Peter Singh Virdee was arrested earlier this week on a European arrest warrant, Scotland Yard confirmed yesterday.
Mr Virdee faces extradition to Germany and a 15-year jail term if found guilty of value added tax (VAT) fraud allegations worth around 100 million pounds, which he denies.
"Peter Singh Virdee, 43, a UK national, was arrested by officers from the Metropolitan Police Service's Extradition Unit on Tuesday January 10 at Heathrow Airport. He was arrested on a European arrest warrant on behalf of the authorities in Germany, where he is wanted in relation to tax evasion," a Metropolitan Police spokesperson said.
Mr Virdee appeared before Westminster Magistrates' Court on Wednesday and was released on bail.
A spokesperson from Carter-Ruck, the legal firm representing him, said, "Our client categorically denies these allegations; he has never been involved in carbon trading let alone in any kind of fraud."
"While he is happy to cooperate with the authorities he intends to defend himself fully against these allegations and the attempts to extradite him to Germany," the spokesperson
Prosecutors in Germany allege Mr Virdee was one of the "central organisers" of a criminal enterprise to defraud the authorities of VAT on carbon credits under the EU Emissions Trading Scheme.
The businessman, who has a property company based in London, operated "in the background" and took pains to conceal his identity, prosecutors claim.
He is believed to have used several aliases and was known within the group as "Batman", according to UK media reports. The German authorities have formally requested his
Mr Virdee is accused of operating a so-called "VAT carousel" scheme on EU carbon credits, under which traders export the credits from one member state to another in order to take advantage of EU VAT rules.
As exports, the sales are exempt from VAT, but the traders charge their customers VAT which they never declare to the authorities. The scheme ran from 2008 to 2012.
Prosecutors in the German city of Frankfurt have been pursuing the case for several years.
German prosecutors, who are not allowed to name suspects, claim in reference to Mr Virdee that he has extensive contacts abroad, in India and Pakistan among other countries.
Mr Virdee describes himself as the first Sikh patron of the English National Opera and a philanthropist via his Peter Virdee Foundation.