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Cattle laundering poses problems for supply chain due diligence
AML RightSource : October 02, 2020
For finding niches to exploit, financial criminals are experts. Much attention can be drawn to the use of small businesses as fronts, including barber shops or car washes as popularised by television serials, or indeed through larger institutions such as gambling houses or casinos.
However, on the radar for not only anti money-laundering experts and financial investigators, but also anti-drug agencies and environmental companies, is the phenomenon of laundering through cattle ranching. Particularly in Central America, where the term “narco-ganadero” describes the illegal narco-ranchers masking the raising and selling of cattle as a legitimate income for their nefarious activities, it is not only limited to this part of the world, and brings into questions wider-flung issues of drug trafficking and deforestation.
The continued spread of cattle-crime
In Central America, the ability for these individuals and groups to pose a threat to land owners and local authorities is simple and commonplace; the sale of cattle in the region is one of the only industries within agriculture that currently does not require itemized receipts. What this means is that the buying up of land to raise and sell cattle as a ‘legal’ rancher can be transacted using funds that are virtually untraceable and able to convert into private assets.
A complete lack in the tracking of the supply chain from ranchers to buyers is a monumental issue, and extremely difficult to separate meat that is being sold by legal farmers or criminals. In Nicaragua, as one example, Mongabay conducted an investigation into the extent of illegal cattle distribution. The traceability programme in Nicaragua is handled by the Institute of Agricultural Protection and Health, who identify legal ranchers and properties with unique codes, ear tags for cows, and municipal entities handle transport route documentation. One way in which cattle launderers can be more easily identified is the lack of this information – cows without tags in newly cleared areas.
Not only is the process of raising herds of cattle to slaughter to then sell as meat completely illegal in these cases, but human rights abuses are part of the cover-up, whereby indigenous and local farmers are turfed out of their property with little assistance from lawyers. This excavation of new land is also a major cause for concern in the loss of natural forest in Central and South America particularly. Even closer to the UK, money gained from other criminal exploits such as drug dealing and racketeering is becoming evident in farming communities in Ireland. Livestock sales are now “a new sanctuary for organised crime” with bank accounts of the farming community holding up to, or exceeding, a million pounds. It is a laundering market perhaps set to extend to all areas of the globe.
Indeed, banks and financial services institutions can find money laundered by these means difficult to flag as fraudulent cattle transactions combine trade and finance elements that can be missed by AML detection. Instead ACAMS suggests that financial companies should more proactively partner with experts in the agricultural space (herd inspectors and leaseholders for instance) in order to nullify the operation of these laundering schemes.
Of course, organised crime is the spearhead behind much of the operations; in Guatemala, launderers live in other parts of the country utilising a ‘caretaker’ narco-rancher for on-the-floor business. Cattle ranching acts as a front mainly for the narcotics business, namely cocaine. When dry bush and trees are levelled through arsonistic methods, the airstrips that appear are used for receiving shipments of the drug.
This Insight Crime article has looked into the extent of the drug business through cattle laundering and its effect on deforestation in the country; a June 2020 report by Texas State University found that in the space of 15 years, around 30% of the forest in Laguna del Tigre National Park was converted into lands for ranching, and an examination of deforestation in the Maya Biosphere Reserve found that 87% of which was purely due to illegal narco-ganaderos.
Elsewhere, researchers at Ohio State University found that 15-30% of annual forest loss in the areas of Honduras, Guatemala and Nicaragua in the past decade were due to cocaine trafficking. A staggering statistic that covers the hold that launderers and traffickers have on the agricultural industry.
One of the problems identified by Global Witness is the extent to which major players in the financial services space continue to pump money into destructive agriculture businesses. An excess of $44 billion was funded by over 300 investment companies, banks and pension funds into six huge operations between 2013 and 2019. In the Amazon, Congo Basin and New Guinea, cases of financing rubber and palm oil production leading to deforestation were noted, as was the financing of Brazilian meat company JBS by large investment players including Goldman Sachs, who held $4.5 million worth of shares in the company between 2018 and 2019.
Supply chain challenges
Buyers of meat products from such regions should have enhanced due diligence protocols in place to investigate their supply chains and financing, but this is clearly lacking.
The Mongabay investigation identified that McDonald’s – one of the largest foodstuff conglomerates – did not buy beef from Nicaragua, but four intermediary companies that do source meat from the second-largest exporter in the country (Industrial Comercial San Martín) refused to comment on the details of their supply chain. Nestlé and Cargill process beef from Nicaragua but claim that they could only trace their meat back to the slaughterhouse, but no stage of the process before.
The largest meatpackers in the world, the aforementioned JBS, did not respond to Mongabay’s questioning, but the Guardian has looked into its consistent criticism which highlights their problematic internal supply chain due diligence. The company’s lack of transparency has been questioned by authorities and environmentalists concerned with its links to deforestation in illegal ranching, after a decade of JBS failing to ensure severed ties with these parties, stating instead there is “no verification system” to identify indirect suppliers. Investigations have confirmed that cattle companies have struggled to monitor indirect suppliers who can use loopholes to check in and out of the system fairly easily. However, the company has identified that to date they have blocked over 8,000 cattle suppliers due to a lack of authorisation.
On one occasion in 2017, JBS was fined R$24.7 million (£4.2m) from the Brazilian government for buying 49,000 cattle from illegally deforested areas of the Amazon, in an effort to bring the problem to light. Further, in Guatemala, Petén Governor Luis Burgos has announced a clamp down of illegal landowners through law enforcement after quarantine measures lessens from covid-19 as another attempt to halt the spread of cattle laundering.
All this evidence indicates that vast amounts need to be done by production companies – and the financial institutions that back them – to halt their links to illegally reared and sold cattle through narco-ranchers, in turn related to drug traffickers and deforestation. A supply chain audit is certainly the start, but enhanced due diligence measures will be needed to assist with knowing exactly the source of these cattle ranches before they reach meat production – a tough ask in a very tough climate. The cases of banks and investment institutions financially backing eventual deforestation negates their committed sustainability drives too, which can also only be achieved through more complex AML investigations.