OMAHA (DTN) -- Genscape Inc., a third-party auditor of Renewable Identification Numbers, told DTN it was taken by surprise when the U.S. Environmental Protection Agency said it was prepared to revoke its auditing authority this week.
The EPA had created a voluntary program that allows third parties to audit RIN credits as part of EPA-approved Quality Assurance Plans, or QAPs, used to verify RIN validity. This was to help protect the RIN system in the Renewable Fuel Standard from fraud; about 12% of the total volume of RIN generated in the RFS program are audited by a third party under the plans.
In May 2012 the National Biodiesel Board partnered with Genscape to develop the industry's RIN integrity program. As part of that effort, Genscape launched the Genscape RIN Integrity Network dashboard.
EPA said on Thursday it was set to revoke Genscape's authority because the company had allowed 68 million fraudulent RIN to enter the market, at a possible financial loss to the company of about $68 million based on current RIN prices.
Genscape initially declined comment when contacted by DTN, but late Thursday issued a statement saying the company has done everything it can to alert EPA about the fraudulent RIN generated by two companies in 2013 and 2014: Gen-X Energy Group Inc. and Southern Resources and Commodities LLC.
RIN is a 38-digit code attached to every gallon of ethanol, biodiesel and other biofuels produced. Gasoline and diesel refiners and importers are required to either buy actual biofuel gallons or the credits attached.
Genscape's Susan Olson, managing director of agriculture and biofuels, said the company had itself initiated an investigation of the fraudulent RIN and turned the results of that investigation over to the EPA.
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"Accordingly, Genscape was taken aback by the terms of the notice letter received on Jan. 4, and by EPA's stated intent to revoke Genscape's registration as a third-party auditor under the QAP program and to require Genscape to replace all A-RINs generated through a complex, multi-state fraud perpetrated by Gen-X and SRAC in 2013," Olson said in a statement.
"Genscape believes it acted responsibly by investigating concerns identified through the implementation of its approved QAP plan, by turning over the results of that investigation to EPA, and by assisting the DOJ in its successful pursuit of a series of criminal convictions.
"Genscape disagrees strongly with EPA's conclusion that Genscape failed to fully implement its approved QAP program. Genscape believes that holding the company fully accountable for the crimes committed by Gen-X and SRAC by requiring the replacement of nearly 68 million RINs would far exceed the magnitude of the conduct alleged in the notice, which Genscape disputes."
In 2013, Olson said Genscape identified "certain inconsistencies" in Southern Resources and Commodities LLC's operations.
"Genscape proceeded to investigate those concerns and subsequently issued a notice of potentially invalid RINs. As part of the PIR notice, Genscape turned over the complete results of its investigation to the U.S. Environmental Protection Agency, office of transportation and air quality in April 2014, and continued to cooperate fully with EPA throughout this matter," Olson said.
Olson said the company also assisted the U.S. Department of Justice in a series of grand jury investigations. The DOJ eventually unraveled the full scope of the "sophisticated conspiracy perpetrated by the principals of Gen-X, SRAC, and several other individuals and shell companies."
Several employees with those companies were convicted and sentenced to jail. Genscape employees have not been charged in the cases.
Olson said Genscape's program proved to be a success in this case. "The unraveling of a major, complex fraud scheme where QAP was in play demonstrates the success of the QAP program," she said.
The EPA said Genscape will need to replace the invalid RINs by obtaining 68 million valid RIN and retiring them within 60 days.
The company has 60 days to submit comment to EPA.
If EPA revokes Genscape's ability to verify RIN, other biodiesel producers that use the company's services would need to switch to other auditors, according to EPA's announcement.
Read the EPA notice here: http://bit.ly/…
Todd Neeley can be reached at email@example.com
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