Money Laundering and Environmental Crime
Green crime, including forestry crime, poaching, illegal mining and waste trafficking, is of growing concern around the world. Proceeds from these activities fuel further serious crime, including tax fraud and drug trafficking. The FATF (Financial Action Task Force) has provided recommendations that both governments and private businesses can follow to disrupt this activity; however, very few countries have prioritized combating environmental crime, leading to an expected increase in green crime of between 5-7% each year as under-resourced bodies attempt to tackle this pressing issue. However, as environmental crime is often closely linked to money laundering, the funding of terrorist organizations, and other financial crimes, it is imperative that firms take action to prevent environmental crime now.
What Is an Environmental Crime?
The European Commission defines green or environmental crime as “acts that breach environmental legislation and cause significant harm or risk to the environment and human health”.
Environmental crime covers a wide range of activities, from the illegal removal and trade of forestry and minerals, illegal land clearance, the illegal capture or slaughter of animals, waste production and trafficking, pollution, unreported fishing, and other crimes. These crimes are common in low regulation nations where natural resources and wildlife are numerous and easily abused, e.g. elephant and rhino poaching in Southern Africa or the deforestation of the Amazon rainforest. Environmental criminals range from individual actors to large organized crime groups and multinationals. These criminals will often use the financial sector to launder the proceeds of their illicit activities.
What Is the Motivation Behind Eco-Crimes?
Environmental crime is as lucrative as illegal drug trafficking and other crimes, but sanctions are lower and activities harder to detect. This makes environmental crime attractive for organized crime groups, who may use the proceeds gained from the trafficking and exploitation of wild- and plant life to fund terrorism or other crimes. According to a study by Europol, the annual value of transnational environmental crime may be as high as 70-213 billion USD per annum. This makes environmental crime as lucrative as other crimes but at a lower risk as many countries do not have the specialist knowledge or resources to combat these activities. Finally, environmental crime is so prevalent because there is a huge demand for traditional medicine and exotic pets. Shark fins, rhino horns and animal products fetch higher prices than narcotics and gold. Similarly, there is a huge demand for exotic pets, including parrots and tigers, in countries like the United States, with collectors willing to pay premium prices for captured wildlife.
Eco-Terrorists and Money Laundering
According to the FATF’s report on Environmental Crime and Money Laundering, trade-based fraud and the abuse of shell and front companies created in order to launder gains from illegal logging, mining, and trafficking plays a significant role in money laundering. Criminals mingle legal and illegal goods early in the resource supply chain in order to conceal the illicit source of their funds, making it harder to detect suspicious financial activity at later stages of the value chain. The disparity in environmental crime laws and regulations from country to country and widespread corruption and bribery make environmental crime difficult to detect and prosecute. The low penalties enforced by governments as punishment for environmental crimes lead to the perception that these crimes are “low risk, high reward” for perpetrators. In many cases, poaching or waste trafficking is harshly and diligently punished and investigated, but money laundering associated with environmental crime is not. In Asia-Pacific, money laundering offenses represent just 1% of all environmental crime investigations.
Anti-money laundering authorities must continue to build working relationships with environmental crime investigators and protection agencies in order to combat these nefarious activities.
The FATF has asked that:
- Members of the FATF Global Network should consider whether or not criminals are misusing their financial sector to launder money generated through environmental crime;
- Members strengthen their capacity to detect environmental crime through information-sharing and the effective recovery of assets moved or otherwise held abroad;
- Countries and financial institutions implement FATF standards to combat money laundering, including reaching out to intermediaries such as precious metal dealers and company service providers.
Signs of an Environmental Crime
Financial institutions need to be aware of the red flags associated with environmental crime in order to not only disrupt these crimes but to avoid becoming unwitting participants in unlawful operations that may lead to penalties or reputational damage.
Compliance officers should keep an eye out for the following warning signs:
- Incomplete or missing customs/shipping documents submitted by clients
- Trade-in plants/animals that may be listed as protected per CITES and other wildlife organizations
- Shell companies will opaque beneficial owners, tax havens, or convoluted corporate structures that may act as intermediaries or smoke screens for environmental criminals
- Inconsistent activities, particularly variation in the number of transactions conducted by the client’s business
- Trade transactions to finance extractive business, especially in high-risk jurisdictions
- False or suspicious statements on customs and shipping documents, bank loans or letters of credit
- The clients’ stated business is to export environmental materials, but the value or volume is in excess of what is typically available in the region.
- Numerous cash withdrawals and cash deposits especially requests for large denomination banknotes
Conclusion
The private sector has an important role to play in combating and stifling the financial flows that originate in environmental crime. By strengthening awareness of environmental threats, understanding customer risk profiles (especially within resource supply chains) and deploying technology to detect suspicious activity, the private sector may well provide the barriers necessary to stop environmental criminals and their activities in their tracks.
