Combatting Fraud in the Coal Industry

Learn more about likely frauds in the coal industry and what can be done to hold fraudulent actors accountable.

Despite projections over the past decade, coal remains a major force in the global energy market, accounting for almost 40% of electricity generation worldwide. It is also a sector with substantial opportunity for corruption, especially as it expands into new markets. Learn more about some likely frauds in the industry and what can be done to combat these practices.

Over the last decade, many publications have proclaimed “the death of coal” (OilPrice, The Atlantic, Business Insider) as the demand for clean energy rises. While it’s true that as the economics have improved for renewables, coal power capacity has significantly declined in both Europe and the United States, it seems clear that coal is not nearly in the death spiral many have claimed it is. Current estimates for global demand remain stable over the next five years, and coal remains a major fuel in the global energy market. According to a recent IEA fuel report, coal accounts for almost 40% of electricity generation and more than 40% of energy-related carbon dioxide emissions.

While in both Europe and the United States, coal power generation is lower than it has been in decades, this is countered by increased demand in Asia, where the Chinese market alone accounts for half of global coal consumption. And in recent years, there has been increased demand specifically in South and Southeast Asia, where countries like India, Pakistan, Indonesia, and Vietnam are relying on coal to fuel economic growth. The region’s share of global coal power generation accounted for almost 80% in 2019, as compared to just 20% in 1990.

The opening of new expansive markets for coal as well as its continuing global dominance in the energy market allows for massive opportunities for fraud in its various sectors, like mining, transport, and power plants. That’s why NWC has assembled key resources to assist potential whistleblowers and educate those who are interested in learning more about this issue.

What are likely frauds in the coal industry?

 The expansive global coal industry presents the opportunity for multiple types of fraud, from misleading investors to falsifying permits to making improper government procurements. What constitutes illegal activity and fraud is largely contingent upon the rules and regulations of a country. However, there are several strong U.S. laws with transnational applications that provide opportunities for prosecution in addition to local enforcement.

Here are some likely frauds in the coal industry:

  • Operating a mine, dam, or processing plant without proper permits or certifications
  • Making false statements to obtain a permit, lease, or loan
  • Falsely certifying regulatory compliance
  • Understating pollution to claim a tax credit
  • Misleading investors by overstating the value of assets, understating exposure to risk, or understating cleanup liabilities
  • Misleading investors about regulatory compliance or health and safety practices, policies, and results
  • Misleading investors about the viability of clean coal technology
  • Making improper requests for government funds for environmental cleanup
  • Underpaying leasing royalties
  • Bribing foreign officials or failing to prevent illegal payments made by subsidiaries

Are there any precedents for prosecuting fraud in the coal industry?

In the past decade, there have been multiple enforcement actions and investigations surrounding the coal industry. Several of these have had transnational implications.

In a major case in 2017, the U.S. Securities and Exchange Commission (SEC) charged Anglo-Australian mining company Rio Tinto and two former executive with fraud for inflating the value of coal assets in Mozambique acquired for $3.7 billion and sold a few years later for $50 million. According to the SEC’s complaint, “as the project began to suffer one setback after another resulting in the rapid decline of the value of the coal assets, they sought to hide or delay disclosure of the nature and extent of the adverse developments from Rio Tinto’s Board of Directors, Audit Committee, independent auditors, and investors.”

Based on the allegations, Rio Tinto and its executives were charged with violating the anti-fraud, reporting, books and records and internals control provisions of federal securities laws. The fraud came to light when an executive discovered that the assets were being carried at an inflated value on financial statements in January 2013 and issued a report to Rio Tinto’s Chairman, prompting an internal review.

In another major case, multiple executives of the French multinational company, Alstom, pled guilty to participating in a scheme to bribe foreign officials in Indonesia in 2014. The defendants paid bribes to a member of the Indonesian Parliament and high-ranking members of a state-owned and controlled electricity company in exchange for assistance in securing a $118 million contract to provide power-related services to Indonesian citizens. They attempted to conceal these bribes by retaining two consultants to provide services on behalf of the power company. They were charged under the Foreign Corrupt Practices Act by the Department of Justice (DOJ).

There have been a host of other enforcement actions, including a 2018 action against a coal company for faking coal dust samples, a 2011 SEC case against the former CEO and CFO of a Minnesota-based clean coal technology company, and a 2010 DOJ case surrounding the explosion at Massey Energy’s Upper Big Branch in West Virginia.

What laws protect those who come forward with information about fraud?

