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Waste Packaging Recycling Fraud

Recycling and the PRN System

The momentum behind the sustainability movement has drastically increased the obligations placed on UK companies to recycle waste plastic. Resultantly it is anticipated that by 2030 UK companies will be expected to recycle 70% of waste plastic material.

While companies who embrace the notion of ESG appreciate the economic and reputational benefits of recycling waste, the government's goals will cannot simply be achieved by goodwill alone. The targets are therefore underpinned by the Producer Responsibility Obligations (Packaging Waste) Regulations 2007 (the Regulations).

The Regulations place an obligation on companies who process more than 50 tonnes of plastic packing per year and have a turnover of over £2 million (Obligated Companies) to demonstrate that a proportionate amount of waste packaging has been recycled each year.

While some Obligated Companies achieve this by running their own recycling schemes many fulfil their responsibilities by the purchasing Packaging Waste Recovery Notes or Packaging Waste Export Recovery Notes (PRNs) from recyclers or re-processors accredited by the Environment Agency (Accredited Bodies) or by being a member of a recognised compliance scheme.

PRNs are issued to Accredited Bodies in return for recovered and recycled material. Essentially a PRN provides evidence that a specific amount of waste material has been recycled into a new product.

Once issued the Accredited Body can sell the PRN either to an Obligated Company or a compliance scheme. The PRN is then used as evidence that a tonne of packaging material has been recycled on behalf of the Obligated Company. The value of a PRN does however vary with the pressure placed on Obligated Companies to fulfil their obligations effectively driving up the value of PRNs.

Potential for Abuse

As the PRN system is effectively self-reporting it has been exposed to fraudulent behaviour.

Obligated Companies simply report the amount of waste it produces. Accredited Bodies upload details relating to the amount and type of materials processed to the National Packaging Waste Database (NPWD) and are subsequently issued with an appropriate number of PRNs.

At the most simplistic level Obligated Companies have been found to have misrepresented the amount of packaging they produce to reduce the number of PRNS they are obliged to purchase.

The EA has also observed Accredited Bodies uploading fraudulent information to the NPWD or discovered evidence of them bulking out consignments with contaminated or non-recyclable materials. The latter being particularly acute amongst Accredited Bodies who export waste as there is less accountability for the material once it has left the UK.

Enforcement Action

The EA has recently stepped up its enforcement efforts and has successfully pursued action against both Obligated Companies and Accredited Bodies.

For less serious breaches of the Regulations (particularly of Regulation 40(1)), the EA has the option to pursue enforcement action. Actions available to the EA include financial penalties through to Enforcement Undertakings. Enforcement Undertakings, commonplace in relation to pollution incidents, are a way for those responsible for a breach to proactively address the issue they have caused. This can be achieved by entering a formal agreement which ensures that the same laws are not broken again, and any environmental damage caused is completely offset or repaired (normally by the organisation making a financial contribution).

For cases of alleged criminality, particularly breaches of the Fraud Act 2006, the EA can seek to pierce the "corporate veil" and pursue criminal proceedings against directors and employees of an Accredited Body. Sanctions available to the Court include fines and custodial sentences. Additionally, confiscation orders to remove any benefit the individual has derived from their crime may also be used.

The EA also has the power to prosecute directors and / or employees of Accredited Bodies for conspiracy to commit fraud; pursuing individuals in this manner would require the EA only to prove that there had been an agreement to commit a fraud not necessarily that a fraud has taken place.

Conclusion

While enforcement action or criminal prosecutions for PRN fraud has previously been a rarity, the EA has recently displayed an appetite to pursue those abusing the system. The EA has recently moved to cancel the accreditation of several Accredited Bodies and issued letters indicating that the former Accredited Bodies and its directors are under investigation.

We would advise any Accredited Body or individual who receives such correspondence seeks independent legal advice immediately.

Forbes Solicitors' Regulatory Crime team can advise you on a variety of environmental matters. Should your accreditation with the EA be cancelled, or you receive notice that an investigation has been launched please contact either Craig MacKenzie or Jonny Hutchings.

For more information contact Craig MacKenzie in our Business Crime department via email or phone on 01772 220 022. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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