VAT Fraud Mutation, Part 3: "Pull" Missing Trader Fraud and Deutsche Bank

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Tax Analysts




CO2 MTIC fraud is an exceedingly fast moving, quickly mutating fraud. Litigation has moved rapidly from the UK to Germany. The litigation line stretches from Dosanjh’s £39m (€41,039,261) fraud in the first three months of 2009 to CITIBank’s £9,893,821 fraud in July 2009, and then jumps to Germany with Deutsche Bank’s €220,000,000 fraud from September 2009 through February 2010. This cross-border fraud has met cross-border enforcement. HMRC directly participated in German enforcement by identifying fraud chains in the UK that completed German carousels and funneled CO2 permits back to Germany after passing through the UK.

This part looks at the Deutsche Bank case. The zero-rating of CO2 permits (August 1, 2009) by the UK blocked CO2 fraud in the UK. In response Deutsche Bank reversed its plumbing. Instead of having permits flow out of the UK (producing extraordinary UK reclaims), permits now flowed into the UK from Germany (producing extraordinary German reclaims). The UK fraud moved to Germany.

The German CO2 landscape differed from that in the UK. Adapting to this difference solidified the MTIC mutation this paper examines. Two elements coalesce to solidify it: (a) there was neither a Dosanjh nor an SVS Securities in Germany ready to provide large volumes of underpriced CO2 to Deutsche Bank, and (b) the Deutsche Bank CO2 trading desk realized that it did not need to have dedicated suppliers of CO2 if it establish control over an underpriced CO2 marketplace. It could easily do this by setting a firm (below market) price for CO2 each morning, and making the price available to a limited number of preferred customers. In this way Deutsche Bank established economic control. An internal mastermind exercised it. The control is indirect, but it is no less effective than the control Dosanjh had.

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