By Chris Lang
On 18 April 2013, in case number T20127038 at Kingston Crown Court, Ian David Macdonald and David John Downes became the first people to be sentenced to prison for their role in a carbon credit boiler room scam. They defrauded UK “investors” out of a total of US$9 million. Macdonald was sentenced to eight years and Downes to four and a half years.
Macdonald and Downes systematically cold called people, many of them elderly, and pressured them into buying voluntary carbon credits and shares. They marketed the carbon credits and shares as highly profitable investments. On its website, the City of London police described the “investments” as “almost or completely worthless”.
The scam took place between January 2007 and December 2010. The biggest individual loss was US$600,000. Hundreds of people paid millions of dollars into MacDonald’s Canadian and US bank accounts. Essex Police and the National Fraud Intelligence Bureau alerted the City of London Police to these transactions.
In November 2010, when Macdonald and Downes asked their bank to wire US$1 million to a Swiss company, the British Columbia Securities Commission blocked the transaction and froze the bank account, “due to suspicions over the origins of the funds”, according to the City of London Police.
One month later, the two men were arrested on suspicion of “fraud by false representation and money laundering” when they flew into Heathrow from Vancouver, on their way to Spain.
The City of London Police set up an investigation called “Operation Skijump” and wrote to 1,800 people they believe had been targeted by boiler room fraudsters. When the investigation’s phone lines opened, “we were full to capacity,” said PC Alison Youles who managed the call centre team. “In just two days we fielded 495 calls.”
The good news is that much of the money was recovered. In a statement, Detective Constable Claire Armson-Smith, from the City of London Police, said:
“Securing the first convictions and jail sentences for a carbon credit fraud is a landmark moment for the City of London Police, with two men who ruthlessly targeting the vulnerable being brought to justice and their criminal operation dismantled.
“Much of the money they stole and moved across the Atlantic has been recovered and will be returned to victims, helping them to move on from a very bad experience and sending a message to other fraudsters that they when we come for them we will come for their money as well.”
The police recommended that people who believed that they were victims of the fraud should contact Action Fraud (telephone number 0300 123 2040).
In its statement about the jail sentences, the City of London Police states that it “has been investigating a growing number of suspected carbon credit frauds, where environment investments are being marketed as a safe way to make easy money.”
People believe they are buying products that can be traded to companies in a legitimate market when the reality is these credits either do not exist or can only be bought and sold on a voluntary market at a fraction of their supposed value.
There are several lessons from this case:
- The police operation took several years. In the end, however, it was successful and most of the money was returned to “investors”.
- The financial regulatory authority in the UK played no role whatsoever. Voluntary carbon credits are not regulated.
- The police encourage people who believe that they are victims of boiler room scams involving carbon credits to contact Action Fraud, which works with the National Fraud Intelligence Bureau and the City of London Police.
- Buying voluntary carbon credits as an investment is extremely unlikely to make a return.