Expanded biofuel incentives of the Inflation Reduction Act raise concerns about fraud

The Polygamist & The Bio Fuel Baron Season Premiere Extended Sneak Peek

The Inflation Reduction Act signed into law by the President Joe Biden in August includes historic investments to combat climate change. It could also open new avenues for fraud by expanding a program that has been in place for many years by the federal government.

The Renewable fuel standards, passed with broad bipartisan support in 2005, uses an incentive system to increase the share of biofuels such as ethanol in the nation’s fuel supply. One research by the Biotechnology Industry Organization credited the program with reducing the United States’ dependence on foreign oil by nearly 2 billion barrels in its first 10 years.

The new law keeps the system in place for now, extending some credits that have been set to expire and adding new benefits for things like ethanol-based aviation fuel. However, it did not include any new provisions to prevent fraud, which an industry compliance expert said could be an issue.

“In a program where you have relatively little oversight and a way to fraudulently generate large amounts of money with little effort,” said Peter Whitfield, a partner. looks like those possibilities (for fraud) will still exist” at the law firm Sidley Austin in Washington, DC, in an interview with “American Greed. “

The polygamist and the lion

The I have to go to school every dayprogram adjustment, speak Its enforcement division has launched 16 renewable fuel fraud cases in the past 10 years alone, resulting in civil fines of up to $27 million. Many other cases have been referred to the Ministry of Justice for criminal prosecution.

Some of those crimes were particularly brazen. In 2019, members of a polygamous, Utah-based religious sect known as “The Order” pleaded guilty to conspiring with a Los Angeles businessman who called himself “The Lion” to defraud. approximately $1 billion in federal government benefits in a plan involving Renewable Fuel Standard Credits and related IRS tax credits.

Using a bunch of shell companies and fake deals, the team made it look like they were producing massive amounts of biofuel at a factory in Northern Utah and shipping it around. That allows them to earn millions of dollars in incentives, even though they are producing very little fuel.

The extent of the scam came to light only after a member of the cult who happened to work in the accounting department split from the group – she said she was about to be forced into marriage with her cousin – and tell the authorities what she knows.

“You’re looking at this little factory in Northern Utah that is demanding millions, then tens of millions, then hundreds of millions of dollars from the IRS to make biodiesel,” said former Justice Department Trial Attorney Arthur Ewenczyk speak. “And it doesn’t add up.”

Cars line up at a Sunoco gas station that offers a premium gasoline-ethanol blend at a lower cost than regular gasoline, Wednesday, April 13, 2022, in Delray Beach, Fla.

Marta Lavandier | AP

The sect practices what it calls “voluntary giving of wealth,” where all business and all money is shared with the group.

Four members of the Order, including confessed fraudster, Jacob Kingston, pleaded guilty to federal conspiracy charges. In 2020, a federal grand jury in Salt Lake City convicted their partner, businessman Lev “the Lion” Dermen, on multiple counts including conspiracy, fraud, and money laundering. No sentencing date has been set.

Order itself has not been charged with misconduct. The group said they were unaware of the fraud and that they had been unfairly targeted because some members of the group practiced “plural marriage”.

The Justice Department said its investigation is continuing.

Fraud control

The EPA said it has continued to strengthen enforcement as it learns more about the program’s implementation — and as incentives expand under the Inflation Reduction Act.

“EPA intends to continue to regularly update its compliance and oversight regulations to help prevent RFS fraud,” spokesman Tim Carroll said in an emailed statement to “American Greed.”

The EPA’s Criminal Investigation Division monitors the program, analyzing suspicious samples, and matching the credits to actual fuel produced.

And Carroll said the agency has begun to work more closely with the Internal Revenue Service, as was the case in Utah.

“That relationship allows the IRS to use EPA reporting data to identify potential fraudulent activity,” Carroll said.

But Whitfield doubts investigators’ ability to catch every fraud as the programs expand.

Among the issues he noted is that the Inflation Reduction Act is creating a larger pool of biofuel incentives at a time when raw materials or “raw materials” for fuels – such as such as corn, wood flour and even cooking grease – very expensive or short term. provided. That could attract some people to try and cheat to collect lucrative biofuel credits.

“Someone might decide to build a facility that’s the equivalent of a bridge to nowhere, right? You build a facility that can produce biofuels, but you never intended to operate it. do it,” he said. “So you’re just spending money taking advantage of the Inflation Reduction Act.”

But at the same time, expanding incentive programs is encouraging larger companies to join, he said. That can help reduce fraud, as big players have fewer reasons to cheat and more resources to devote to compliance.

Corn is loaded onto a truck as a silo is emptied on a farm in Illinois.

Daniel Acker | Reuters

“You see more refiners investing in technology. You’ll probably see airline companies investing in this technology,” he said. “You’re less likely to see fraud when some of the larger and more sophisticated companies join the scheme.”

In addition, many renewable fuel programs are widely available, with support from environmental groups, agricultural interests and legislators from across the political spectrum. The hard part is keeping it all going, while stopping the scammers.

See how a determined teenage girl exposes a billion-dollar biofuel fraud, and helps cage “The Lion”. Watch the premiere of the LATEST season of “American Greed,” Tuesday, September 27 at 10 p.m. ET on CNBC.

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