Feedstock Theft & Fraud

June 13, 2023

Print This Article Share it With Friends

by Ron Kotrba (Biobased Diesel Daily) Stolen used cooking oil and palm oil fraudulently disguised as waste feedstock are making headlines, but traceability platforms can help curtail illegal activity.

Used cooking oil (UCO) theft is nothing new. Ever since the material, which at one time restaurants paid to get rid of, became sought after as low carbon-intensity (CI) feedstock to produce biodiesel and, more recently, renewable diesel and sustainable aviation fuel (SAF), there have been unsavory characters stealing in the dark of night what isn’t theirs to make a fast, illegal buck. But a recent case of UCO theft in New York implicating a highly respected biodiesel producer in Pennsylvania, along with salacious allegations of fraudulent UCO exports and doubtfully innocently “mislabeled” waste-based biodiesel produced from contentious palm oil instead of byproducts, have once again brought the high-profile specter of shame on these otherwise noble sectors.

This April, six individuals were arrested and charged with conspiracy and the transportation and sale of stolen UCO in interstate commerce. According to the complaint, the defendants conspired to commit a series of UCO thefts from numerous restaurants in and around Monroe County, New York.

A year ago, in April 2022, police encountered several of the defendants pumping UCO in the middle of the night out of privately-owned holding tanks and into box trucks equipped with storage tanks. The deputies followed the box trucks to warehouses in Rochester, New York, where they observed the defendants offloading the oil.

During the execution of search warrants, deputies found more than 12,000 gallons of UCO worth over $73,000. Discovered records showed that the stolen oil was sold and shipped to a biodiesel refinery in Erie, Pennsylvania.

...

“As far as I know, both we and the aggregator are in the clear,” says (Chris) Peterson when asked whether Hero BX will be in any trouble for innocently purchasing stolen UCO. “We had an initial interview with Homeland Security, and we walked through our process with them. They asked, ‘How would you ever know?’ and we agreed.”

According to companies like Veriflux and Reiter Software, which offer feedstock-traceability platforms, there are new ways to know.

“Our software addresses this a few different ways,” says Dani Charles, co-founder of Veriflux. “One is traceability start to finish, not just for UCO collection but all the way down the supply chain to the producer.”
...

Kristoff Reiter, CEO of Reiter Companies, says there are a few different technology offerings this year. “The problem is that when oil’s worth $3.50 to $5 a gallon, it’s worth thieves’ time to make up records,” he says. In that case, what becomes important is analysis of the associated metadata to gauge the record’s authenticity.

...

It’s well known that organized crime is embedded in the UCO trade. ... It’s a UCO-laundering scheme, basically.

...

In February, the International Council on Clean Transportation issued a whitepaper on potential fraudulent UCO exports from Asia to the U.S. due to demand for low-CI feedstock created in American low-carbon fuel policies.

“It is important to remember that the physical and chemical nature of waste oil and drop-in hydrotreated fuels makes it possible to disguise virgin vegetable oil as waste oil,” ICCT stated. “Indeed, there have been documented cases of waste-oil fraud in the United States [and Europe] already … UCO is nearly indistinguishable from virgin vegetable oil and it is difficult for auditors to detect fraud using chemical fuel testing.”

The ICCT report notes that Asian countries export most of the world’s UCO.
...

It should be noted that ICCT advocates for the capping of how much UCO and animal fats should be allowed under certain biofuel policies, a move that many in the industry do not support, but which the organization believes will help curtail fraud.
...

In April, the International Sustainability and Carbon Certification system issued a notification about communications from stakeholders expressing concerns over a surge of “advanced biodiesel”—or biodiesel made from EU-approved waste feedstocks—imported from China “and produced from waste and residue materials that are at least partly supplied from Indonesia and Malaysia.”

This sharp increase began late last year and peaked this February, ISCC noted, “with serious implications for the European biofuels market and indications pointing to a potentially dubious or fraudulent origin of these trade flows.”

While biofuels made from virgin palm oil are not allowed under U.S. and EU biofuel programs due to sustainability issues and deforestation perceived to be linked with palm-oil plantations, byproducts from palm processing, such as palm oil mill effluent (POME), may qualify as waste under some policies. But what ISCC points out is that some of this “waste-based biodiesel” coming to the EU from China is labeled as having been manufactured in part from POME originating in Indonesia or Malaysia but instead may be made from palm oil.
...

