The long read
The warring conmen at the heart of a €5bn carbon
credit scam
Emissions trading was supposed to save the planet. But
fraudsters quickly learned how to rip the system off, making themselves
spectacularly rich. Then some of the major players started turning on each
other
A longer
version of this piece first appeared in The Atavist
by Jessica
Camille Aguirre
Tue 4 Jun
2024 05.00 BST
Agood
scammer sees opportunity everywhere, including in their own downfall. In 2006,
the police showed up at Gustav Daphne’s house in Beverly Hills. They had come
once before, when a neighbour complained about his trash. Daphne happened to be
swimming in his pool at the time, and because he is French, he came to the
front door in a tiny little bathing suit. The police were appalled; they gave
him a reprimand about storing his garbage more tidily and scurried away.
This time
was different. The cops came straight into the house. There were a dozen of
them, wearing bulletproof vests. They took him outside in handcuffs and put him
in a car. Maybe he was paranoid, having built a multimillion-dollar empire on
fraud and deceit, nurturing connections with international criminal rings, but
at first he thought he was being kidnapped. When he saw the jail, he was
relieved.
The feeling
was short-lived. The jail was cleaner than those in Europe where he had been
held before, but after a couple of hours he demanded a cigarette and was
informed that smoking was prohibited. OK, he thought. There must be a way.
There’s always a way. He would find the right people, negotiate the right
conditions. He had to smoke. He loved to smoke. He loved it more than anything,
except for women. He loved women! And smoking, and art and shopping.
He found
someone in the prison whom everyone called El Gordo – a Mexican guy who could
hook people up with anything. Daphne asked for cigarettes and he was told that
he would need to have $300 delivered to an address on the outside. This was not
a problem. Daphne’s mansion had once belonged to a silent film star; he
sometimes commuted by helicopter. There wasn’t much he couldn’t afford. After
his cousin had dropped off the cash on his behalf, Daphne went back to El Gordo
to collect his cigarettes. El Gordo looked at him, then gave him a nicotine
patch. “No smoking in prison,” El Gordo said.
Daphne was
eventually extradited to Europe to face money-laundering charges and sent to a
prison in France, where he could get anything he wanted: magazines, special
meals, the Israeli cigarettes he preferred. His lawyer could also bring him
things. So when he saw a segment on TV about climate-change policy, he asked
his lawyer to bring him more information about France’s plans to reduce
emissions. Daphne had a preternatural ability to sniff out criminal prospects,
and he had caught a familiar whiff.
When Daphne
read the materials his lawyer provided him, he learned about Europe’s
carbon-emissions trading system, the first of its kind in the world. It had
grown out of the Kyoto protocol, the landmark international agreement to reduce
global emissions. Sure enough, Daphne told me, he saw the blueprint for what
would become his next illicit enterprise. As soon as he finished his time in
prison, he began gaming the new emissions-trading system.
The scam
would help Daphne accumulate even more money, and it would make him famous. In
the media he cut a dashing figure, partying with celebrities and oligarchs. He
maintained his slim physique and dressed in blazers cut frommade of blue velvet
or embroidered with shimmering brocade flowers. He was rarely photographed
without one of his hundreds of pairs of Tom Ford sunglasses. Always, it seemed,
he had a cigarette hanging out of the side of his mouth.
Reporters
dubbed Daphne the “Prince of Carbon”, but it wasn’t just his flamboyant
charisma that elevated him to criminal royalty. So, too, did the nature of his
new fraud. Daphne was scamming the fight against the climate emergency by
exploiting a policy flaw that left billions for the taking.
I should
say here that Gustav Daphne is a pseudonym. He remains a wanted man in France,
so when I travelled to meet with him at his gated villa in Tel Aviv, he agreed
to speak on the condition that I not use his name – any of his names. (He has a
few aliases.) Still, his name is all over the French media. I warned him that a
pseudonym would be a pretty weak shield for his identity. That was OK with him.
During my
visit, Daphne took calls from his lawyers and asked favours of his wife and
flirted with acquaintances over WhatsApp. He wore his Tom Ford sunglasses
indoors and out. He showed me his art: a large Kandinsky painting in the foyer,
a few Chagalls downstairs. The villa had some burly guys on staff and a cleaner
from Sri Lanka who picked up after two fluffy indoor dogs that liked to avail
themselves of the plush white carpets.
