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Covid-19, illegal wildlife trafficking and money laundering
AML RightSource : May 26, 2020
The illegal wildlife trade may have been perceived as a relatively low-risk avenue of illicit funds by criminal organisations, but never has the detrimental impact of the illegal wildlife trade been more dire than against the backdrop of the current SARS-CoV 2 (coronavirus) pandemic. The pangolin, a relatively unheard of animal and one of the world’s most illegally trafficked mammals, is thought to be the likely suspect that passed on the virus to humans from bats. The coronavirus should accelerate focus on the illegal trade in wildlife, both from an economic and regulatory perspective.
Whilst the true scale of the illegal wildlife trade issue is difficult to calculate, the charity TRAFFIC quotes the UN, from a 2016 report, by placing the illegal trade at $7-$23billion annually. Although a new UN report is expected in 2020, the scale of the issue may have been under-appreciated outside of those tasked with tackling it, until now.
Momentum on the issue gained traction in September 2019, with a meeting between senior executives from the Financial Action Task Force (FATF) and Prince William (the Duke of Cambridge), along with Lord William Hague. The purpose of the meeting was to discuss how to build on the work done by Unite for Wildlife’s ‘Financial Taskforce’, particularly through focusing the attention of governments in tackling the illegal wildlife trade by going after the illicit money connected to it. A FATF guidance paper on the illegal wildlife trade is expected to be published in June 2020, which is likely help attract more attention on the issue following the effect of the pandemic.
This would be welcome guidance, especially as risks connected to illegal wildlife trafficking may be less known within financial institutions compared to more ‘traditional’ illicit activity and given funds connected to the trade do enter the financial system – companies used in the illegal trade still need to be banked somewhere, providing opportunity for vigilant compliance functions to detect parties and transactions connected to the trade.
Record seizure in Hong Kong
If ever an example of the scale of the issue was needed, one need only look at recent media reports about the biggest shark fin seizure in Hong Kong’s history. In early May 2020, it was reported that a staggering 26 tonnes of shark fins were seized in a shipment of two containers from Ecuador valued at $1.1million – officials claimed the value would have been much higher had the shark fins been of the highest grade. It was estimated that 90 percentage of the consignments was made up of approximately 38,000 protected ‘thresher’ and ‘silk’ shark species. The source of the containers was quoted as from the same shipper and to the same Hong Kong logistics company, with an arrest made of the owner of the logistics company. Officials had become suspicious when they noticed information on the containers was in Spanish and goods listed as “dried fish”, which they found unusual as they would typically expect it to be in English if foreign.
Whilst large shipments of illegally trafficked wildlife may be visibly easier to spot, less visible and more complex methods are much more difficult to detect such as ‘egg laundering’, a term even some astute anti-financial crime professionals may be less familiar with.
‘Egg laundering’ involves the smuggling of eggs of rare species with such sophistication that it is extremely difficult to detect. A recent report by National Geographic describes how poachers in South America take eggs from nests in the jungle which are then flown to Europe, typically Portugal, and from there they are taken to legitimate aviaries to be incubated and hand-reared. Once the chicks hatch, they are attached metal bands on the legs for life, which give the impression that they have been bred in captivity. With the metal bands attached to their legs and the impression they originate from a legitimate breeder, they can be sold legally anywhere in the world. It would be difficult to spot anything amiss, given the import-export paperwork would have the appearance of the birds being bred in captivity. The report further highlights the difficulty in detecting if such birds were bred in captivity because a DNA parentage test from the parent and the offspring would need to be conducted, by plucking feathers from each and sending off for lab testing. The report goes on to state that this is exactly what happened in one such case in Switzerland.
First-hand insights from bank investigations
Although financial institutions may be primarily placed to detect transactions indicative of illegal wildlife trafficking, the following account is from my own experience as part of an Anti-Money Laundering (AML) investigation into trafficking in rare bird species. It highlights how the risks of the illegal wildlife trade may be something that both financial institutions and bank staff may not fully appreciate.
When branch staff requested confirmation on whether a specific transaction could take place, they were surprised by my response that I would require further information – they had expected the larger value of the transaction would be given the all clear after a basic review, given nothing else appeared to stand out. The client owned a pet store and they “were only buying some birds from abroad.”, according to the bank branch. I had been very aware of illegally trafficked wildlife and as soon as I heard the words ‘bird’ and ‘abroad’, I was cautious.
Upon review of the financial institution’s AML Policy and Procedures there was no mention of the trade in wildlife. The client appeared to be relatively low risk and although there was no record of an on-site visit; transactions typically fitted that of a small to medium sized pet store, the website included pictures of the store and showed they sold typical family pets.
On the face of it nothing stood out about the business but given the potential for the birds in question to be rare species and potentially illegally trafficked, I asked the branch staff to make further inquiries, if possible, without tipping the client off. Information provided by the branch staff confirmed the bird species and that the client was occasionally involved in such transactions, on an exceptional basis for some of their customers. Upon checking the bird species in question, I found they were in fact protected under the Convention on International Trade in Endangered Species (CITES), the import trade for which is controlled by the issue of permits.
Colleagues in the AML investigations team and the branch staff were taken aback when I advised that for this specific transaction to take place, the bank would need to see CITES certificates as well as any other confirmation needed to gain comfort that the client is not involved in the illegal trade in wildlife. The branch staff nor my own colleagues in AML investigations had heard of CITES but fortunately on this occasion the transaction transpired to be legitimate – when the client returned to bank branch, anticipating the branch may make further enquiries, they brought with them all the necessary paperwork which was confirmed as legitimate.
This example highlights the lack of understanding and policies which may exist potentially within other financial institutions also and even amongst some anti-financial crime professionals. Future increases in regulatory expectations of financial institutions is likely to bring this issue to the forefront, in efforts to help tackle the trade in illegally trafficked wildlife.
The Future Of Tackling The Illegal Wildlife Trade
Given the source of the current coronavirus pandemic is believed to originate from potentially illegally trafficked wildlife, many should be taking extra note of the coming EU 6th Anti-Money Laundering Directive (6AMLD). The Directive names 22 offences categorised as ‘criminal activity’, one of them being ‘Environmental Crime’, where this type of crime would include wildlife also. Beyond regulation in financial institutions, the trade in both illegal and legal wildlife, such as for food and medicinal use, requires much reflection and further attention.