Biodiesel can be an affordable alternative fuel, but when there's RIN fraud involved, it can cost over $100 million. That's the cost to victims – biodiesel buyers and the IRS – in a biodiesel fraud case in Indiana perpetrated by six individuals and three companies, as announced by the Justice Department today. The alleged criminals committed a whole heap – that is, 88 - illegal acts, including "conspiracy, wire fraud, false tax claims, false statements under the Clean Air Act, obstruction of justice, money laundering and securities fraud," according to the Latin American Herald Tribune. It certainly isn't the first case of RIN fraud, but the US Attorney for the Southern District of Indiana called it, "the largest tax and securities fraud scheme in Indiana history."

Here's how the scam allegedly worked. The first step, as described by the Latin American Herald Tribune, is understanding that the US government, through the Energy Independence and Security Act (EISA) of 2007 gives an incentive – a $1-per-gallon tax credit – to the first entity to blend 100 percent biodiesel (B100) with petroleum. These gallons could also get sold with renewable identification numbers (RINs), and they were more valuable if they were. The trick is that one of the companies involved, E-Biofuels from Middletown, IN, allegedly bought B99 without a RIN but then resold it as B100 with a RIN, making a tidy profit by lying about the content of the fuel. The people involved were taken into custody and could face up to 20 years in prison if found guilty.


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    • 1 Second Ago
  • 11 Comments
      raktmn
      • 7 Months Ago
      OK, time to do some Greenlings basic stuff regarding RIN's. All of the petroleum blenders are required under the RFS to sell their fair share of biofuels for every gallon of petroleum they sell each year. A RIN is used exclusively to track how many gallons of biofuels each company sells towards their fair share of the biofuel mandate. RIN's allow companies who do not blend in enough biofuels to meet their fair share of the biofuel mandate to buy credits from other companies to make up their shortfall. Why do it this way? Because the other option was to say that every blender had to sell their fair share of biofuel no matter what, no matter how much the cost to each company. The RIN system exists to give these companies more flexibility based upon their local market. It exists to lower the total cost between all companies to meet the biofuel mandate. To make this work, there is a market that exists exclusively for trading RIN's in a transparent way. This way there are no "black pools" similar to how CDO's were being traded before the market for them crashed in 2008. In order for there to be liquidity in this market, there are traders who neither produce or consume RIN's or fuel. They trade based upon speculation, and in theory provide a ready buyer and a ready seller for those companies that do produce or consume RIN's. This is where the door opened to fraud. People found they could sell fake RIN's into this market, and that they could make money off of this trade of RIN's. This came at the expense of the companies who bought those fake RIN numbers, not at the expense of anyone else or the gov't. The gov't neither buys nor sells nor trades in RIN numbers in this market, and cannot lose taxpayer money in this market. This should help with all the Greenlings type of questions and confusion.
      CoolWaters
      • 7 Months Ago
      Home Heating OIl, you can't get better then 2% bio-diesel.
      Marco Polo
      • 7 Months Ago
      Although I'm not a fan of complicated taxpayer funded subsidies, and incentive schemes, this has nothing to do with either the validity of the scheme or the integrity of bio-diesel as a fuel. These people are just deliberate criminals, motivated by premeditated avarice and should be duly prosecuted to the full extent of the law.
      2 wheeled menace
      • 7 Months Ago
      The victim is not the IRS, but you, the taxpayer. You paid for yet another thing that gave you no benefit whatsoever. Even when these subsidies are paid out - you're still subsidizing something that you'd never want, or just doesn't pay off anyway. Ah well, we'll continue to get fleeced - after all, it's not their money and not their incentive to protect it, it's yours and they could often care less..
        raktmn
        • 7 Months Ago
        @2 wheeled menace
        There are no Gov't "subsidies" paid out to anyone in the RIN program. Private companies get credits from other private companies, or produce those RIN's themselves through their own actions. At no point does the gov't subsidize these RIN's with taxpayer money. Nor was it the US gov't who was buying those fraudulent RIN's. That was private companies who bought those RIN's.
