the front companies and disappearing without handing the VAT raised on to the Exchequer.

The practice prompted a crackdown across Europe that saw the European Union impose new "reverse VAT" rules that shifted the reponsibility for paying VAT on carbon credits on to the company purchasing the credits.

The men accused in Frankfurt – Claude Bauduin, Robert Peitzmeyer and his son Bjoern Peitzmeyer, Wayne Stewart Brown, Irfan Musa Patel and Fraz Mir – are just six of a total 170 people currently under investigation for alleged carbon fraud.

The German prosecutors said the men took advantage of tax rules in Germany that were valid until June of last year. The defendants were not required to make a plea yesterday but, if found guilty, they could be sentenced to prison for six months to 10 years for each indictable offence if found guilty.

The hearing is scheduled to run until Wednesday this week, with the trial finishing in March 2012.

Seven UK defendants have also been charged over suspected VAT fraud in the carbon market, with a plea and case management hearing scheduled for the end of October.