Washington, D.C. — The Commodity Futures Trading Commission’s Whistleblower Office in the Division of Enforcement issued an alert today notifying the public on how to identify and report potential Commodity Exchange Act (CEA) violations connected to fraud or manipulation in the carbon markets. Voluntary carbon markets, among other measures, can support the transition to a low-carbon economy through market-based initiatives in which high-quality carbon credits, also known as carbon offsets, are purchased and sold bilaterally or on spot exchanges. As with any market, there exists the potential for fraud and manipulation.  

“Alongside the continued growth of CFTC regulated carbon offset derivatives contracts, the agency is building upon its expertise to ensure the utility and reliability of these markets, as well as its ability to identify and pursue any potential fraud or abusive practices,” said Chairman Rostin Behnam. “Information from whistleblowers advances the Commission’s enforcement mission and, in turn, further builds integrity and trust in the carbon markets by rooting out fraud and manipulation.”

As described in the alert, the CFTC’s Whistleblower Office will work with market participants that report information related to potential fraud in the carbon markets including, but not limited to, manipulative and wash trading, “ghost” credits, double counting, fraudulent statements relating to material terms of the carbon credits, and potential manipulation of tokenized carbon markets. Individuals who submit such information through the CFTC’s Whistleblower Program may be eligible for certain confidentiality and anti-retaliation protections, as well as monetary awards if that information leads to the success of a CFTC enforcement action.

“As carbon credit markets continue to grow, we will act to foster the integrity of these markets by fighting fraud and manipulation,” said Ian McGinley, Director of the Division of Enforcement. “Whistleblowers are invaluable allies in these efforts.  We will diligently investigate all credible tips and complaints from whistleblowers relating to carbon credit markets.”

Background:

The voluntary carbon credit market is currently estimated to be $2 billion and is forecasted to grow to $250 billion by 2050, according to the Morgan Stanley Research paper Carbon Offset Market Trends and Growth 2050. Carbon credits are the underlying commodity for futures contracts that are listed on CFTC designated contract markets (DCMs). The CFTC has enforcement authority and regulatory oversight over DCMs and any trading in those markets. The CFTC also has anti-fraud and anti-manipulation enforcement authority over the related spot markets for carbon credits. The CFTC’s jurisdiction also applies to carbon allowances and other environmental commodities products that are linked to futures contracts.

About the CFTC’s Whistleblower Program

The CFTC’s Whistleblower Program was created under Section 748 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Since issuing its first award in 2014, the CFTC has granted whistleblower awards amounting to approximately $330 million. Those awards are associated with enforcement actions that have resulted in monetary sanctions totaling more than $3 billion. The CFTC issues awards related not only to the agency’s enforcement actions, but also in connection with actions brought by other domestic or foreign regulators if certain conditions are met.

Whistleblowers are eligible to receive between 10 and 30 percent of the monetary sanctions collected. All whistleblower awards are paid from the CFTC Customer Protection Fund, which was established by Congress, and is financed entirely through monetary sanctions paid to the CFTC by violators of the CEA. No money is taken or withheld from injured customers to fund the program. The CEA also provides confidentiality and anti-retaliation protections for whistleblowers.   

The CFTC’s Whistleblower Office issues Whistleblower Alerts as a way of communicating the priorities of the Division of Enforcement to the public, including potential whistleblowers and whistleblower attorneys. 

* * * * *

Anyone with information related to potential violations of the CEA or the CFTC’s rules and regulations can submit a tip electronically by filing a Form TCR (Tip, Complaint or Referral) online at https://whistleblower.gov/overview/submitatip.

Go to Whistleblower.gov for more information about CFTC’s Whistleblower Program.