The Commodity Futures Trading Commission’s (CFTC’s) Division of Enforcement announced that it has established a new task force—the Environmental Fraud Task Force—to combat environmental fraud and misconduct in derivatives and relevant spot markets, including the carbon markets.
The CFTC indicated that the task force will examine, among other things, fraud with respect to the environmental benefits represented by carbon offsets and material misrepresentations regarding environmental, social, and governance (ESG) products or strategies.
The task force will also likely pursue fraud and misconduct involving illusory offsets that are listed on carbon registries, double-counting of carbon offsets, misleading communications on the carbon offset holder’s use of the carbon offset, and fraudulent statements relating to the material terms of the carbon offset transacted. Those material terms include, but are not limited to, the quality, quantity, additionality, environmental benefits, and permanence of the carbon offset.
The task force will be composed of attorneys and investigators across different offices within the CFTC’s Division of Enforcement who will prosecute cases and serve as subject matter experts. It will coordinate its efforts and resources with those in the other divisions and offices within the CFTC to police environmental fraud.
This includes the CFTC’s Whistleblower Office, which recently announced that it is soliciting tips from the public of potential fraud or manipulation in the carbon markets. Through the CFTC’s Whistleblower Program, the Whistleblower Office provides monetary awards to individuals who voluntarily provide original information about violations of the Commodity Exchange Act that leads the CFTC to bringing a successful enforcement action resulting in monetary sanctions of more than $1 million.
The creation of this task force is significant in several respects. It confirms that the CFTC will actively pursue and prosecute cases of fraud and manipulation involving environmental representations and credentials in both the derivatives markets and the relevant spot markets, including the voluntary carbon markets. In addition, this is the first formalized effort of the CFTC to establish a unit that will be focused on combatting fraud in the voluntary carbon markets and other forms of greenwashing, including material misrepresentations about ESG investment strategies.
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