Earlier this month, acting on a tip from anticorruption watchdog group Global Witness, London police arrested the head of a British firm involved in the growing international market for carbon offset credits. The arrest stemmed from an investigation into potentially improper payments to foreign government officials designed to secure a lucrative carbon concession. The company, Carbon Harvesting Corporation, had been negotiating an arrangement with the Liberian government that would have involved a 400,000 hectare forest carbon concession—roughly one-fifth of Liberia’s rainforest—allowing the company to sell carbon credits to customers seeking to offset their own emissions.
Global Witness’ two-year investigation reportedly uncovered unofficial payments between the company and members of the Liberian government. Carbon Harvesting Corporation is alleged to have paid at least some installments against $2.5 million in payments expected by Liberian government officials in return for awarding the carbon credit contract. Liberia potentially stood to lose more than $2 billion on the deal.
This is just the latest blow to the integrity of the multibillion dollar international carbon offset market. A January 2010 report warned that billions of dollars of anticipated investments in U.N.-backed forest protection in Indonesia are at risk due to graft and a lack of oversight in the country’s weak and poorly managed forestry sector. And Indonesia is not the only market with a poor reputation for corruption attempting to cultivate the lucrative and popular carbon offset trend, as countries in Central and South America, Southeast Asia and the Asia-Pacific region are all developing carbon offset projects. Issues have already been raised regarding programs in India, Nigeria and Papua New Guinea.
Companies considering investment in carbon credit markets face substantial risks related to fraud, bribery, money laundering and other corrupt activities (pdf) if they do not approach these investments in a cautious fashion, armed with appropriate due diligence.