Potential whistleblowers often have more rights than they think. In recent years, a powerful suite of whistleblower laws has been enacted in the United States to enable private sector whistleblowers to report wrongdoing confidentially and to receive financial rewards for contributing to successful prosecutions.

Many of these laws have direct applications to likely frauds in the coal industry, and critically, they have transnational applications – you don’t have to be a U.S. citizen in order to receive protection or rewards.

In 2019, the whistleblower provisions of just one of these laws – the False Claims Act (FCA) – produced $2.2 billion in recoveries for the U.S. from companies engaged in fraud. Whistleblowers received $271 million for their contributions to these successes.

The FCA could prove highly relevant to the prosecution of certain coal frauds. The Bureau of Land Management (BLM) is responsible for coal leasing on approximately 370 million acres owned by the federal government. As a result, any attempts at bid collusion, as seen in a 2012 natural gas leasing case, are a direct FCA violation, and thus subject to enforcement and treble damages.

Additionally, a provision known as the ‘reverse False Claims Act’ could also be highly applicable here. It applies to instances in which a wrongdoer has prevented the government from collecting what it is owed. A relevant example concerns false statements on U.S. lease applications. In making a false statement on a lease application to the BLM, the company in question has kept the government from receiving proper compensation, and thus violated the FCA. Whistleblowers in multiple arenas have filed successful reverse FCA cases.

And it’s not just the False Claims Act that works. The Foreign Corrupt Practices Act, Dodd-Frank Act, and IRS whistleblower law have all seen significant success, along with the environmentally oriented Lacey Act. You can learn more about the specific provisions and applications of these laws in our Major Laws section as well as on our FAQ page.

Crucially, all of these programs allow for confidential reporting. The vast majority of whistleblowers choose to keep their identity confidential, and agencies make every effort protect the identity of the whistleblower so that they can report fraud – and still keep their job.

But it’s important to follow the designated channels. By going straight to the media or flaunting program rules, it’s possible that to forfeit whistleblower rights. That’s why the NWC always recommends retaining a whistleblower lawyer to help whistleblowers navigate this process and the complex sets of rules and regulations pertaining to whistleblowing.

How the National Whistleblower Center can help

Do any of the above types of fraud look familiar? Do you think you’ve witnessed, or you know of another kind of fraud not mentioned here? You could have a whistleblower case.

Providing legal assistance to whistleblowers is a top priority of the National Whistleblower Center (NWC). NWC’s Legal Assistance Program (LAP) helps whistleblowers exercise their rights in three ways. Through the LAP, NWC educates and trains potential whistleblowers; assists them in finding a whistleblower attorney; and supports high-impact whistleblower litigation.

NWC works with an independent public interest law firm, the National Whistleblower Legal Defense and Education Fund (“Fund”), which provides a secure intake form that allows whistleblowers to submit basic information about their case on a confidential basis.

Potential whistleblowers looking for a whistleblower attorney are encouraged to submit their concerns to the Fund’s intake site. Once submitted, the intake form will be reviewed by a highly qualified whistleblower attorney, who may make one of several recommendations.

If the Fund sends the intake form to NWC for its independent evaluation, NWC will carry out an evaluation to see if an attorney in its Cooperating Attorney Network may be able to provide assistance.

And in a limited number of cases, NWC may determine that the success of a case will be critical for strengthening whistleblower protections and combatting corruption. In this event, NWC may elect to make donations of staff time and money to support the case.

Working on these high-impact, NWC-supported cases provides three unique benefits to whistleblowers and the cause of whistleblowing:

  • We recruit top attorneys from leading private and nonprofit law firms to represent the whistleblower;
  • The law firms typically offer their services to whistleblowers with no upfront payment of fees or expenses, and charge contingency fees that are significantly below the market rate (Contingency fees are fees charged only if the whistleblower secures a financial reward); and
  • If the whistleblower prevails, an important precedent is often set that furthers the cause of whistleblowing, and the law firms donate a percentage of attorney fee recoveries to the National Whistleblower Center to advance its mission of whistleblower protection.

Although it is not a law firm and does not provide legal services, NWC supports high-impact whistleblower cases with communications and policy work and deploying its attorneys to work on cases at the National Whistleblower Legal Defense and Education Fund, one of the members of its Cooperating Attorney network.

If you want to learn more about how our legal assistance program works and how we could help you, you can learn more here.

And if you want to contact us directly with questions or to report fraud, here’s how:

  • Fill out our secure online intake form: Here
  • Contact us via email: help@whistleblowers.org

But before you contact us, it’s critical you know how to avoid potential retaliation. There are always risks to blowing the whistle. To reduce these risks, review our list of cybersecurity best practices here.

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