All this is
part of Daphne’s downsized lifestyle. He used to have a bigger mansion, with a
swimming pool and a tennis court, a gym and a movie theatre. He has fashioned a
new life for himself in Israel, which has yet to grant France’s request for his
extradition.
Daphne and
other scammers’ pillaging of Europe’s carbon market constitutes what the media
have called “the fraud of the century” – billions of euros were stolen in a
matter of months. The shadowy scheme attracted established crime rings and
amateur hucksters alike, many of whom knew one another. Its web reached the
boxing rings of Las Vegas, the offices of Germany’s biggest bank, the caves
along the border of Afghanistan and Pakistan where Osama bin Laden was hiding
and the gilded restaurants of Paris. It pulled in a playboy demi-celebrity, an
Afghan refugee, a flashy street hustler, an immaculate businessman who
hobnobbed with the queen of England, the doyenne of Marseille’s underground and
a man some people called The Brain.
The Brain’s
real name is Grégory Zaoui, and he claims that the entire scam was his idea.
Daphne, he says, gets far too much credit for his role in ripping off the
carbon market.
Zaoui is
stout and broad-chinned, with thick eyebrows and a sweep of dark hair. When he
was involved in the carbon scam, he took pains to remain understated. He
favoured dress shirts in pale blue or white. Even when he was photographed
alongside some of the highest-ranking politicians in France, he looked
withdrawn. When he spent money, he did it quietly. Journalists described him as
discreet, cerebral, analytical. Even though they grew up a few miles from each
other, Daphne and Zaoui couldn’t be more different.
When Zaoui
was questioned by the police, 15 years ago now, he said he’d been betrayed. He
had gone into business with the wrong person, he claimed. Someone he had once
considered among his closest friends double-crossed him so wickedly that he
never really reaped the rewards he deserved for being a carbon fraudster.
Zaoui
agreed to meet me in Paris last May, at a restaurant in one of the city’s most
luxurious hotels, the Lutetia, where a Coca-Cola costs €12 and an army of
valets swarm the entrance. He wanted to set the record straight about his and
Daphne’s respective roles in Europe’s carbon fraud. Until now, he told me, no
one had truly understood the relationship between them.
“He is the
prince,” Zaoui told me. “But I am the king.”
Daphne’s
parents moved from Algeria to a village one hour outside Paris in 1962, at the
end of the Algerian war of independence. In the 1990s, living in Paris, he got
a job at an insurance brokerage. He worked hard. He identified groups of people
who needed coverage they weren’t getting elsewhere and made them offers. He was
charming, persuasive. “People adopt me very easily,” Daphne told me. He can’t
go to therapy, he said, because therapists have a bad habit of falling in love
with him.
Daphne
struck out on his own and opened insurance offices in Paris and Bordeaux.
Things were going well, not outlandishly so, but his family was comfortable.
Then one day some new clients walked through the door. They wanted to insure
their lavish apartments and their fleets of luxury cars. Daphne drew up their
policies, and soon he was going with them on vacation, lounging on their
yachts. He claims to have had no idea they were part of the international
cocaine trade. He was just a man selling insurance and enjoying a little
respite with his clients when he could get it.
As Daphne
tells it, he was minding his own business when law enforcement came for him. He
was accused of providing the traffickers with insurance certificates for items
that weren’t covered by real policies and given a three-year sentence. While
proceedings were still under way, he lost all his clients and his company fell
apart. He swears that he was innocent, that the certificates had come from
someone else, yet the government blew up his whole life. He wasn’t even 30.
A little
more than 30 miles east of Daphne’s childhood home, in a rough neighbourhood on
the outskirts of Paris, Grégory Zaoui was also born into an immigrant family –
in his case, Algerian Tunisian. In his late teens, Zaoui began importing jeans
and got into the game of VAT fraud.
