A burning desire. The need for anti-money laundering regulations in carbon emissions trading schemes to combat emerging criminal typologies

Pages298-320
DOIhttps://doi.org/10.1108/JMLC-01-2013-0003
Publication Date07 Oct 2013
AuthorClifford Curtis Williams
SubjectAccounting & Finance,Financial risk/company failure,Financial compliance/regulation
A burning desire
The need for anti-money laundering
regulations in carbon emissions
trading schemes to combat emerging
criminal typologies
Clifford Curtis Williams
Thomas Jefferson School of Law, Cartersville, Georgia, USA
Abstract
Purpose – This article purports to show that an adequate anti-money laundering (AML) regime must
be integrated into the carbon emissions market industry in order for it to function effectively, meet its
intended goals, and prevent criminals from developing innovative methods to take advantage of
particular vulnerabilities this unique market type has created.
Design/methodology/approach – This article discusses the formation of the international carbon
emissions marketplace. It posits that critical to the formation and effective operation of any carbon
emissions tradingmarket is the simultaneous coexistence of an AML regime preventingcriminals from
takingadvantage of legislativedef‌iciencies. Lastly,the article formulates and analyzesemerging criminal
typologythreatsto which current, developing,and futurecarbon emissionsmarkets are and will be subject.
Findings – Under the EU ETS, effective AML safeguards were not initially included in the
implementation and formation of the EU’s carbon emissions trading market, subjecting it to numerous
threats and abuses from criminals. The lack of an effective AML regime has resulted in novel and
unique criminal typology threats that are currently emerging and need to be addressed to prevent
abuses in new and existing carbon emissions trading markets.
Research limitations/implications – The EU has recently started addressing its lack of effective
AML safeguards in its carbon emissions trading market. As such, the adequacy of legislative
developments needs to be examined over time. Additionally, because many of the emerging criminal
typologies identif‌ied are based on recent and limited data, further research on the extent of criminality
that is actually occurring is recommended.
Originality/value – Because emerging criminal typology threats in carbon emissions trading
markets has not been researched at the scholarly level, this article is unique and has substantial value
to the AML community.
Keywords Anti-money laundering, Carbon emissions,Criminal typologies, Emissions, Trading,
Typology
Paper type Research paper
Carbon will be the world’s biggest commodity market, and it could become the world’s
biggest market overall (Kanter, 2007, quoting Louis Redshaw, then head of environmental
markets at Barclays Capital).
I. Introduction
International recognition of the need to avert potentially devastating climate change,
caused chief‌ly by the burning of fossil fuels, has resulted in global efforts to reduce
overall greenhouse gas (“GHG”) emissions in order to stabilize or limit the
concentration of carbon dioxide in the atmosphere (Gilbertson and Reyes, 2009, pp. 8-9).
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1368-5201.htm
Journal of Money Laundering Control
Vol. 16 No. 4, 2013
pp. 298-320
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/JMLC-01-2013-0003
JMLC
16,4
298
These efforts have resulted in a carbon emissions trading industry: a system used by
countries, organizations, and individuals to offset carbon emissions from one activity
with another, whereby those who desire to or must exceed pre-determined emissions
requirements set by regulating bodies may purchase credits from those who have
produced carbon emissions below their allocated levels (Cleveland Carbon Fund, 2012).
These emissions trading schemes limit the amount of GHG pollution which entities can
produce, requiring heavy polluters to buy credits from companies or countries that
pollute less – thereby purporting to create f‌inancial incentives to f‌ight global warming
(Goldemberg et al., 1995, p. 30).
The f‌irst international carbon market was created by the United Nations Framework
Convention on Climate Change (“UNFCCC”) and its issuance of the Kyoto Protocols. It
was soon followed by the establishment of the European Union’s Emissions Trading
Scheme (“EU ETS”). What has evolved is a global push toward controlling emissions
output with the establishment of new and integration of existing carbon emissions
trading markets. As these markets have matured, so to have criminals in their efforts to
exploit vulnerabilities that exist in these venues, particularly in their use of thes e
instruments and the f‌inancial intermediaries on which these markets rely, to commit
frauds and launder money.
Generally, money is laundered to conceal or disguise that its source is from illicit or
criminal means. “In most cases, the money involved is earned from an illegal enterprise
and the goal is to give that money the appearance of coming from a legitimate source”
(IRS, 2012). This is typically accomplished through a three-stage process:
(1) placement, the initial movement of money into the f‌inancial system;
(2) layering, the process of distancing criminal proceeds from their source through
the movement of funds through accounts, f‌inancial systems, and institutions;
and
(3) integration, the movement of layered funds, no longer traceable to their criminal
origin, into legitimate accounts or back to the criminal.
Because criminal elements must at some point attempt to turn illicit proceeds into
“clean” funds, effective anti-money laundering (“AML”) regimes are integral to detecting
and preventing overall criminality in carbon emission trading markets, regardless of
whether the criminal act begins with fraud and then entails money laundering or vice
versa.
Though initially formed by international governmental efforts, rather than
traditional market forces, the similarities in primary and secondary carbon emissions
trading schemes to traditional securities or f‌inancial markets are obvious and cannot
be ignored. This realization leads to the inescapable conclusion that these markets are
as susceptible to money laundering threats as traditional f‌inancial markets, abuses of
which are potentially just as prevalent. Because of this, effective AML objectives must
be examined within these similarly-situated markets.
This article purports to show that an adequate AML regime must be integrated into
the carbon emissions market industry in order for it to function effectively, meet its
intended goals, and prevent criminals from developing innovative methods to take
advantage of particular vulnerabilities this unique market type has created. Lack of
AML safeguards during the initial implementation and formation of these markets can
have severe consequences to primary and secondary market operation and subsequent
The need for
AML regulations
299

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT