WIREDGOV

Brussels is designing a nature credits market with integrity rules but none on money laundering; its own carbon market shows what that gap can cost.

The European Commission’s expert group on nature credits is advising the Commission on how nature credits should work, and the UN Biodiversity Conference (COP17) opened in Yerevan on 19 October. The group has a workstream on ‘Governance and Integrity’, and, according to Bellona’s account of the group’s third meeting, the Commission has presented plans for a federated registry in which each credit carries a ‘digital passport’ leading to a full digital audit trail. That is serious work. What is missing is the question a financial crime investigator would ask first: who is obliged to know the customer?

What the Carbon Market Taught

The EU has built a registry-held environmental market once before, and paid for each gap separately. In December 2009, Europol reported that fraud in the EU Emissions Trading System (ETS) had caused ‘losses of approximately 5 billion euros for several national tax revenues’ and estimated that in some countries ‘up to 90% of the whole market volume was caused by fraudulent activities’; the fix was a change to VAT rules. In January 2011, the Commission suspended all transactions other than allocation and surrender in every national ETS registry after ‘recurring security breaches in national registries over the last two months’; the fix was registry security. And only from January 2018 were ETS allowances classified as financial instruments under the revised Markets in Financial Instruments Directive (MiFID II), bringing market abuse rules and anti-money laundering safeguards. Three gaps, three fixes, each after the loss.

A trafficking network channels proceeds through a front landholder whose biodiversity outcome nobody independent can audit; credits are issued against it, bought through a broker with no due-diligence duty, and resold. The money emerges as conservation revenue

The voluntary carbon market, which never received that third fix, shows what is left. RUSI’s own scoping study of July 2025 identified ‘limited know your client and anti-money laundering controls’ among its corruption risks.

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