In 1996, he
got caught, and went to prison for a month, but after he got out, he was soon
back in the game. He linked up with two brothers who brought him into their
business skimming tax on imported mobile phones. Before long, Zaoui was making
as much as 100m francs (£12.9m) a month. In 2004, the authorities caught up
with that scam and sentenced him to three years in prison. He appealed and was
granted bail of €75,000, but all his money was tied up overseas and he couldn’t
pay it. By then he had three young children at home. In early December, just as
Hanukkah was beginning and it looked like Zaoui would have to spend the holiday
in a prison cell, his mother visited him with good news. “Be happy,” she said.
“Your friend, he knew you had to get out, so he brought us a cashier’s check
for €75,000. Soon you’ll be out.” That night he dined at home, lit the first
candle of the menorah, and played with his children.
Zaoui never
forgot the generosity of the man who lent him cash. Kévin El Ghazouani was a
buddy of his wife’s cousin; they had bonded previously over a shared passion
for cars. By coming through so unexpectedly, the man secured a place in Zaoui’s
heart. Zaoui promised that one day he would repay him.
The
groundwork for their participation in carbon fraud was laid behind bars. While
Zaoui was waiting for bail money, he shared a cell with a man who installed
solar panels in the south of France. The man told Zaoui to get out of mobile
phones; the future was in businesses that protected the environment. Solar
panels, heat pumps, geothermal energy.
By the time
he was released, Zaoui was convinced it was worth a try. He started his own
solar-panel installation company. He went to trade shows. At one of them, in
2005, he learned about Europe’s new emissions-trading system.
For a
certain, highly influential, school of economists, the whole problem with the
environment – the reason there’s air pollution and shitty water and pesticide
contamination and industrial runoff – is that these things aren’t priced into
any market. So when it started to become clear that climate breakdown
constituted a global crisis, economists proposed creating markets for
emissions. In the 90s, Europeans were adamantly against the idea; they wanted
industries to be taxed directly for what they pumped into the environment. But
in meetings leading up to the Kyoto protocol, American negotiators championed a
suite of so-called flexible mechanisms, including carbon markets, and
prevailed. (The US then refused to ratify the agreement.) European policymakers
came around and created what’s known as a cap-and-trade system, which would
eventually cover nearly half the emissions in the EU, including those produced
by the energy sector, manufacturing and airline travel.
The way the
system was supposed to work was simple enough: the EU would set an annual cap
on its overall emissions, then issue various emitters a certain number of EU
allowances (EUAs). Each EUA would entitle its holder to emit one tonne of
carbon. If a company had extra EUAs at the end of the year, meaning that it
hadn’t emitted all the carbon it was allowed, it could put them up for sale,
and companies that had too few EUAs could buy them. Companies could also
purchase carbon offsets, which basically meant investing in sustainability
measures in other countries. The plan was for Europe to issue fewer EUAs year
over year, so it would become progressively more expensive to emit carbon.
What made
the market interesting to scammers was the potential for VAT fraud. To
understand the scheme they cooked up, it’s important to know two things:
because economic policies in Europe are aimed at facilitating trade across
borders, VAT is waived on sales between EU member states. Also, since
governments only want to tax the value added at each stage of the economic
process, they credit or reimburse the buyers of certain products for the VAT
paid to suppliers.
VAT fraud
has existed since the inception of Europe’s tax system. Mobile phones were once
popular targets. Criminals imported phones from other EU countries, sold them
to consumers with VAT tacked on, pocketed the tax, and disappeared. Or they
used so-called carousel schemes, pretending to sell phones through a chain of
businesses and requesting VAT reimbursements from governments at each point of
sale. According to European law enforcement, VAT fraud involving mobile phones
alone has siphoned billions of euros away from public budgets. In some cases,
VAT scammers dealt in fake goods: the only things that were real about their
schemes were the fleets of empty vans driven around to generate sham import and
export records.
The carbon
market presented an unprecedented opportunity for VAT fraudsters. An EU
Allowance was just a serial number on a computer. It could be transferred with
the push of a button, and it could be bought and sold by anyone – companies in
carbon-heavy industries, as well as traders and bankers speculating on price
fluctuations for EUAs.
One day in
2006, shortly after the carbon market debuted, Zaoui picked up the phone and
called the headquarters of Powernext, a trading platform in Paris. The volume
of EUA sales was basically nil at the time. Regulators had issued too many
allowances, which made them almost worthless. Still, Zaoui saw promise.