In general, some feedstock records might look imperfect because they’re occasionally missing some metadata, but should they be excluded flat out? “No,” Reiter says, “because there are also in-betweens. There’s good, imperfect and in-between data. So, our system (Reiter Software’s Cooking Oil Service Tier, or COST) will work more like a credit market with triple As, single As, double Bs. Records will have a rating. I plan to define and publish the criteria by which we will score them, to be transparent.”

Other than criminal actors, most stakeholders in this space are well-intentioned, Charles says. “They understand [these incentives and credits come from] taxpayer dollars, so collectively we need to move the industry forward with more transparency around this, and more data sharing,” he says. “But actual implementation is the challenge. You need to have buy-in from industry and government. With better traceability, however, theft and fraud will ultimately be eliminated by market dynamics and enforcement. But it’ll take time to get there. We just need to have the patience to work collectively.” READ MORE

Related articles

Veriflux solves traceability-in-waste difficulty (Bioenergy Insight)
Veriflux partners with Indonesian UCO Exporters Association to enhance feedstock traceability (Veriflux/Biobased Diesel Daily)
Buffalo Biodiesel Suffers Four Thefts of Oil in Rochester, NY on December 22, 2023: The increase of thefts involving oil has become widespread across the US and locally in the Northeast.; Thieves Break Locks, Steal Thousands of Dollars Worth of Oil in Rochester, NY (Buffalo Biodiesel/EIN Newswire)
Fourth Department – Spoliation: Buffalo Biodiesel v. Blue Bridge Financial (Western New York The Daily Record)
Buffalo Biodiesel battles $20M loss from waste oil thefts (Buffalo Business First)
Buffalo Biodiesel Reports 96 Theft Incidents Between November 4th and 10th (2024) (EIN Presswire/KXAN)

Excerpt from Buffalo Biodiesel/EIN Newswire: Buffalo Biodiesel, a renewable energy company operating throughout the Northeast, announced that on or about December 22nd, 2023, employees encountered four thefts across the Rochester, NY area.

• Overtime Bar and Grill: locks were broken and 50% of oil stolen from a 175-gallon vat.
• Great Wall: locks were broken and 50% of oil stolen from a 350-gallon vat.
• New Chinatown: locks were broken and 80% of oil stolen from a 350-gallon vat.
• Ricci’s Family Restaurant: locks were broken and 1-% of oil was stolen from a 350-gallon vat.

In all theft incidents (incident numbers 23-020496, 23-224460, and 23-070508), individuals broke a lock and then are believes to have utilized a drum pump to remove used oil from the vats. Buffalo Biodiesel is working with the Rochester Police Department and Monroe County Sheriff’s Department for all incidents.

Buffalo Biodiesel operates across 12 states in the Northeast. Over the past several years, theft of oil from the company has become a rampant problem. In 2022, theft of oil amounted to lost revenue of over $15 million. This includes an average of 268 thefts per month across 3,000+ locations. Losses in 2023 are estimated at $20-25 million. However, it isn’t just Buffalo Biodiesel losing money, it’s also restaurants who are not getting the extra income for selling their used oil.

"Getting robbed is not fair,” said Buffalo Biodiesel President and CEO Sumit Majumdar. “Our customers are hard-working business owners – a majority of them small business – who rely on every cent possible to be successful.”

While the theft of cooking oil might seem strange to some, taking these materials to resell means big bucks to others.

“They’ll aggregate that oil and sell it through a broker, so that way, it’s kind of washed. And it’ll go off to a refinery, and they’re making a lot of money. Imagine a person in a van making $400,000 a year in cash – tax-free – all for cooking oil.” Majumdar said.

The U.S. Attorney’s Office is aware of how rampant a problem this is nationally.

“Legitimate businesses, known renderers, collect used cooking oil from restaurants in exchange of compensation and sell it to refineries so that it can be processed and recycled,” wrote the U.S. Attorney’s Office in 2019. “The rendering industry estimates that there is an annual loss of approximately $45-75 million dollars from the theft of used cooking oil.”

Buffalo Biodiesel has attempted to work with local, state and federal agencies to address this issue for years.

“Customers who have fallen victim to these thefts say that thieves are getting bolder, taking oil during regular business hours,” said Majumdar. “Part of the problem is lack of accountability even when apprehended by law enforcement. They're getting a slap on the wrist. That, coupled with a lack of motivation to address the thefts by many police departments and District Attorney’s Offices, are why it's expanding, that's why it's ballooning.” READ MORE