Tuesday, July 2, 2013

German power providers guilty of corruption?

As if you needed another reason not to trust public utility companies, the advocacy group BDEW now claims that Germany is on the brink of a major tax fraud scandal.

Not that Germany’s energy sector isn’t used to scandals by now. Less than four years ago, they were victimized by a number of scams involving carbon emissions trading! 

Over the last two months, tax regulators from Baden-Wuerttemberg all the way to Hamburg have come forward with proof of “value-added-tax scams in energy trading.” More than 1,800 of the countries energy providers will take turns under the microscope as officials scrutinize and search for corrupt activity.

But will those found guilty be punished? Or, like the American bankers on Wall Street, will these energy moguls escape with little more than a slap on the wrist?

“It is hard to take action against fraud,” said Hildegard Mueller, director of BDEW, a Berlin utility group whose members include EON SE and RWE AG (RWE), Germany’s largest energy companies. “If someone acts with criminal intentions, it might be discovered too late.” BDEW’s members account for 90% of Germany’s energy sector. That’s a lot of ‘power’ in the hands of a few.

In 2009, fraud in the carbon emissions market cost Europe approximately €5 billion, or $6.54 billion. Since then, the region has been on high-alert. Not high enough, it seems.

There are a number of measures companies can take to protect themselves against corruption. Internal investigations. Background screenings. A system of checks and balances. And if a deal seems too good to be true – it probably is, says Mueller.

Last week, European finance ministers passed legislation to combat fraud. Yet as more laws and regulations are put in place, and the security wall grows higher, it simply affords those with a criminal agenda more opportunities to find the wall’s weak spot, and exploit it.

Some new procedures do appear to be working though. REW recently discovered 35 accounts of suspicious emissions trades dating back to 2009 and 2010. The company is “continuously checking and evaluating counterparties and working together with the authorities,” said spokesperson Michael Murphy.
The German energy sector was liberalized in 1998, giving foreign producers access to their grid and customer base for the very first time. Unfortunately, this has also opened them up to corruption.  

Last year, Germany’s energy trade accounted for roughly 45% of the European market. “It is important to have a liquid market. It means one can choose from a large number of trading parties,” said Mueller. “And in that respect, Germany is a role model.”

Here’s hoping that those who try to cheat the system are brought to justice before they drag the market down with them!

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