Carbon Trading Scandal: "Prince of Carbon" and "The Brain" Dispute
In the mid-2000s, Europe’s carbon emissions trading system, designed to reduce global carbon emissions, fell prey to extensive fraud, generating significant illicit gains for several criminal actors. Central to the scandal were two figures: Gustav Daphne, dubbed the “Prince of Carbon,” and Grégory Zaoui, known as “The Brain.”
The scheme exploited a flaw in the system which levied Value Added Tax (VAT) on emissions allowances traded within EU member states, but not on cross-border trades. This allowed fraudsters to import carbon credits tax-free, sell them domestically with VAT included, and then vanish with the tax refunds.
Daphne, a French national with prior convictions, was extradited from Israel to France in 2014 to face charges related to this scam. He was flamboyant and had a high-profile lifestyle, often seen with celebrities. Zaoui, contrastingly discreet, alleged he originated the scam but was double-crossed by partners, losing out on profits and eventually being arrested in France.
The fraudulent activities spanned several countries and attracted various criminal entities, ultimately siphoning around €5-10 billion from European governments. The scandal significantly disrupted the carbon trading market and was described by media as “the fraud of the century.” Both Daphne and Zaoui received multi-year prison sentences for their involvement.