Aftermath of the VAT fraud on carbon emissions markets
| Date | 03 May 2013 |
| Published date | 03 May 2013 |
| DOI | https://doi.org/10.1108/13590791311322382 |
| Pages | 222-236 |
| Author | Marius‐Cristian Frunza |
| Subject Matter | Accounting & finance |
Aftermath of the VAT fraud
on carbon emissions markets
Marius-Cristian Frunza
Schwarzthal Kapital, Puteaux, France and
Universite
´Paris1 Panthe
´on-Sorbonne – Centre d’Economiede la Sorbonne (CES),
Paris, France
Abstract
Purpose – The purpose of this paper is to recognize the effect of the VAT fraud upon the market
prices and to assess the occurrence of money laundering on the carbon emissions market. The paper
presents an analytic breakdown of the MTIC pocketed funds and estimates the bearish impact of the
VAT trade on the carbon prices. The VAT carousel could also be used for all the steps of money
laundering given the lack of control and surveillance of various trading firms.
Design/methodology/approach – In a previous work by Frunza and Gue
´gan it was shown that the
European carbon market is strongly influenced by fundamentals factors such as oil, energy, gas, coal
and equities. Using public market prices and volumes for both futures and spot exchanges, the model
allows us to assess and quantify the spread between the observed carbon prices and the theoretical
fundamental prices. The dataset analysis reveals that the spot volumes remained abnormally high
compared to an empirical economic level, even after the end of the VAT fraud on the organised
exchange. These abnormal volumes could be explained by the occurrence of speculative trading linked
to the money laundering.
Findings – Findings present an analytic breakdown of the MTIC pocketed funds and a bearish
impact of 2-3 euros upon the carbon prices. The paper also explains the origin of a relative persistence
of high volumes on the spot market by proposing a model of placement, layering and integration steps
on the carbon emissions market, similar to the VAT carousel.
Originality/value – This paper is the first study that quantifies the market manipulation effect due
to VAT fraud. The work is also unique as it provides the first estimation of money laundered on the
carbon emission market.
Keywords EUA, VAT, Carbon,Money laundering, Financial crime
Paper type Research paper
1. Introduction
The actual distress in the public budgets of most UE member states has brought a
growing focus around tax evasion. The recent restrictions in public expenses are
correlated with an increasing fight against tax fraud at national level. If the screening
of various fiscal scams becomes very in-depth for each country, it appears that there is
a major lack of control at an intracomunitary level. Thus, the absence of a homogenous
and unitary legal framework for all European countries gives a real incentive to white
collar criminals to move from national small level scams to multi-billion euros
interstate montages.
The recent Greek debt crisis revealed few weaknesses of the European Union
governed by a heteroclite financial discipline with fragmented national policies and
lacking of a genuine “federal” strategy. Thus, it appeared clearly that the 27 member
states need a common financial and budgetary approach similar to that of other federal
countries, like the USA. It is obvious that a robust economic union represents more
then the simple sum of countries and needs a clear-cut global organization.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-0790.htm
Journal of Financial Crime
Vol. 20 No. 2, 2013
pp. 222-236
qEmerald Group Publishing Limited
1359-0790
DOI 10.1108/13590791311322382
JFC
20,2
222
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