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We don't know the extent of it, who's behind it, or who will put a stop to it, but possible PRN fraud could cost the UK its ability to meet EU packaging waste targets and send PRN prices rocketing. Louise Hunt looks at why industry should care

Until recently the topic of PRN fraud was not one trumpeted in a press release. The actuality of underhand dealings may have been furtively debated since the dawn of the packaging waste regulations but there are few involved in the packaging waste business willing or able to talk frankly on a subject that may not just move, but collapse, the goal posts.

It would be fair to say that much of this reticence is to do with a lack of clear information on exactly how PRN fraud may be taking place and to what extent. Evidence remains anecdotal rather than prima facie and there is a sense among industry representatives that, until conclusive proof is unearthed, it is best to keep a low profile on the subject and not upset the apple cart.

There is, however, a catalyst behind growing suspicion that all is not quite kosher in packaging recycling. The 2002 reported recycling rates supplied by DEFRA and the Environment Agency show a steep increase in the amount of material being reprocessed. This could well be a highly commendable achievement but top performances from the wood and plastics sectors have raised a few eyebrows.

“The issue has been around since the start of the packaging waste regulations,” says Jeff Cooper, producer responsibility waste policy manager at the Environment Agency. “But it is only in the last six-nine months that concerns have really grown because the increase in the amount of material being reprocessed between 2001 and 2002 couldn’t be explained.”

The dubious results provided enough ammunition for the Compliance Scheme Working Group (CoSWig) to take the matter to Environment Minister Michael Meacher at the of end 2002. CoSWig – which represents the UK’s largest proportion of PRN buyers, formed of 13 compliance schemes – told Mr Meacher that abuse of the PRN/PERN system is currently undermining the UK’s ability to invest in the development necessary to achieve the expected targets.

Richard Barnish, CoSWig coordinator, explains why the reported recycling rates indicate a problem with PRN fraud.

“The reported recycling rates in various packaging materials have naturally increased from 1998 to 2000. What is surprising is the sharp rise in some of the sectors. Wood, for example, almost doubled from its 2000 rate to make 82% in 2002. It doesn’t seem realistic that there would be such an increase so rapidly in wood recycling.

“The other area where there seems to be suspicion is in plastics recycling. There appears to be a reasonably steady increase from 16% in 2001 to 22% in 2002. But the reason there is suspicion is that all previous reports have suggested that plastics recycling is very difficult and this table shows that we are already near the proposed final European obligated business target of 25%.”

At a meeting with DEFRA attended by the British Plastics Federation, CoSWig and other groups concerned, plastics reprocessors spoke out saying that they had grave suspicions over the issuing of fraudulent PRNs.

Says Alan Davy, general manager of reprocessor Linpac Plastics Recycling and BPF member: “I feel fairly sure that something is going on because the numbers don’t add up. A realistic rate of recycling growth last year would be around 10%. These figures indicate that there is a significant level of over-issuing.”

The problem is also in the number of PERNs issued for exported waste, which has seen a dramatic increase says Mr Davy. “Over half of the packaging waste obligations are being discharged in export – but where is this waste coming from? Historically, export material doesn’t hang about at the reprocessor for too long so it would be easy to miss when any checks are being made.”

There is also the case that, if all PRNs were legitimate, it is thought that their cost would be far higher, bringing about the much sought after funding for recycling infrastructure.

The CoSWig definition of PRN fraud relates to the issuing of PRNs for recycled materials that do not come from packaging waste.

“It’s important to remember that the numbers reported for recycling could well be legitimate recycling of plastics and wood. In fact they almost certainly are legitimate recycling,” says Mr Barnish. “The problem is that they may not be recycling of wood and plastics packaging. That’s why it’s difficult to find primary evidence.

“A plastics reprocessor for example will receive plastics waste from a supplier and it may be supplied in a form that he can’t recognise what it was. It may be shredded or chipped so he can only rely on the word of the supplier that it is entirely packaging waste. If this is the case, although it can be reported as recycling, it’s not packaging recycling.”

In this way cases of reprocessors unwittingly using recycled non-packaging waste may be widespread believes Alan Davy.

