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Are financial institutions facing the ever-growing threat of environmental crime?
AML RightSource : February 18, 2021
The large house with high walls topped by razor wire in an upmarket suburb of Dar es Salaam, Tanzania’s commercial capital, had been under surveillance by the police for several weeks due to suspicious vehicles coming and going at odd hours. When the premises were raided, officers found three Chinese nationals in the act of packing 1.9 tonnes of elephant ivory tusks into sacks ready for shipment. A bribe of $50,000 in cash was offered to the arresting officers and declined.
Documents uncovered during a search of the house indicated that another consignment had recently been despatched from the location. Officers in the nearby port of Zanzibar were alerted and discovered a further 2.9 tonnes of ivory inside a shipping container bound for the Far East. The total value of the ivory seized in the two operations was estimated by the Tanzanian government at $5.9 million.
Follow-up investigations into the syndicate behind the shipments found that two front companies were registered at the address, ostensibly trading in agricultural and marine products. Bank accounts linked to both the companies and directors were identified, with a series of transactions uncovered with companies in Hong Kong and mainland China. It was clear that this network of companies and accounts had been used to cover the activities of a major ivory trafficking network. On a single day, half a million dollars in cash was paid into one of the Tanzanian accounts, but no suspicious transaction was filed. While the ivory packers and suppliers of the tusks were jailed, no money laundering charges were jailed and the leaders of the syndicate absconded to China.
The outcome is not surprising given the dearth of financial investigations and woeful lack of anti-money charges in cases of environmental crimes such as the illegal wildlife trade. A 2016 report by INTERPOL and the United Nations Environment Programme estimated that natural resources worth up to $258 billion were being stolen by criminals every year, and that environmental crime was growing rapidly, becoming the fourth largest type of transnational organised crime in the world.
Yet despite the huge profits being generated by illegal exploitation of the environment, the number of successful prosecutions involving money laundering charges is miniscule. Opportunities to track the proceeds and charge the syndicate bosses are being wasted. For example, a 2016 survey conducted by the UN Office on Drugs and Crime found that while 86 percent of the 45 countries surveyed reported being affected by wildlife crime, only 26 percent of the countries had conducted financial investigations into these crimes, and in only one per cent of cases where anti-money laundering laws were used.
As long ago as 2007, the Environmental Investigation Agency (a UK-based non-government organisation) produced one of the first reports to assess the scale and impact of environmental crime and released its findings at a meeting of the UN Convention against Transnational Organised Crime (UNTOC). EIA called for the same measures and tactics deployed against other forms of transnational crimes, such as financial investigations to be used against environmental crime, to reverse the high profit and low risk dynamic behind the surge in these crimes.
Recently it appears the tide is turning in terms of awareness and high-level commitments to tackle crimes against nature. The current climate emergency, biodiversity crash and clear threat posed to society by zoonotic viruses such as COVID-19 has given urgency to the issue.
At its meeting in 2020, the UNTOC parties agreed a resolution on environmental crime which included calling on countries to “investigate and prosecute the laundering of proceeds of crime derived from transnational organized crimes that affect the environment…. with a view to identifying, disrupting and dismantling the criminal groups involved.”
Yet statements of intent such as this still have to be transposed at the national level to be put into practice, and progress remains patchy. For example, Hong Kong is a major hub for wildlife smuggling and associated financial flows. Despite contraband wildlife valued at $98 million being seized there between 2013 and 2020 – including 22 tonnes of ivory and 70 tonnes of pangolin scales – the government still fails to include wildlife crime in its Organised and Serious Crimes Ordinance.
A decisive development could be the increased attention being afforded to environmental crime by the Financial Action Task Force (FATF), the global anti-money laundering watchdog. In June 2020 FATF issued its first report on the illegal wildlife trade and money laundering under an initiative triggered by the Chinese presidency of the organisation. It followed a consultative process with member countries and several NGOs including EIA. The report provided a useful synthesis of current knowledge on illicit financial flows linked to wildlife crime, including the common use of the formal banking system. The report also included a comprehensive list of red flags and recommendations.
Under the current German presidency, FATF has now turned its attention to analysing other forms of environmental crime, specifically illegal logging, illegal mining and the illicit waste trade. Its initial report of financial flows in these crime sectors is due to be released in June.
FATF’s attention on forest crime is especially welcome, given that the 2016 INTERPOL / UNEP estimated that these crimes, spanning illegal logging, timber trafficking and illegal conversion for commodities such as palm oil, generate criminal profits of up to $152 billion a year.
EIA has conducted extensive investigations into timber trafficking and uncovered widespread criminality and corruption in supply chains, generating huge illicit profits for the syndicates involved. Common smuggling methods include commingling with legitimate timber and misdeclaration. As is the case for the illegal wildlife trade, few examples of successful use of anti-money laundering laws exist.
In 2005 EIA exposed massive smuggling of merbau logs, a reddish-brown hardwood from Papua in Indonesia, to China for use in solid flooring. After improved enforcement by the Indonesian authorities the smuggling slowed, but subsequently EISA identified a resurgence in the trade led by a syndicate involving a police officer based in West Papua called Labora Sitorus. Investigations by the Indonesian Financial Intelligence Unit discovered the equivalent of $120 million dollars has passed through accounts linked to Sitorus. He was subsequently found guilty of illegal logging and money laundering and sentenced to eight years in jail.
Corruption is often a crucial enabler in forest crimes. For example, in 2014 the former governor of Riau Province in Indonesia was jailed for 14 years for corruption after illegally issuing logging permits, causing the destruction of 30,000 hectares of forests, costing the state $23 million in losses. In 2017 a field investigation by EIA revealed how 300,000 hectares of logs were cut from protected areas in Cambodia and smuggled across the border into the province of Gia Lai in neighbouring Vietnam. Kickbacks totalling the equivalent of $13 million dollars were paid to provincial officials by the Vietnamese timber companies involved. Increased financial investigations could play a key role in rooting out such corruption and identify the beneficiaries.
The growing attention towards financial aspects of environmental crime, while overdue, has the potential if turned into effective actions to disrupt the syndicates profiting from the illegal plunder of our planet. Both government regulators and private sector financial institutions have key roles to play in facing up to this challenge.