Andrew Leahey

Tax Scams

U.K. Renewable Energy Certificate Fraud

The UK tax authorities (HMRC) announced on June 14, 2019 that supply of renewable energy certificates would be subject to a reverse charge "with immediate effect." Read the full Explanatory Memorandum here.

The energy certificates, sold on exchanges, may have been being used in missing trader intracommunity (MTIC) frauds. MTIC frauds turn on the differences in the way value added tax (VAT) is treated in different states within a community, such as the European Union. Typically, when a good subject to a VAT is exported from one state to another within a community the exporter is refunded for all VAT paid to that point. The idea is that the good is being exported and will be "consumed" elsewhere -- so the VAT, a consumption tax, should not be collected in the exporting state. The importer is then tasked with voluntarily remitting payment for their import in their state. An MTIC fraud takes advantage of this by, more or less, simply not having the importer remit payment -- also called a reverse charge. This can be an intractable problem when the taxing authority of an importing state has no way of knowing the good had been imported to begin with.

MTIC frauds can be more sophisticated, with the same good being sent back to the export country and cycled around again for another round of VAT refunds -- a so called "carousel" fraud.

Here, HMRC acted quickly to close the loophole that allowed this renewable energy certificate scam to continue -- citing a "serious and credible threat to the VAT system." Without more information it is difficult to know exactly what the scam was, but if the fix is forcing a reverse charge on the supplier (in the above simplified example, the exporter), then the fraud was likely a missing trader of some variant.

Andrew Leahey
Kingston Biofuel Tax Scam - Washakie Renewable Energy

Kingston brother accused in $511 million Utah fraud scheme loses latest bid to get out of jail.

Kingston’s defendant-brother, Jacob Kingston, 42, is charged with counts of fraud related to what was supposed to be tax credits for the manufacturing of biofuel. Prosecutors contend Washakie actually bought and sold biofuel and laundered money to Turkey. Jacob Kingston on Friday had his detention hearing rescheduled to Sept. 17.

The Department of Justice press release contains more details on the scam itself:

From 2010 through 2016, as part of their fraud to obtain the fuel tax credits, the defendants allegedly created false production records and other paperwork routinely created in qualifying renewable fuel transactions along with other false documents.  To make it falsely appear that qualifying fuel transactions were occurring, the defendants rotated products through places in the United States and through at least one foreign country.  The defendants also allegedly used “burner phones” and other covert means to communicate during the scheme.

It looks as if the alleged scam was relatively straightforward — in order to obtain biofuel tax credits, defendants are accused of having “rounded” the same batches of biofuel, getting multiple credits for the same fuel. The tax credits were refundable regardless of whether the tax payer owed other taxes — ripe for scamming.

Washakie Renewable Energy, the group owned by the Kingston religious sect, had previous legal troubles in 2017 when LifeTree Trading PTE sued Washakie under breach of contract claims — to the tune of $90 million dollars:

Washakie Renewable Energy is associated with the Kingston Group, a Utah-based polygamous church with fundamentalist Mormon beliefs that is also known as the Davis County Cooperative Society and the Latter Day Church of Christ.

The legal battle began November 2014, six months after Washakie officials signed a contract with Lifetree to import 90,000 metric tons of Argentine soy methyl ester, or biofuel.

Lifetree agreed to deliver the fuel in three 30,000 metric ton shipments, according to the contract, but when the first shipment arrived, Washakie refused to accept it.

As they held onto the shipment, Lifetree lost millions, according to court documents.