Romanian authorities have banned European Union carbon emissions allowances (EUA) in the over-the-counter derivatives market to prevent EUA tax fraud, after ruling that these contracts are now classed as equity securities and therefore can only be bought and sold on an exchange.

The National Securities Commission (CNVM), Romania’s securities regulator announced that foreign traders of EUAs will now need to comply with the provisions of the Romanian capital market legislation and will therefore need to join an exchange.

The Sibiu Monetary Financial and Commodities Exchange, Romania’s only market on which greenhouse gases emissions certificates can be traded, confirmed that the legal provisions are in place.

A poll of several market traders who want to remain anonymous said although market participants are „upset” over the rule change, it will not affect prices in the wider European Union Emissions Trading Scheme (EU ETS), as the Romanian market is still very small.

The most liquid December 2010 futures contract under the EU Emissions Trading Scheme is trading just over $13 per tonne (/t C02e) today (February 24), up slightly from €12.78 /t C02e the day before the announcement was made.

Starting with December 2009, Sibiu Exchange launched the CO2 2008–2012 futures contract, representing the equivalent of 100 greenhouse gases emissions certificates (100 tonnes of CO2 emissions). The Sibiu Exchange has 38 authorised members (investment firms and commercial banks), its price is expressed in RON and it is not a value-added-tax (VAT) carrier.

Traders also said it is unclear how the European Union (EU) will react as they say Romania technically should fall „in sync” with the EU regulatory framework.

The regulation change follows the latest round of VAT fraud, where four people had been formally charged by the Belgian authorities for laundering €3 million worth of transactions, in an investigation into fraudulent trading in carbon emissions permits at the beginning of the year.

VAT carousel fraud occurs when goods are imported VAT-free then sold on to domestic buyers at a price that includes VAT. The perpetrators then disappear without paying the tax to the government.

In December 2009, the European police agency Europol reported that the EU ETS had fallen victim to fraudulent trading activities over the past 18 months, worth €5 billion for several national tax revenues.

It estimates that in some countries, up to 90% of the whole market volume was caused by fraudulent activities.

In Europe during 2009, governments and trading exchanges have taken steps to try to combat fraudulent carbon trading practices. The UK introduced a zero-rate of tax on carbon transactions, while a European Commission working group approved a proposal in December to apply a „reverse charge” mechanism to carbon trading to prevent possible VAT fraud.

In separate fraudulent activity, the German Emissions Trading Authority (DEHSt) revealed at the beginning of this month that computer hackers used a technique called phishing, which means the fraudsters sent false emails using the DEHSt logo to companies across several different countries, urging them to re-register their credits, to obtain sensitive information.

Market participants were worried they could be holding fraudulent EUAs, following the hack.

Read the article on Energy Risk

Romania bans OTC emissions trading to combat fraud

Romanian authorities have banned European Union carbon emissions allowances (EUA) in the over-the-counter derivatives market to prevent EUA tax fraud, after ruling that these contracts are now classed as equity securities and therefore can only be bought and sold on an exchange.

The National Securities Commission (CNVM), Romania’s securities regulator announced that foreign traders of EUAs will now need to comply with the provisions of the Romanian capital market legislation and will therefore need to join an exchange.

The Sibiu Monetary Financial and Commodities Exchange, Romania’s only market on which greenhouse gases emissions certificates can be traded, confirmed that the legal provisions are in place.

A poll of several market traders who want to remain anonymous said although market participants are „upset” over the rule change, it will not affect prices in the wider European Union Emissions Trading Scheme (EU ETS), as the Romanian market is still very small.

The most liquid December 2010 futures contract under the EU Emissions Trading Scheme is trading just over $13 per tonne (/t C02e) today (February 24), up slightly from €12.78 /t C02e the day before the announcement was made.

Starting with December 2009, Sibiu Exchange launched the CO2 2008–2012 futures contract, representing the equivalent of 100 greenhouse gases emissions certificates (100 tonnes of CO2 emissions). The Sibiu Exchange has 38 authorised members (investment firms and commercial banks), its price is expressed in RON and it is not a value-added-tax (VAT) carrier.

Traders also said it is unclear how the European Union (EU) will react as they say Romania technically should fall „in sync” with the EU regulatory framework.

The regulation change follows the latest round of VAT fraud, where four people had been formally charged by the Belgian authorities for laundering €3 million worth of transactions, in an investigation into fraudulent trading in carbon emissions permits at the beginning of the year.

VAT carousel fraud occurs when goods are imported VAT-free then sold on to domestic buyers at a price that includes VAT. The perpetrators then disappear without paying the tax to the government.

In December 2009, the European police agency Europol reported that the EU ETS had fallen victim to fraudulent trading activities over the past 18 months, worth €5 billion for several national tax revenues.

It estimates that in some countries, up to 90% of the whole market volume was caused by fraudulent activities.

In Europe during 2009, governments and trading exchanges have taken steps to try to combat fraudulent carbon trading practices. The UK introduced a zero-rate of tax on carbon transactions, while a European Commission working group approved a proposal in December to apply a „reverse charge” mechanism to carbon trading to prevent possible VAT fraud.

In separate fraudulent activity, the German Emissions Trading Authority (DEHSt) revealed at the beginning of this month that computer hackers used a technique called phishing, which means the fraudsters sent false emails using the DEHSt logo to companies across several different countries, urging them to re-register their credits, to obtain sensitive information.

Market participants were worried they could be holding fraudulent EUAs, following the hack.

Read the article on Energy Risk

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