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Missing Trader Fraud Hits Energy Markets

The energy markets once again abound to allegations of fraud.

The HMRC have launched an investigation into a shortfall in VAT receipts caused by energy trading companies being set up in order to exploit rules that exempt EU member states from paying VAT.

These bogus energy companies are alleged to have collected VAT from traders but failed to pass it on to the government, as they should.

The energy sector isn’t the first to be affected by such tactics, known as the “missing trader fraud” with the telecoms market having been rife with such activity.

Indeed the investigation is focussing on a serious, manipulated structure rather than a technical oversight with organised criminal gangs expected to be behind the activities.

Richard Asquith, a tax accountant at TMF Group in London told the FT:

“This is about organised crime, about people setting up power trading companies to commit fraud across Europe”

It is believed that the HMRC has actually long suspected the occurrence of VAT fraud in the wholesale gas and power trading markets and that it was this awareness that led to the suspension of VAT paid by foreign suppliers in March’s Budget.

In response to the fears, scandals and lack of security in the market various institutions, including the investment banks have begun to scale back and even close their energy trading operations to minimise any exposure to such fraud.

Whilst these activities don’t directly affect consumers, unlike the alleged gas market manipulation of 2012, the knock on effect on certainty is never a good thing in a habitually nervous energy trading market.

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