Every time
an allowance changed hands in France, the seller was supposed to collect VAT.
Because there was no value added in the process, the buyer would get a VAT
reimbursement. To defraud the system, then, someone could set up a carousel:
buy EUAs VAT-free from outside France, sell them on Powernext with VAT tacked
on, and get reimbursed.
Unlike VAT
fraud with mobile phones, no empty vans were required. The carbon market
rendered even the pretence of real-world trade unnecessary because its product
was an absence, an unemitted tonne of gas. All someone needed to exploit the
system was a good internet connection that allowed them to make trade after
trade among the entities in their carousel. As one scammer told me: “It was
easier than sending an email.”
While in
prison in France, Daphne learned about the carbon market. Daphne told me that
he was initially interested in a different programme born of the Kyoto
protocol. Called Redd, it allowed polluters in developed countries to offset
carbon emissions by paying developing countries not to cut down trees. Like the
carbon market, Redd relied on nonexistent products – essentially, pledges to
leave forests and their stores of carbon untouched. But how to verify that
these pledges were serious, or to measure their success? In truth, many people
didn’t care. The whole thing relied on an attractive idea, and scrutinising it
too closely threatened to upend it. “So much bullshit,” Daphne said.
But what
was bad for the planet was good for him. He plotted out his new scam. He kept
the front companies from his mobile phone scheme alive, paying roughly €10,000
a month to compensate each of the straw managers that owned them on paper. When
he saw that the companies might be useful in exploiting climate-change
mitigation products, including EUAs, he made some inquiries. “A few months
before I was released, I talked to this guy,” Daphne said. He wouldn’t say the
man’s name on the record. “I told him about the companies, and we talked about
the EUAs, the Kyoto protocol and everything.”
They agreed
to work together, and Daphne’s new partner hired some accountants and
registered three companies on Powernext. But these weren’t Daphne’s old fronts.
“What were
the three companies?” I asked him.
“Alors, now
we have a problem,” he replied. Because they were companies that Grégory Zaoui
claimed were his.
Once Zaoui
had confirmed that the EUAs were subject to VAT, he made an experimental trade,
buying €30,000 of VAT-free EUAs from the Netherlands, then selling them with
VAT included. It worked exactly as he had hoped. Just like that, he was €6,000
richer. He couldn’t believe how easy it was – and how dumb. “How did they come
up with this stupid idea of applying a VAT on an asset that is immaterial?”
Zaoui remembers thinking.
Now all he
needed was a backer, someone whose money he could use to buy the allowances
necessary to get the whole scheme rolling. Zaoui knew that his plan was a
guaranteed moneymaker, so he figured he would be doing a favour to anyone he
went into business with. He remembered the man who had bailed him out of jail,
Kévin El Ghazouani. “I’m going to bring you something where you’re going to
make more money than you’ve ever made in your life,” Zaoui told him. “But at
the outset, you have to invest a few hundred thousand euros.”
According
to Zaoui, El Ghazouani came over to his office, on a quiet avenue near the
Champs-Élysées, to talk. Zaoui told him that they would have to be patient,
like crocodiles waiting for their prey. In 2008, the EU would issue fewer
carbon allowances, driving EUA prices up and finally creating more trading
volume. When that happened, Zaoui would use one of the companies he already
owned as his main front. “And then, tac!” Zaoui said. He slapped his hands
together like a crocodile’s jaw.
El
Ghazouani thought about it for a few days, then came back to Zaoui’s office.
“Here’s my proposal,” he said, according to Zaoui. (El Ghazouani didn’t respond
to my requests for comment, and his lawyer declined to talk.) El Ghazouani
didn’t want to become a partner with Zaoui in his company; he wanted to use
other companies. According to Zaoui, El Ghazouani had already created four,
including one called Crépuscule.
Zaoui and
El Ghazouani agreed to split the profits evenly, and got to work. Zaoui told me
that they established one new trading company together and made Crépuscule a
brokerage that could trade directly and make trades on behalf of the other
entities on the Powernext platform. Their companies were registered in France
and abroad, allowing the men to take advantage of VAT-free cross-border trades.
