CN Rail says it will continue to co-operate fully with Canadian and U.S agencies after revelations by CBC News that the company agreed to repeatedly "flip" the same trainload of biodiesel fuel tankers back and forth across the border, which generated millions in biofuel credits for a Toronto company.

The Canada Border Services Agency and the U.S. Environmental Protection Agency are investigating findings the rail carrier agreed in June 2010 to facilitate the mysterious shipments. CN was paid $2.6 million to move the load between its yards in Sarnia, Ont., and Port Huron, Mich., generating billing slips and records suggesting high volumes of imports while knowing the cargo wasn't destined to stay in the U.S.

The shipments were at the request of Bioversel Trading Inc. of Toronto, which made millions repeatedly importing the same load of biodiesel into the U.S. to generate credits — legally exploiting what the company believes was a loophole in the U.S. green energy biofuels program.

"As required by law, CN discharged its common carrier obligation regarding these biodiesel shipments," CN spokesman Mark Hallman told CBC News in an email. "CN is not aware of any pending investigation of an alleged fraud. CN has and will continue to co-operate fully with Canada and U.S. border agencies and, if necessary, will supply them all relevant records and information demonstrating it complied with applicable laws."

CN won’t say where mystery shipments were destined

Canadian and U.S. border officials rely on CN's cargo manifests (and those of other bonded freight rail carriers) to monitor and secure cross-border rail imports and exports. 

The bills of lading filled out by shippers are supposed to clearly mark the origins and destinations of shipments. Yet internal CN emails show managers in Sarnia knowingly hauled the same biodiesel load essentially in circles — establishing tracks within their own rail yards as the intended destinations.

"Target is to get 25 flips across the border and back by June 30," wrote CN’s Teresa Edwards in a June 14, 2010, email. "Customer will be billing the cars through ebusiness and will be responsible to ensure that they are billed and that customs work is completed and ready for each border crossing." 

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A CN freight train is shown leaving Sarnia for Port Huron in Michigan. (Dave Seglins/CBC)

CN refused to answer directly what destinations were listed on its "mystery train" paperwork submitted to Canadian and U.S. border officials, or whether CN in any way alerted customs agencies that the shipments included the same imports and exports going back and forth across the border. The rail company also flatly denied that managers could have been manipulating CN's own internal computer tracking and billing systems to misrepresent the true path of the shipments.

"CN rejects as totally unfounded allegations that it manipulated documents or company systems while transporting these biodiesel shipments," CN’s Hallman told CBC News in an email.

CBC News obtained copies of a June 14, 2010, email in which Edwards, CN’s Sarnia transportation manager, gave detailed instructions to various employees on how to assign specially coded track numbers for the biodiesel train.

"Once automatic placement and release is done you can move them to the correct track in SRS that they are sitting on. The [track No.] WH99 in Port Huron and [track No.] A004 in Sarnia will trigger all the automatic reporting required to close out a trip and start a new one in the system," Edwards wrote. 

"This move has the potential to make a lot of money for CN so need everyone’s assistance to maximize the number of trips we make and ensure that it all moves smooth."

Edwards wrote a second, followup email two weeks later thanking local CN staff for their help. "Records show that we moved 1,984 cars total …This equates to approximately 2.6 million dollars of revenue for these flips across the border at Sarnia," Edwards wrote.

Questions over CN police role

"You’d think they would be suspicious of why this is happening," Jonathan Payne, a biodiesel trader with Ultra Green Energy Service based in Michigan, told CBC News. Payne and others who worked for a biodiesel producer called Northern Biodiesel called CN and the U.S. EPA in the summer of 2010 to report the train shipments, believing they were part of a fraud by Bioversel Trading Inc. of Toronto on the U.S. renewable energy credit system.

"It’s the same rail car number, the same weights, the same seals. You’d think they would question why this is happening over and over and over. You don’t have to be part of the biodiesel industry to think this is suspicious. They could have refused to do it," Payne said.

CBC News has found no evidence Bioversel or its partners broke any laws. Bioversel has explained in detail how the regulations in place at the time (which have since been changed) allowed for a lucrative business in imports, generation of green energy credits, exports, and ultimately the sale and retirement of various kinds of renewable fuels credits known as RINS – renewable identification numbers.

Essentially, Bioversel exported biodiesel to earn RINs at about 50 cents each, and had a partner company import the biodiesel to Canada, cashing in a different RIN, an ethanol RIN, worth mere pennies. Bioversel Trading Inc. said it was perfectly legal at the time to take advantage of this arbitrage, or variance in prices.

But some are questioning whether CN Rail should have delivered the shipments and whether the company’s private police force was adequately informed.

"I get that technically perhaps no laws were broken," Kelly Sundberg, chair of the department of justice studies at Mount Royal University in Calgary, told CBC News. "But at the same time, it would appear that CN was more than willing to take advantage of making some money on flipping a product back and forth across the border."

Sundberg, before becoming an academic, served 14 years as an investigator with what is today the Canada Border Services Agency.

"CN or any corporation that has their own policing department that operates in two countries should be operating to a higher standard. I would question why CN Rail police — if they were or weren't involved in this — had it been cleared? I think those are some questions that have to be asked."

CBC News contacted CN Rail police recently to ask directly whether its officers had ever been told about or consulted on the 2010 shipments, or whether investigators are interested in the CBC’s findings about the rail managers’ profit-making venture. A police dispatcher took CBC’s contact information and referred the CBC to CN corporate headquarters media relations, but the call was never returned.

"If I was [Public Safety Minister] Vic Toews, I'd be sitting down with executives of CN and the executive of CP [Rail]," Sundberg said. "Looking at any private corporation that had a police department operating on both sides of the border, and had the capacity to move large quantities of goods back and forth across our border. And really explore and perhaps develop what the responsibilities of these corporations really are.

"Maybe this is a case that'll act as a genesis for that sort of policy review, saying if you do import something or export something, there's an expectation that it actually is shipped, offloaded, transported to a new holder."

CBC News spoke to a number of CN’s front-line rail workers who said they expressed concerns at the time of the 2010 shipments — even asking managers in Sarnia if it was legal.

CN Rail's official code of conduct implores all employees to consider the legal, ethical and reputational implications of their actions, asking them to consider if they would "feel uncomfortable or embarrassed with the situation if it were reported to my supervisor or to senior management or covered on the front page of a national newspaper or as the lead story in a national newscast."

With files from Brigitte Noël and Jeremy McDonald