Grygo is the chief content officer for FTF & FTF News.
Fraud in the burgeoning carbon credit markets is on the radar of the CFTC’s Whistleblower Office in the Division of Enforcement, which recently issued an alert asking the public to report potential Commodity Exchange Act (CEA) violations in this marketplace.
The regulator notes that voluntary carbon markets “can support the transition to a low-carbon economy through market-based initiatives in which high-quality carbon credits, also known as carbon offsets, are purchased and sold bilaterally or on spot exchanges. As with any market, there exists the potential for fraud and manipulation.”
The regulator also notes that its Whistleblower Office “will work with market participants that report information related to potential fraud in the carbon markets including, but not limited to, manipulative and wash trading, ‘ghost’ credits, double counting, fraudulent statements relating to material terms of the carbon credits, and potential manipulation of tokenized carbon markets,” according to the announcement.
“Individuals who submit such information through the CFTC’s Whistleblower Program may be eligible for certain confidentiality and anti-retaliation protections, as well as monetary awards if that information leads to the success of a CFTC enforcement action,” the CFTC says.
Photo by Chris Leboutillier
The fraud risk is up because the voluntary carbon credit market is growing.
“The voluntary carbon credit market is currently estimated to be $2 billion and is forecasted to grow to $250 billion by 2050, according to the Morgan Stanley Research paper Carbon Offset Market Trends and Growth 2050,” according to the CFTC.
“Carbon credits are the underlying commodity for futures contracts that are listed on CFTC-designated contract markets (DCMs). The CFTC has enforcement authority and regulatory oversight over DCMs and any trading in those markets. The CFTC also has anti-fraud and anti-manipulation enforcement authority over the related spot markets for carbon credits. The CFTC’s jurisdiction also applies to carbon allowances and other environmental commodities products that are linked to futures contracts,” the regulator reminds.
As carbon credit markets grow, “we will act to foster the integrity of these markets by fighting fraud and manipulation,” assures Ian McGinley, director of the Division of Enforcement, in a prepared statement.
“Whistleblowers are invaluable allies in these efforts. We will diligently investigate all credible tips and complaints from whistleblowers relating to carbon credit markets,” McGinley says.
The CFTC is also “building upon its expertise to ensure the utility and reliability of these markets, as well as its ability to identify and pursue any potential fraud or abusive practices,” says Rostin Behnam, chairman of the CFTC, in a statement. “Information from whistleblowers advances the Commission’s enforcement mission and, in turn, further builds integrity and trust in the carbon markets by rooting out fraud and manipulation.”
The Whistleblower Program at the CFTC is the result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
“Since issuing its first award in 2014, the CFTC has granted whistleblower awards amounting to approximately $330 million. Those awards are associated with enforcement actions that have resulted in monetary sanctions totaling more than $3 billion,” according to the regulator. “The CFTC issues awards related not only to the agency’s enforcement actions but also in connection with actions brought by other domestic or foreign regulators if certain conditions are met. Whistleblowers are eligible to receive between 10 and 30 percent of the monetary sanctions collected.”
Those with information about potential violations of the CEA or the CFTC’s rules and regulations can submit a tip electronically by filing a Form Tip, Complaint or Referral (TCR) online at https://whistleblower.gov/overview/submitatip
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