El Ghazouani recruited people to “lead” the companies, poor guys from the
suburbs of Paris who would agree without hesitation to put their name on a
piece of paper in exchange for a chunk of money.
In the
spring and early summer of 2007, before they had even started making trades,
Zaoui and El Ghazouani would meet up in the morning and go to a cybercafe or a
McDonald’s with free wifi – Zaoui told me they wanted to work from public IP
addresses that couldn’t be linked to them. To make their businesses seem
legitimate, they logged on to Powernext every day and sent emails from company
addresses.
One day,
Zaoui was headed home on his motorcycle when he saw a woman walking in the same
direction he was riding. As he passed her, he turned to catch a glimpse of her
face and saw that it was a woman he had known in his adolescence. Her name was
Chirelle, and they’d had a fling on the beach one summer when he was a
teenager.
Zaoui
circled the block on his motorcycle, stopped next to Chirelle, and took off his
helmet. She recognised him right away. They went for dinner, and when he got
home that night Zaoui knew that he wanted to spoil Chirelle like no man had
ever spoiled a woman. He bought her a Bugatti in green, like her eyes. When she
asked him what he did for work, he replied, “I work for the protection of the
environment.”
It was late
summer 2007 when everything changed. Zaoui and El Ghazouani had been seeing
less of each other, meeting only once a week or so. One morning, Zaoui tried to
log on to the accounts of one of their firms. He got a message saying his
password was incorrect. He tried a second time, and when it failed again, he
became suspicious. He called El Ghazouani. “What’s going on?” he asked.
They agreed
to speak in person. According to Zaoui, at the meeting El Ghazouani divulged
that he had overinvested. “I’m up to €300,000,” he said. “I can’t keep it up
any more.” Without telling Zaoui, El Ghazouani had made a deal with someone
else, giving them control of the companies. He made it sound as if he needed
the money the deal would generate so badly that he didn’t have a choice.
Zaoui found
it all baffling. If they had just waited until the carbon market picked up,
they would have made a fortune. Zaoui demanded a cut of what El Ghazouani said
he had netted from offloading the companies. Eventually, El Ghazouani paid him
€80,000.
Losing the
companies was a major setback, but Zaoui tried to focus on the road ahead. He
wanted to register a new brokerage that would only make deals for other trading
companies. In the event that other scammers began defrauding the carbon market
– something Zaoui was confident would happen – he would offer his brokerage’s
trading services for a commission.
The problem
was that he lacked capital. He wanted investors, people who were serious about
his vision. Zaoui reached out to people who had money at their disposal. One of
them was Daphne.
The two men
knew each other in passing from the world of mobile phone VAT fraud. They moved
in the same circles, knew the same people. El Ghazouani had talked to Zaoui
about Daphne, rhapsodising about his business acumen.
By the time
Zaoui called Daphne, it was early 2008. Daphne had got out of prison on parole
and fled France, returning to Israel. According to Daphne, Zaoui said on the
phone that he had “found something amazing”, but Daphne told him that he had
retired from scamming. Zaoui pressed him: “It’s really amazing. I need €2m,
please. Just trust me.” Daphne remained a firm no.
Undeterred,
Zaoui kept looking for funding. He eventually borrowed money from an
acquaintance, which he used to found a company called Coer2 Commodities. As he
predicted, the carbon market grew. In fact, it exploded. The average trading
volume in late 2008 was less than 2m allowances a day. By June 2009, it was
hitting 20m. Many of these trades happened on BlueNext, which succeeded
Powernext in 2007 and grew to become the continent’s largest carbon exchange.
Broadly
speaking, the value of the global carbon market more than doubled between 2007
and 2009, reaching $144bn. Amid a worldwide financial crisis, it seemed as
though EUAs offered a haven in a global minefield of bad investments. “Unlike
other markets, the carbon market hasn’t collapsed despite the fact that carbon
as an asset is still somewhere between infancy and childhood,” Yvo de Boer, the
executive secretary for the United Nations Framework Convention on Climate
Change, said in March 2009.
