Published on August 30th, 2012 | by Andrew3
Offshore Financial Fraud May Bring Down World’s Largest Solar PV Supplier, China’s Suntech
Suntech’s freefall from being the world’s largest producer of silicon solar photovoltaic (PV) cells and panels continues, as new details regarding a $700-million investment fraud and business practices at Suntech’s Global Solar Fund (GSF) come to light.
An Italian court filed criminal charges against GSF Aug. 29 that could result in the dismantling of €80 million ($100 million) worth (more than 20 MW) of solar power projects in southern Italy that have been backed by Italian government financial support, Reuters reports.
The massive fraud at GSF could prove fatal to Suntech, which, up until recent solar power industry and market turmoil, was a favorite of the Chinese government, and one of China’s high-flying producers of crystalline solar PV cells and panels. The investment fraud also reveals the central role offshore finance and tax havens play in bilking governments and taxpayers of savings, investment capital and tax revenue.
Dirty Dealings in Clean Energy Finance
GSF is based in Luxembourg, which despite high-profile, international efforts to clamp down on offshore finance, remains one of the world’s largest offshore banking and tax havens. Suntech set up and owns 80% of GSF, the purpose of which is to develop solar power projcts in Europe. The remaining 10% is owned by GSF Capital, which is partly owned and managed by Javier Romero, the man who has emerged as the central figure in the fraud.
In this case, GSF pledged €560 million ($700 million) in apparently fake bonds with Suntech in order to secure a loan made to the fund. That loan helped GSF qualify for solar power project development incentives through an Italian government stimulus program that’s made Italy one of the world’s leading producers of solar power.
An Italian prosecutor in the southern city of Brindisi has charged five GSF subsidiaries with illegal construction of solar power plants. They’re accused of avoiding the required approval process in order to qualify for incentive payments for developing solar power projects, according to Reuters’ report.
More specifically, the GSF subsidiaries allegedly divided a 20-MW solar PV park into smaller units in order to avoid the more detailed, lengthy, and costly permitting process for solar power plants more than 1-MW in capacity. In some cases, management falsely reported completing the project construction so that they could qualify for incentive payments before a deadline.
The alleged fraud is a large and growing black stain on Suntech’s management, including founder Dr. Zhengrong Shi, who recently announced his resignation as Suntech president and CEO. Now Suntech’s executive chairman and chief strategy officer, Shi personally owns 10.7% of GSF.
In addition to the criminal charges, Suntech is facing legal action for its lack of disclosure regarding the alleged fraud. Suntech management hasn’t disclosed the Italian criminal charges and pending litigation to its US shareholders.
Several US law firms are suing Suntech on their behalf. Class-action lawsuits have been filed alleging that Suntech failed to properly disclose the financial workings of GSF and to monitor its business practices, according to Reuters’ report.
“Suntech management had the opportunity to disclose all potential problems associated with GSF when they announced the suspected fraud with the German bonds,” Reuters quoted Mark Bachman, a solar technologies analyst for Avian Securities in Boston.
A growing list of investors, as well as government authorities, are taking legal action against Suntech. “If there are now additional potential liabilities related to GSF activities in Italy that were undisclosed, then what little investor interest remained in the stock will be eroded,” Reuters quoted Bachman.