Fueling Fraud

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Beginning in May 2007, the Energy Independence and Security Act required petroleum refiners and importers to have renewable fuel in their product mixes. They could meet this requirement by purchasing credits from renewable fuel producers. A Department of Justice press release tells about how two men operating several shell companies bilked biodiesel buyers and the federal government out of more than $46 million through the government’s renewable fuel credit system.

The article states that the two men were involved in operating entities that purportedly purchased renewable fuel produced at a company headquartered in Washington and a subsidiary located in Georgia. (Note that credits had already been claimed, making the fuel ineligible for additional credits.) They also used multiple false transactions to change the fuel back into feedstock that was needed to produce the renewable fuel and then sold it back to either of the two companies, allowing credits to be reclaimed. (Supposedly, this cycle happened several times.)

Apparently, they generated false paperwork that made it appear that the renewable identification numbers (RIN) – serial numbers used to track biodiesel credits – created and claimed were legitimate. The fake paperwork included bogus invoices from the two companies to multiple shell entities showing sales of renewable fuel; false invoices from the shell companies to the two companies showing the purchase of feedstock; and, false bills of lading supposedly showing the transportation of feedstock and fuel by a tanker truck. (So, they cycled the same batch of renewable biofuels through their shell companies and claimed that they generated new biofuels which qualified them to receive new alternative fuel and tax credits.)

Over the course of one year, the two generated approximately 60 million RINs based on fuel that was either reprocessed or never produced at the two companies. (This netted the two co-conspirators $42 million from the sale of bogus RINs to third parties and more than $4 million in false tax credits.) The proceeds from this scam were spread out through multiple company bank accounts to conceal the fraud. The two men pleaded guilty for participating in the multi-state fraud scheme that defrauded biodiesel buyers and taxpayers by selling bogus biodiesel credits and illegally claiming tax credits.

According to the Environmental Protection Agency, the intent of the Energy Independence and Security Act was to help the United States move toward greater energy independence and security; increase the production of renewable fuels; protect consumers; increase the efficiency of products, buildings, and vehicles; promote research on and deploy greenhouse gas capture and storage options to name a few. (While these two criminals were able to fuel their scam through a government program meant to help our country to operate more efficiently, it looks like they have now officially run out of gas.?

Source: Today’s ”Fraud of the Day” is based on a press release entitled, ”Two Florida Men Plead Guilty to Multi-State Biodiesel Fraud Scheme,” released by The Department of Justice on June 24, 2016.

Thomas Davanzo, of Estero, Florida, and Robert Fedyna, of Naples, Florida, pleaded guilty today for their participation in a multi-state scheme to defraud biodiesel buyers and U.S. taxpayers by fraudulently selling biodiesel credits and fraudulently claiming tax credits.

Davanzo and Fedyna operated several shell companies that were used to facilitate the scheme. As part of the scheme, Davanzo and Fedyna operated entities that purported to purchase renewable fuel, on which credits had been claimed and which was ineligible for additional credits. They then used a series of false transactions to transform the fuel back into feedstock needed for the production of renewable fuel, allowing credits to be claimed again. This cycle was repeated multiple times.

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.