What
politicians had yet to realise was that the market was rife with fraud. As word
spread through criminal networks about the easy money to be made from
allowances, scammers all over Europe – and in some cases outside it – flocked
to carbon-trading platforms. One of Zaoui’s old business partners did, too,
bringing along a glamorous Parisian playboy named Arnaud Mimran, who was later
convicted of a kidnapping related to his carbon dealings. Many fraudsters
sought relationships with big banks that could broker trades on carbon
exchanges. Mohammad Safdar Gohir, a British man who submitted more than €100m
in VAT-reimbursement claims to German authorities, called his contact at
Deutsche Bank his “golden goose”. Some scammers funnelled their spoils into
terrorism; evidence of profits from a VAT scheme were found in a cave once
occupied by Osama bin Laden.
In Zaoui’s
view, some of the newcomers were sloppy. He made sure that his new brokerage
was above board, at least on paper. By poaching traders and bankers from
serious financial firms, he manufactured a veneer of respectability; many of
his employees had no idea he was involved in fraud. His firm expanded to
include legitimate trading in crude-oil futures, gold, natural gas and metals.
Its analysts gave quotes to news agencies like Reuters. Zaoui told me that he
made €80,000 to €100,000 a day from legal business alone.
Meanwhile,
he was quietly doing what he had long plotted: taking commissions from
companies that used his brokerage’s services to skim VAT from carbon trades.
Zaoui estimated that he made hundreds of millions of euros from his illicit
business. “I made a colossal profit as a broker, and what I did behind the
scenes, nobody knew,” Zaoui told me. “The best way to go unnoticed is to be
noticed. Like Goebbels said, ‘The bigger the lie, the more people believe it.’”
In the
summer of 2008, Zaoui got a call from Igal Abikzer, the man who had first
introduced him to Kévin El Ghazouani. “You know El Ghazouani is making a
mockery of you,” Abikzer told Zaoui, according to legal documents.
Abikzer
proceeded to share what he knew: El Ghazouani never offloaded the companies he
ran with Zaoui. He retained control of the firms, including Crépuscule, so that
he could run the VAT scam that Zaoui claimed was his idea. El Ghazouani had
dumped Zaoui and was now in cahoots with Gustav Daphne. “Everyone in Israel
knows,” Abikzer said.
Abikzer had
also heard that El Ghazouani was going around making fun of Zaoui for his
misplaced trust, his naivety. For Zaoui, the betrayal was grating. So was the
revelation that Daphne had lied to him about being retired from scamming.
But there
were other things that Zaoui didn’t know. Daphne told me that when Zaoui asked
him for money in 2008, he had already set up a small apartment as an office in
Tel Aviv and recruited a team of guys he knew to orchestrate carbon trades and
funnel the stolen VAT to overseas accounts. Daphne was also using at least some
of the companies Zaoui thought only he and El Ghazouani were running. “He was
calling me, but he didn’t know I was already in,” Daphne said of Zaoui. “My
God, they are so stupid, these guys.”
Daphne
claimed that Crépuscule was his company from the start – something that, as far
as I knew, he had never said publicly before. He told me that he established it
long before carbon fraud was even possible; he initially used it to steal VAT
from phone sales. Daphne still wouldn’t give me the name of the friend he went
into business with while he was in prison, but based on what he was saying
about Crépuscule, the man had to be El Ghazouani. And if Daphne and El
Ghazouani were scheming together all along, that meant an unwitting Zaoui was
working for Daphne when he set up Crépuscule as a brokerage on Powernext.
Zaoui
suspected that El Ghazouani had betrayed him out of greed: Daphne had more
money than Zaoui did, and a bigger profile in the fraud world. As for Daphne,
Zaoui developed a different theory about his motives. “I was always with
beautiful women, I had beautiful cars, I was with people in the artistic world.
I didn’t hang out with thugs,” Zaoui told me. “I was naturally brilliant and it
pissed him off. And then he stole from me.”
Zaoui said
that once he learned the truth, he vowed to avoid doing deals with companies
linked to Daphne and El Ghazouani. It’s a war, he told himself. But as the
carbon market ballooned, it became increasingly difficult to discern who was
connected to what.
In the
autumn of 2008, Zaoui confronted El Ghazouani in Paris. Any lingering affection
Zaoui had for El Ghazouani was long gone. He was furious. “Listen, I know what
you’ve done,” Zaoui said. “It’s a shame, because we could have made a lot of
money.”
