Belgian prosecutors highlighted the massive losses faced by EU governments from VAT fraud today after they charged three Britons and a Dutchman with money-laundering following an investigation into a multimillion-pound scam involving carbon emissions permits.

The three Britons, who were arrested last month in Belgium, were accused of failing to pay VAT worth €3m (£2.7m) on a series of carbon credit transactions.

European authorities believe the EU has lost at least €5bn to carbon-trading VAT fraud in the last 18 months. Europol, the EU's law-­enforcement operation, fears the fraud will be used in other areas, especially gas and electricity trading markets, after criminals found VAT fraud was one of the most lucrative financial frauds.

Pollution permits for businesses were launched in the European Union in 2005 in an effort to cut carbon emissions. But the lack of harmonised tax regimes across the EU has prevented the creation of an orderly market that eliminated fraud.

The fraud occurs when carbon credits are bought and imported tax-free from other EU countries, then sold to domestic buyers, charging them VAT. The UK allows credits to be sold without adding VAT, while Belgians must pay VAT when they buy credits. Once the transaction, or series of transactions, are complete, the sellers disappear without paying the tax.

The three Britons allegedly set up a firm in Tournai, in west Belgium, which bought the credits in Britain and sold them on to banks via an intermediary, pocketing the 21% VAT charged in Belgium.

The three British suspects deny the charges. Last August, the British tax office arrested seven people in London in a suspected £38m carbon market VAT fraud.

Several other EU states have raised concerns about the potential for fraud in the market. A European commission working group approved a proposal in December to apply a "reverse charge" mechanism to carbon trading to stop VAT fraud.

The move came too late to stop the an estimated £5bn believed fraud, which critics argue has largely to have been siphoned off successfully by criminal gangs. In December, French authorities arrested four people suspected of a €156m carbon carousel fraud on France's BlueNext exchange. Britain lost about £10bn from VAT fraud in 2006 and 2007.