From the UK Telegraph:
Seven arrests in suspected £38m carbon credit fraud
Seven people have been arrested and 27 residence and office locations were raided by police over a suspected £38 million pounds (62.8 million dollars) fraud involving the trade of carbon credits to avoid paying the value-added tax (VAT) which is required in the UK.
By Rowena Mason
Published: 7:36PM BST 19 Aug 2009
Officers from HM Revenue & Customs searched both residential properties and offices in both Gravesend and London targeting an alleged network of organised crime.
Members are believed to have been trading large volumes of high-value carbon credits from overseas sources free of VAT.
Tax investigators believe these may then have been sold on to businesses in the UK charging VAT that is never paid to the authorities.
Read the complete article here
Is anyone really surprised? a Duke University masters candidate Alan Abramson clearly identified the risk this spring, as have many others:
The [carbon offset] market requires validators and verifiers all over the world. The system is already short personnel with these skills. Then there is the question of who pays these people? Regulators need to keep in mind the failure of the credit rating agencies (Moody’s, S&P, etc.) in the recent credit crisis. Markets require trust. Respondents said the only reason certain investors purchased some MBS assets was the Triple-A rating.42 These same respondents say that a significant flaw in the system exists because the credit rating agencies are paid by the bond issuers. A disincentive exists for doing a thorough job. Currently, validators and verifiers are paid by project developers. If we are to learn from the failings of the financial markets, this is an aspect of the carbon offset markets ripe for misconduct.
See the PDF of his masters thesis here