The first
entity in Europe to sound the alarm on carbon fraud seems to have been the CDC,
France’s state-owned bank. It was releasing millions of euros in VAT
reimbursements to bank accounts set up in countries that weren’t signatories to
the Kyoto protocol, and its employees got suspicious. According to
Marius-Cristian Frunza, a prominent VAT-fraud expert, between October 2008 and
the following June, the CDC sent 13 statements of concern about 35 companies to
Tracfin, the French government agency that analyses financial data for fraud.
During the same time period, BlueNext, the carbon exchange, sent at least nine
additional alerts.
Tracfin
decided to take the matter to the customs police, who began to tease apart the
carbon market’s layers of shell companies and straw managers, preparing cases
they could take to court.
By June
2009, French authorities realised that VAT fraud was rampant. At a loss for
what else to do, they announced that EUAs would be exempt from VAT, and they
shut down carbon trading for two days. France’s carbon market crashed.
When the
French accounting office tallied how much money VAT fraudsters had stolen, it
came to €1.6bn. Among the worst offenders were the people behind Crépuscule.
Data put together by Frunza shows that the company made trades amounting to 65m
tonnes’ worth of carbon – the same volume moved by financial giants Société
General and Deutsche Bank, representing half the allowances distributed to
French industries. All told, Crépuscule’s trades were worth €827m, and
prosecutors would soon claim that those same trades had been used to pilfer
€150m in VAT.
On 8
December 2009, the police came to Zaoui’s apartment in Paris. He immediately
knew who was on the other side of the door. A few days into custody, when Zaoui
had a chance to review the files in the case against him, he realised that he
was being investigated for Crépuscule’s crimes. The police had connected him to
the company through phone taps related to mobile phone VAT fraud, but El
Ghazouani had also been picked up for interrogation, and Zaoui believed his
ex-friend had given the police his name and intimated that he was the brain
behind the entire operation. Zaoui was pissed off. Why should he be held
accountable for wcrimes committed by a company that, in his view, had been
stolen out from under him?
In prison,
Zaoui could only shower three times a week, and the cell he shared with three
other men was tiny, less than 100 sq ft. One of the men, also suspected of
being a carbon scammer, knew Daphne. Zaoui asked the man if he had a phone
number for Daphne, and one Friday night Zaoui called him.
“Listen to
me,” he told Daphne. “I’m not asking you for money to pay my lawyers or
anything. I’m in this situation where this case isn’t mine, and you know that
very well. You took the companies over through Kévin [El Ghazouani]. Now Kévin
is blaming everything on me.”
Daphne was
silent.
“I am just
asking you for one thing,” Zaoui said. “Get me out of here. Tell me the story I
need to tell. A name, something to get me out.”
What Daphne
heard was a threat: if someone else didn’t come forward and take the fall for
Crépuscule, Zaoui was going to tell law enforcement everything he knew.
“Ah, OK,
Grégory Zaoui. I’ll call you back,” Daphne said lightly. Zaoui had contacted
him on a phone registered in Daphne’s legal name. After hanging up, Daphne
grabbed one of his other phones, a burner, and called Zaoui back.
“Listen,
you son of a bitch. First of all, you call me from jail? It’s not very nice,”
said Daphne. “Second of all, you can go as far as you want. If you want to
push, I can find a lot of things against you beyond this case. So cool down.”
But Zaoui
didn’t back off. He was miserable in prison. The only thing that could keep his
spirits up was Chirelle’s visits. She made him laugh and forget where he was.
They had sex surreptitiously in the visiting room. A few months into his
detention, they found out that she was pregnant, a miracle baby. Zaoui had to
get out of prison.
During
another interrogation, Zaoui told the police about how El Ghazouani had
betrayed him. He also gave the police Daphne’s name, and one of the aliases he
used to travel. He gave them Daphne’s phone numbers, his addresses, the names
of his businesses. Zaoui told them about a bar Daphne owned in Tel Aviv and
about his posh villa. Zaoui told them everything.
