IMPORT INVESTIGATION

Prosecutors Go After Solar Mafia

File picture of workers walking among newly installed solar panels at a solar power plant in Zhouquan township of Tongxiang
Workers at a solar power plant in China. Photo source: DPA

German authorities are investigating a potential “solar power mafia,” centered on a group of German and Chinese business partners suspected of smuggling solar panels into Europe to circumvent EU tariffs.

The case highlights the tensions growing between the EU and China over trade and price dumping.

Handelsblatt and German news magazine, Focus Online, have learned that public prosecutors and customs officials are investigating the case, and focusing their energy on people working for the Chinese group Risen Energy, one of the world’s biggest solar panel makers. Their investigation involves people in the cities of Berlin, Bremen, Münster and Munich. The Customs Investigation Bureau in Munich and Münster are investigating 10 individuals suspected of having evaded €110 million ($119.5 million) in duties and taxes.

A spokeswoman for the prosecutor’s office in Nuremberg-Fürth confirmed that the regional court will question managers at its German subsidiary over whether cheap solar panels have been smuggled illegally into Europe.

“The charge against the responsible parties is based on commercial and organized tax evasion” she told Handelsblatt.

If convicted, the accused could face up to 10 years in prison.

“We can confirm that we are currently conducting 15 investigations in connection with evasion of anti-dumping and countervailing duties on solar panels from China”

European Anti-Fraud Office

The case highlights just how far Germany’s solar industry has fallen since the turn of the century. Back then, bolstered by government subsidies, when millions of Germans began screwing solar modules onto their roofs after the turn of the millennium, photovoltaic companies from all over the world achieved dream returns in Germany.

And one of the biggest winners was Risen Energy. At its high point, it was generating sales of €75.9 million ($82.5 million) per year in Germany alone, and the future appeared brighter than ever.

Then, suddenly, the party stopped. Within a year, sales at its German subsidiary plummeted by 99.6 percent. Risen Energy GmbH generated sales of just €300,000 in 2014.

The EU was to blame. The European Commission took action at the end of 2013 against what it regarded as anti-competitive conduct by the Chinese on the solar market. It decreed that anti-dumping duties must be paid. Imports of Risen modules to Europe stopped almost completely.

Customs investigators and prosecutors suspect that managers at Risen’s German subsidiary resorted to criminal measures out of desperation, and joined a gang of German and Chinese business partners that has been smuggling Chinese solar modules to Europe on a large scale for years.

The investigations concern papers that are presumed to have been falsified, cash-back payments and hundreds of suspicious containers. These contain solar modules produced in China that are thought to have been smuggled into the European Union via illegal trade routes.

In parallel to the German authorities, the European Anti-Fraud Office or OLAF is also investigating the solar sector. “We can confirm that we are currently conducting 15 investigations in connection with evasion of anti-dumping and countervailing duties on solar panels from China,” a spokesperson stated in writing in response to an inquiry from Handelsblatt.

A trade dispute with China has been smoldering in the sector for years.

Frank Asbeck, the boss of the now defunct German company Solarworld, has long argued that unfair competition from China destroyed his business.

“A plan is systematically being pursued here,” he said. He claimed that China consistently attempts to attain dominance over future-oriented sectors through dishonest practices, by firstly building up a huge amount of capacity and then trying to eliminate western competitors in a destructive price war.

Jost Wübbeke, an expert on Chinese trade, also believes that events in the solar industry reveal a pattern: “The government supports the rapid expansion of capacity. But expansion goes beyond demand. Innovation is meant to be created with old planned economy methods, and it goes wrong,” he said. “New excess capacity could soon arise in many high-tech industries that Beijing is specifically supporting. That applies to the construction of robots, for example.”

The trade dispute between China and the EU escalated in early 2013 after Chinese suppliers had taken the market by storm, leading to the insolvency and near-collapse of former major players such as Q-Cells, Solarworld, Sunways, Solon and Conergy. Thousands of German workers lost their jobs. After nine months of investigation, the European Commission concluded that the crisis was down to the impact of Chinese dumping on prices.

With the aid of unlimited government loans, it said, China had helped its domestic photovoltaic manufacturers to put modules and cells onto the global market at prices below production cost. On average, Chinese products were sold in Europe at prices that were 88 percent lower than the fair price, according to the Commission.

Provisional trade restrictions became permanent at the end of 2013. The Chinese promptly responded by opening anti-dumping proceedings against European wine, alloyed steel tubes and chemical products.

A compromise was reached, whereby all solar module manufacturers that agreed to maintain a minimum price, currently 46 cents per watt, would not have to pay punitive duties. However, although Chinese companies officially entered into the commitment, they are said to have found tricks to help them avoid the agreed minimum prices in practice.

The first signs of this emerged in 2015; customs investigators from Bavaria and North Rhine-Westphalia suspected that containers of solar modules from China were reaching Germany under dubious circumstances. Investigations were commenced, followed by extensive telephone surveillance. On August 30, 2016, 26 properties were searched, four people were arrested and assets worth over €0.5 million were seized.

Investigators suspected that, rather than being shipped directly from China, the panels were firstly smuggled to Taiwan, Vietnam, India, Thailand or Malaysia, where they were reloaded onto new ships. That would mean that their country of origin would no longer be reported as China and that they could thus be shipped to Europe duty-free.

In other cases, the alleged fraudsters were thought to have falsified the invoice values, issuers and recipients of the solar products from the beginning. Retrospective manipulation of the papers in the recipient country was also said to have taken place, in exchange for cash-back payments from the module manufacturers. The containers were often said to have contained significantly more modules than was stated, and the capability of the modules was often reported as lower than it actually was.

While the masterminds behind the fraud were suspected to be in China, the alleged evasion of taxes and customs duties would not have been possible without the active cooperation of German partners. The defendants include entrepreneurs based in Berlin, Nuremberg and Bremen. As well as tax evasion, they have been accused of professional smuggling; two cases have led to prosecution.

A spokesperson for the public prosecutor’s office of Darmstadt confirmed to Handelsblatt that two people will stand trial at the district court of Darmstadt for aiding and abetting tax evasion. Managers of Risen Energy GmbH will soon stand trial at the district court of Nuremberg-Fürth. The Chinese group denies any misconduct. “We never do anything illegal,” a spokesperson said. “We abide by the law. If it is necessary to cooperate with the German authorities, we will do our best.”

The European lobby organization EU Prosun estimates that about half of solar imports to Europe from China have been smuggled past the customs authorities. It says this costs European taxpayers up to €400 million each year.

Franz Hubik covers renewable energy for Handelsblatt in Düsseldorf. Sönke Iwersen leads Handelsblatt’s team of investigative reporters. To contact the authors: hubik@handelsblatt.com,iwersen@handelsblatt.com.

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