Genscape Must Replace RINs

Biodiesel Fraud Identified Early, But EPA Alleges Auditor Dropped Ball

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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The EPA has penalized an auditor in connection with a biodiesel Renewable Identification Numbers fraud case. (DTN photo by Greg Horstmeier)

OMAHA (DTN) -- EPA revoked an auditing company's credentials and is requiring replacement of fraudulent Renewable Identification Numbers, or RINs, alleging the company didn't do enough to prevent fraud committed by a Pasco, Washington,-based biodiesel company.

Genscape, auditor of RINs for the biodiesel company Gen-X Energy Group, asked the U.S. Court of Appeals for the Sixth Circuit in Cincinnati, Ohio, to review the EPA's decision stemming from the company's handling of a RINs fraud case involving tens of millions of fraudulent RINs.

On May 31, 2019, EPA issued a final determination to revoke Genscape's registration as a quality assurance plan, or QAP, auditor for the program. In addition, the agency required Genscape to replace more than 69 million RINs on or before July 30, 2019.

The appeals court granted Genscape's request for an emergency stay on EPA's determination.

The quality assurance plan is a voluntary program where independent third parties may audit and verify that RINs have been properly generated and are valid for compliance purposes. Refiners and other obligated parties to the Renewable Fuel Standard are required to either blend biofuels or buy the RINs. Each gallon of biofuel produced comes with a RIN attached to it.

"Genscape strongly disagrees with the EPA's determination, and has appealed the decision to the U.S. Court of Appeals for the Sixth Circuit," the company said in a statement to DTN.

"We are equally disappointed in the actions of Gen-X Energy Group, Inc. and Southern Resources and Commodities, LLC, and worked with the department of justice and the EPA through the legal process to ensure they were brought to justice. While we were also misled by their practices, we acted in good faith when conducting our business and had no part in their purposeful fraud. We will continue to pursue a better, more just, outcome."

Gen-X Energy Group President Scott Johnson, entered a guilty plea in November 2015 for fraudulently generating at least 72 million RINs between October 2012 and April 2015, based on renewable fuel that was never produced or fuel that was re-processed as feedstock.

EPA said in its determination that Genscape identified fraudulent activities early on but did not do enough to stop it or to replace the fraudulent RINs. Genscape was hired as an auditor for Gen-X in 2013.

"Despite its characterizations of using cutting-edge and robust monitoring technology, Genscape did not carry out the basic requirements of its QAP, ignored and failed to follow through on glaring signs of RIN fraud, and failed to meet the requirements of the QAP regulations," EPA said in its determination.

"While conducting routine QAP activities, Genscape saw highly anomalous transportation patterns of trucks entering and departing the facility. Those observations led to concerns that fuel was leaving the facility and re-entering the facility as feedstock in what is called a 'fuel-to-feedstock' cycle. Genscape essentially uncovered the fraudulent scheme at SRAC and documented its findings."

In April 2014, Genscape required Gen-X to take steps to correct fraudulent actions that were identified. However, EPA said Genscape didn't complete a number of requested measures to curtail the fraud.

"Genscape uncovered and documented extensive evidence of SRAC's fraudulent fuel-to-feedstock loop," EPA said in the determination. "Yet, instead of invalidating the RINs, in September of 2014, Genscape chose to ignore the obvious indicia of fraud and verified the RINs."

In an April 2017 response to EPA's concerns, Genscape said it "conducted multiple site visits, engaged in remote monitor and data collection, reviewed and analyzed producer-provided documentation, and compared monitoring data to producer-provided data" to fulfill auditing requirements.

The agency said in its determination that Genscape indicated it was aware of possible fraud concerns at the Gen-X plant.

"Genscape admitted in an email to EPA dated March 13, 2014, that the 'upstream and downstream supply chain complexity creates the risk of processed fuel re-entering the supply chain, especially where fuel is chemically similar to the original feedstock,'" EPA said.

"Genscape could not 'eliminate the possibility that renewable fuel has entered the feedstock supply chain.'"

Read more about the court case here:…

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Todd Neeley

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