After
France discovered what the VAT scammers, including Daphne, had done with the
emissions-trading system, other European countries began uncovering carbon
fraud, too. Europol eventually reported that, across the continent, the total
amount ripped off by carbon scammers was €5bn. Frunza kept his own score; he
thinks the actual figure is closer to €10bn. “In some countries,” Europol
reported, “up to 90% of the whole market volume was caused by fraudulent
activities.” One national investigator told me that fraud placed the market in
existential peril from which it took years to recover. (The market is now
estimated to be worth €751bn; at the beginning of 2024, one tonne of carbon was
trading at an average of €80.)
In 2012,
Israeli police began pressuring Daphne to testify against a gangster for a
matter unrelated to carbon scamming. They picked him up for questioning and to
let him know they had their eyes on him. Daphne eventually decided that it was
better to serve out a sentence in France than be hounded by Israeli law
enforcement. He arrived in Paris on 9 January 2014. When his plane landed at
Charles de Gaulle airport, he had only a few essentials with him: a fur vest, a
crocodile-skin bag, a Richard Mille watch, a few thousand euros. The police
were waiting. When he saw them, he took out his passport. “Yep, it’s me,” he
said.
But the
authorities wanted him for more than his parole violation. Daphne was also a
target of an investigation focused on Crépuscule, and there was a warrant for
his arrest. He stood accused of running the brokerage’s carbon scheme and being
its main beneficiary. El Ghazouani and a handful of intermediaries and straw
managers were also investigated and arrested. Zaoui was indicted, too. If he
thought that providing information about El Ghazouani and Daphne would save him
from prosecution, he was wrong: French authorities said he was the mastermind
of Crépuscule’s operation. That meant he would be tried alongside the men he
said had betrayed him.
The
Crépuscule case moved slowly. Daphne spent over a year in pretrial detention
before he was released with an electronic bracelet, which was removed at the
end of 2015. After that he was required to make regular visits to court. While
he waited for the trial to begin, Daphne kept an opulent hotel room near the
Champs-Élysées.
As for
Zaoui, he stayed in Paris until a new investigating judge raised his bail.
Zaoui decided that he couldn’t stay. He fled to Los Angeles with Chirelle,
where they lived in West Hollywood. He and Chirelle finally got married; he was
still wildly in love with her. When he rode his motorcycle down LA’s wide
avenues, he felt like anything was possible.
When
Chirelle’s US visa expired, she returned to Paris in early 2016. There, French
police arrested her on charges related to another fraud investigation. Zaoui
was in Israel with their five-year-old daughter at the time. His lawyers in
France told him that if he surrendered himself, Chirelle would be released. Her
family put pressure on him. So Zaoui got on a plane, went to France and turned
himself in.
A few weeks
later, Chirelle came to see him in prison. He went to give her a hug, and she
pushed him away. She was angry. She had spent more than 40 days locked up, and
Zaoui could see that the experience had left an indelible mark on her. “It
wasn’t the woman I’d known,” Zaoui told me. “She had been transformed.”
(Chirelle and her lawyers declined to comment for this story.)
The
Crépuscule trial finally began in May 2017 and lasted several weeks. When the
convictions came down, El Ghazouani received seven years in prison, Daphne got
nine, and both men were fined €1m. (On appeal, Daphne’s sentence would be
increased to 10 years. He was also convicted of involvement in a separate
carbon-fraud operation and given six years.) The court couldn’t determine who
started Crépuscule; it could only confirm that the company was created in 2002.
Zaoui was
sentenced to six years and fined €300,000. He served three years. Chirelle
never came to see him. After getting out, he tried to move on with his life.
Under the conditions of his release, he couldn’t open a new business and he
would have to pay a portion of his income to the French state until his fine
was paid off. He wrote a book and staged a one-man show about his carbon-fraud
scheme. He ran for national office and lost.
Zaoui
doesn’t sleep much any more. He goes to bed around midnight and wakes up around
four. His parents have passed away. He doesn’t see his children often; he’s
estranged from Chirelle. There isn’t much to fill his days. He isn’t happy. But
at least the specter of imprisonment isn’t lurking over his shoulder.
“Freedom,” he told me, “doesn’t have a price.”
Reporting
for this story was supported by the McGraw Center for Business Journalism at
the Craig Newmark Graduate School of Journalism at the City University of New
York.
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