(Clarifies definition of carousel fraud in paragraph 13)
March 12 Italian state-owned energy exchange
Gestore Mercati Energetici (GME) will close its carbon emissions
market on March 22, more than three years after it suspended
trade due to what it called "presumed unlawful" activity.
The Rome-based bourse's board of directors made the decision
on March 5, GME said in a statement dated March 6 on its
A GME official said the exchange was unable to comment
further on the matter.
After observing "abnormal" activity in its spot market for
EU Allowances (EUAs), GME in December 2010 said it temporarily
suspended trade due to "perceived irregular or unlawful
behaviours" and promptly reported it to Italian tax officials
Spokespeople from Italy's ministry of finance and ministry
of economic development did not respond to requests sent on
Wednesday seeking information on any investigations into the
GME is owned by Gestore dei Servici Energetici, a
wholly-owned subsidiary of the Italian ministry of economy and
The bourse's weekly EUA trading volumes ballooned to over 3
million units in late 2010 from around 10,000 units several
months earlier, with the sizeable transactions being done at
substantial discounts to market rates elsewhere in Europe.
The number of participants in GME's carbon market nearly
tripled to over 150 in 2010, according to exchange data, with
many of the new member firms sharing the same business address.
The permanent closure of GME's carbon trading platform is
not expected to affect the wider EU ETS, as Italian plant
operators and businesses can trade via brokers or directly on
emissions exchanges in other countries.
A similar jump in trading volumes and membership on rival
spot exchange BlueNext in 2009 was linked by authorities to
value-added tax (VAT) fraud, leading it to pay a 32 million euro
($44 million) settlement to French tax authorities before the
Paris-based bourse closed in late 2012.
The surge in GME's trading activity has never been
attributed to VAT fraud by the exchange or authorities.
Also called carousel fraud, the crime involves firms
importing goods into one EU country without paying VAT, and then
selling them on with the tax - which can range from 15-25
percent depending on the member state - added to the price.
The seller then pockets the tax instead of paying it to the
relevant tax authorities before disappearing completely.
European police agency Europol in 2009 estimated VAT fraud
in the EU Emissions Trading System to have cost governments more
than 5 billion euros ($6.93 billion) in lost revenue.
At least 16 EU member states have since introduced measures
to reverse the VAT charges for spot allowances, meaning the
buyers are now liable for the VAT rather than the sellers.
Italy has been criticised by tax authorities in other
countries for not following suit.
A spokeswoman for the Italian finance ministry, responding
to a separate query sent by Reuters, on Wednesday said "so far
we have not had enough evidence of fraud in this specific sector
to justify the application of the reverse charge mechanism."
($1 = 0.7212 Euros)
(Reporting by Michael Szabo in London; Editing by Anthony
Barker and Louise Heavens)