by Susan M. Cooke and Bethany K. Hatef
On June 25, 2012, a federal jury in Maryland found the owner of a fraudulent clean energy production company guilty of wire fraud, money laundering and violations of the Clean Air Act (CAA). Rodney Hailey, the owner of Clean Green Fuels, LLC, was convicted of eight counts of wire fraud, 32 counts of money laundering and two counts of CAA violations in connection with his sale of fraudulent biodiesel renewable fuel credits. Mr. Hailey’s sentencing is scheduled for October 11, 2012. He faces imprisonment of up to 20 years for each wire fraud conviction; up to 10 years for each money laundering conviction; and up to two years for each CAA violation. While Mr. Hailey’s case marks the first criminal prosecution concerning the fraudulent generation of such renewable fuel credits, the Environmental Protection Agency (EPA) is currently investigating other cases where similar enforcement action may be taken.
As required by the Renewable Fuel Standard Program, EPA each year establishes the minimum volume of renewable fuel (Renewable Volume Obligation) to be produced or imported by refiners, importers, and most blenders of nonrenewable transportation fuel (obligated parties). Under EPA’s regulations which are set forth at 40 C.F.R. Part 80, Subparts K and M, a Renewable Identification Number (RIN) is assigned to each volume of renewable fuel that is produced, and the RIN is registered with EPA. After the associated fuel is obtained by an obligated party or blended into motor vehicle fuel, the RIN can be traded as a renewable fuel credit, either bilaterally or in private organized markets, and all transfers must be tracked on a system established by EPA and used to meet an obligated party’s Renewable Volume Obligation.
From March 2009 to December 2010, Clean Green Fuels, sold more than 32 million fraudulent RINs representing over 23 million gallons of renewable biodiesel fuel. In 2010, EPA received a complaint that Mr. Hailey’s company was selling fraudulent RINs. This sparked an investigation by EPA’s Air Enforcement Division in July 2010, and the U.S. Attorney’s Office for the District of Maryland filed charges against Mr. Hailey in October 2011 with respect to his fraudulent sale of RINs and his registration of Clean Green Fuels with EPA as a biodiesel producer when that company never produced any fuel.
In addition to its criminal prosecution of Mr. Hailey, EPA issued Notices of Violation to gasoline and diesel refiners, blenders, and importers that utilized Clean Green Fuels RINs to demonstrate compliance with their Renewable Fuel Obligations. EPA maintains that entities submitting false RINs for compliance purposes are subject to enforcement, regardless of whether they knew or had reason to know that the RINs were invalid. During April 2012, EPA settled with 28 of those parties, requiring them to replace the fraudulent RINs with valid RINs and to pay civil penalties.