While environmental issues are front and centre of public discourse, environmental crime often takes a backseat. Yet environmental crime impacts every country and is considered ‘low risk, high reward,’ meaning those who commit it face inadequate consequences despite reaping massive financial gains.
Environmental crime is one of the most profitable proceeds-generating crimes in the world, with the latest figures estimating it generates $110-281 billion annually, in line with the likes of drug trafficking and counterfeit goods. The repercussions of environmental crimes are far-reaching and potentially catastrophic, including climate change and ecological disasters, disease risk, food contamination, and negative impacts on human health including reduced life expectancy and death. And it’s not just the impact of the environmental crime itself - these nefarious activities fund non-state armed groups and militia, making up 38% of their income, and have links to human trafficking and slave labour.
Given its status as a growing threat, the European Union added environmental crime to its list of predicate offences in the Sixth AML Directive. However, it remains a difficult crime to identify due to its wide-reaching nature. This article looks at two areas in which organised crime groups (OCGs) have involved themselves, forestry crime and waste trafficking, and identifies ways for financial institutions to tackle the issue.
Illegal deforestation and logging 🌲🪵
Forestry crimes can generally be grouped into two camps: illegal logging and land clearing.
Illegal logging - When timber is harvested, processed, transported, bought, or sold in breach of laws and regulations
Illicit land clearing - The unlawful acquisition and clearing of land for farming, building or real estate speculation
Both of these types of green crime often involve deep-seated corruption, from illegally-obtained logging licences to illegal timber plantations. A recent investigation by the International Consortium of Journalists (ICIJ) exposes how unregulated the forestry industry is, with ‘green certifications’ being given to products linked to illegal clear-cutting and authoritarian regimes such as in Myanmar.
FINTRAIL highlights: Global Witness
Global Witness is an international NGO investigating the link between natural resources, conflict, and corruption worldwide. Watch our interview with Global Witness founder Patrick Alley, whose first campaign was exposing the illegal timber trade between Cambodia and Thailand, which was funding the Khmer Rouge guerillas.
Beyond the obvious destruction of wildlife and ecosystems, illegal logging destroys communities, causes human rights violations, and causes massive tax revenue losses for governments. Like in wildlife trafficking, intermediaries, exporters, and retailers stand to make the bulk of profits, with lower-level actors in the supply chain receiving only minimal amounts of the proceeds. As illegal logging is the most profitable natural resource crime in the world, bribery, fraud, and corruption are commonplace. Criminals have even resorted to hacking government websites to obtain permits.
One difficulty with identifying illegal logging is the tendency for criminals to commingle goods, blending illegal wood with legally sourced timber. Illegal goods like tinder are challenging to differentiate from their legal counterparts, unlike narcotics which are easier to identify.
FINTRAIL highlights: Tree Thieves: Crime and Survival in North America’s Woods by Lyndsie Bourgon
In an investigation into illegal tree cutting, Lyndsie Bourgon looks at the black timber market in the Pacific Northwest. Following three timber poaching cases, Bourgon incorporates interviews with police, former loggers, Indigenous communities and international timber cartels to illustrate the complex environmental and social issue. To join FINTRAIL’s monthly FinCrime Book Club and discuss great books like Tree Thieves with like-minded fincrime enthusiasts, click here or get details of the next meeting here.
Waste trafficking 🗑
Garbage is big money and dirty business. A grossly under-discussed crime, waste trafficking is a lucrative business estimated to generate $10-12 billion annually. Illegal activities concerning waste trafficking involve trade that violates import or export bans (for example, the Basel Convention, which bans the movement of hazardous waste from OECD countries to developing countries) or the illegal and improper treatment of waste through disposal, incineration, or recycling.
Both legitimate waste management businesses and criminal organisations can engage in illicit waste trafficking, with the latter often using legitimate waste management companies. With this strategy, criminals can easily blend illicit proceeds with legitimate funds, masking their nefarious origin. Criminals may also forge documents to mislabel waste as recycling or second-hand goods or to miscategorise hazardous waste as non-hazardous.
Illegal dumping
OCGs using waste management front companies employ sub-standard disposal or storage processes, sometimes engaging in illegal dumping. These practices have tremendous cleanup costs and pose a direct threat to public safety. One example that made headlines worldwide was the Camorra, an Italian mafia group centred around Naples, that burned toxic waste in the Italian countryside for decades, contributing to increased cancer rates. More recently, a 46-hectare site in Northern Ireland, known as the Mobuoy dump, was exposed as one of Europe’s largest illegal waste sites. As a result of Mobuoy, toxins have leached into the groundwater and river, causing serious health effects on communities and the ecosystem. Among the dangerous materials are asbestos and arsenic, with a cleanup cost estimated to be £100 million.
Sadly, because of the trajectory of global waste flows, most illicit waste ends up in the developing world. In its research, the Financial Action Task Force (FATF) identifies parts of Sub-Saharan Africa, Southeast Asia, and Central and South America as primary destinations. However, recent media reports have revealed Romania and Bulgaria as growing sites for illicit waste from Western Europe.
Aside from the environmental impacts, the waste industry has ties to human trafficking as a source of cheap labour. According to one non-profit organisation, two-thirds of modern slavery victims have worked within the waste industry in the UK. There is growing evidence that illicit waste trafficking is converging with other illegal goods, including instances of waste businesses used as a front for prostitution and drug trafficking. In one case, cocaine and other narcotics were hidden in garbage to avoid detection, before being shipped to Turkey.
Laundering the proceeds of environmental crime 💵
Money laundering methods for environmental crimes are similar to other predicate offences. Front companies and front persons are commonly used to commingle profits with varying degrees of sophistication, though experts have noted waste trafficking operations can be less complex than forestry crimes.
Like other transnational crimes, shell companies are frequently used to hide beneficial owners. In addition to intermediaries such as lawyers, accountants, trust and corporate service providers, freight forwarders and customs brokers play a notable role in facilitating the illicit trade. Trade-based money laundering techniques are also used, including forging import and export documents, under- or over-invoicing, issuing multiple invoices of goods, over-shipments and under-shipments, or the complete fabrication of transactions.
Case Study: Scrap iron
As reported by EuroJust, one OCG unlawfully acquired around 165,000 tonnes of scrap iron through iron recycling companies in Italy and abroad. The OCG declared the iron was imported from Germany, and reintroduced it directly into steel mills and the legal market.
A fake German business with connections to the OCG issued false invoices to acquire the scrap iron. The criminal network brought money into Italy, including €70 million in cash taken from German bank accounts. The funds were transferred between several fake companies managed by the OCG in Germany and other countries. The profits were invested either in the illicit trafficking of waste or laundered through legitimate activities such as the acquisition of a football team in Italy. Despite false documents, the scrap iron was never cleaned or recycled. The OCG also manipulated large quantities of special and hazardous waste, such as tar, obscuring its real nature with false certificates.
What should financial institutions be doing?
For financial institutions looking to strengthen their anti-financial crime programmes against environmental crime, assessing screening procedures is vital. Non-governmental organisations that focus on reporting and investigating environmental crimes can help firms identify bad actors, with links identified through adverse media screening. Additionally, financial institutions should consider putting customers involved in higher-risk industries such as forestry, wildlife, and waste management under enhanced due diligence measures.
At FINTRAIL, we combine deep financial crime risk management with industry expertise to optimise your anti-financial crime programmes. We’re here to support you in creating robust policies and procedures; refining, enhancing or testing your systems and processes; and providing context-based training to your teams. Get in touch to find out how we can help you fortify your controls against environmental crimes in a practical and efficient way.