          raktmn
          • 7 Months Ago
          @raktmn
          Marco, the linked source is not accurate. The RIN numbers have nothing to do with the tax credit. The RIN numbers are exclusively for tracking compliance in the Renewable Fuel Standard requirements. "RINs are used by obligated parties to demonstrate compliance with their pro rata share of a particular year’s mandate." http://www.ers.usda.gov/media/138383/bio03.pdf This is exclusively for tracking this obligation. The value of the RIN is based upon things like speculation and the availability of RIN credits, not on any taxes collected. I could go into vast, vast detail if you would like.
          raktmn
          • 7 Months Ago
          @raktmn
          Marco, The profit margin is in the trading of the RIN's. I'm surprised I have to explain these basic concepts to you, but here is how it works. Every year, each company has to come up with a fixed percent of RIN's compared to the amount of fuel they sell. For example in 2012 it was roughly 8%. Now not every company will sell exactly 8% of their fuel as ethanol. Some companies sell more, others sell less. Those that sell more have excess RIN's (so do other companies who can create RIN's). The profit is in the the selling and trading of RIN's to companies who have sold less than 8% of their fuel as biofuels. How much profit depends upon who is willing to sell their excess RIN's for what price. The RIN market (just like the commodities market) has non-producer/non-consumers who buy and sell RIN's purely on speculation of their future value. This is also where profits come in. The RIN fraud is purely a fraud in this RIN trading market. The gov't does not participate in this market (they neither buy nor sell nor invest any taxpayer dollars). Everyone in this market are Private Companies. The equivalent would be somebody fraudulently trading bogus Corn futures contracts on the Chicago Mercantile Exchange, and ripping off other traders. And then blaming it all on the Chicago Mercantile instead of those folks guilty of breaking the law!! If there is anything else you still don't understand, just ask and I can explain it to you.
          Marco Polo
          • 7 Months Ago
          @raktmn
          @ ratmn, Good grief, I swear you have the mind of a bureaucrat ! If the only issue was inaccurate numbering or book keeping with "no profit or financial advantage" , there would be no crime ! If the government had never passed a law allowing a tax credit , there would be no such thing a RIM ! In fact if the government had never required blending, the whole issue would not exist ! RIM's are not created as a good idea between businesses, but as a result of government policy ! Now, what's so hard to understand about that ?
          Marco Polo
          • 7 Months Ago
          @raktmn
          @ratmn, " At no point does the gov't subsidize these RIN's with taxpayer money " Then why would a 'private company buy a RIN ? The only value of RIN certification is to allow companies to take advantage of the provisions of the Energy Independence and Security Act (EISA) of 2007 which, as the article says, provides an incentive – a $1-per-gallon tax credit . Without the government incentive, there's no value, or profit in falsifying RIN's ! Government are (in my opinion) fully entitled to grant tax concessions, and the prosecution of those who deliberately fraud such credits, is fully justified. In the past you have always argued most vehemently that 'tax credits' are 'subsidies', (I don't agree) ,but you can't have it both ways. 2WM just took you at your word, which knowing how ..er,...flexible that can be, was probably foolish ! Arguments as to whether such concessions should be granted, is immaterial and a matter for political debate. The fact is that the law exists, and must be obeyed. But to pretend that the government isn't involved because you support bio-fuels, is an absurd distortion.
      Levine Levine
      • 7 Months Ago
      Good Ole American ingenuity: scam the taxpayers. They should have called the biodiesel fuel scam an economic "Stimulus" to masquerade its true mission. Better yet, get bail out money as did the Too-Big-To-Fail corporations with money printed off the Federal Reserve's machines.
        raktmn
        • 7 Months Ago
        @Levine Levine
        Actually, this was one private company scamming another private company. This was a private company supplier selling something fraudulent to another corporation. It is no different than one toy company selling toys with lead paint to another corporation, and then that corporation finds out the product is useless because it doesn't pass US regulations on lead paint content in toys.