Reprocessors that are selling legitimate PRNs should be concerned over this practice for commercial as well as ethical reasons.

“If people are fraudulently selling PRNs then, presumably, it is cheaper material than packaging waste. Reprocessers selling the more expensive legitimate PRNs are being undercut. So it’s in their interest to get rid of PRN fraud because it levels the playing field,” says Mr Barnish.

Those members of the packaging industry not involved in reprocessing may be wondering what all the fuss is about, particularly when they have been able to vicariously enjoy cheaper PRNs.

Mr Barnish advises to think again. “If reprocessors are getting less money for PRNs there will be less money to invest into the recycling infrastructure that is needed to make the final European targets, yet to be set for between 2006-2008.

“Furthermore, if we find out that a large proportion of PRNs are fraudulent we’re going to have to take them away from the reported recycling targets, which means that we’ll have even further to go to hit the targets and less time to do it in. If this happens a year or so before the targets are due it could send the price of PRNs rocketing. CoSWig is trying to prevent this scenario by signalling the potential problem now.”

But the fact remains that, without firstly knowing if there is a problem, to what extent that might be and where to start looking for the perpetrators, those wishing to put a stop to it appear to be chasing their tails.

A lack of effective policing has been held up as a main reason why PRN abusers may be slipping through the net. At the same time, the accreditation agencies – the Environment Agency and SEPA for Scotland – have limited powers with which to punish offenders.

“If the Environment Agency finds that someone has been producing fraudulent PRNs they don’t have the power within the regulations to prosecute that company because the PRN is not a statutory instrument,” explains Mr Barnish. “If they find that a company should be obligated but isn’t registering they can take them to court – that is a statutory part of the regulations – but the PRN itself is not.”

The EA, however, can report fraudsters to the police. This has happened on two occasions, says Jeff Cooper, one for an exporter charged with selling PRNs for non-packaging waste, another for a reprocessor convicted of issuing PRNs before treatment, which could mean waste is sent on untreated. With the UK police so busy not catching burglars it is unsurprising that these cases were quickly closed.

EA’s greatest power lies in its ability to de-register a reprocessor who is breaking the rules. CoSWig has pledged to help strengthen the Agency’s hand by refusing to buy PRNs from any company found to be issuing fraudulent PRNs.

But first they have to catch them. A logical step forward is to implement an audit trail, says Mr Barnish, who points to the food industry mechanism whereby a certificate of conformity is required for each ingredient.

“If a similar system was in place between plastics suppliers and reprocessors, and that certificate could be traced back through the supply chain, then that would probably cope with the issue.

“You wouldn’t have to have the EA looking over your shoulder all the time. If there was a paper trail in place then a reprocessor would be able to keep hold of audit notes to prove legitimacy on a yearly basis.”

As ever, there is one small problem holding back such a solution – funding.

“An audit trail is the logical step but nobody wants to altruistically pay for it,” says Mr Barnish.

The Environment Agency claims that there is no money to audit reprocessors as there is no accreditation fee, unlike the fee paid by obligated companies.

Angus Macpherson, managing director of on-line PRN trading facility The Environment Exchange, disagrees that the problem is down to a lack of money.

“An audit trail could be paid for by agency fees, or inclusive in the PRN fee.

“The big issue is over who takes responsibility for controlling PRN fraud. Whether it’s a power struggle or a conceptual problem I don’t know but, until that stumbling block is uncovered, there is no way forward.”

The Environment Agency is currently reviewing its policy with regard to PRN abuse. The accreditation system is set to introduce more agency control over recycled packaging exporters.

These will be visited more frequently by agency staff who will receive extra training. Wherever the answer lies, the consensus among those willing to admit that PRN fraud is a problem is that the problem is unlikely to go away.

If anything, as material specific targets are introduced, it will become more attractive for people who want to partake in fraudulent PRNs to do so, says Mr Barnish.

“There will be an opportunity to make more money as demand increases and prices go up.

“If nothing is done about this issue now then, possibly fraud will increase and it will cost industry a lot more, the longer it is left.”