15 Pages Posted: 31 May 2012
Date Written: May 30, 2012
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. We present an analytic breakdown of the MTIC pocketed funds and estimate the bearish impact of the VAT trade on the carbon prices. The VAT carousel could be also used for all the steps of money laundering given the lack of control and surveillance of various trading firms.
In a previous work (Frunza and Guégan, 2010), we showed that the European carbon market is strongly influenced by fundamentals factors 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 present an analytic breakdown of the MTIC pocketed funds and a bearish impact of 2-3 euros upon the carbon prices. We explain also 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 with the VAT carousel.
This paper is the first study that quantifies the market manipulation effect due to VAT fraud. The work is also unique as it provides with the first estimation of money laundered on the carbon emission market.
Keywords: EUA, VAT, carbon, money laundering
JEL Classification: K42
Suggested Citation: Suggested Citation