The Financial Action Task Force (FATF) published a report on "Money Laundering from Environmental Crime" on June 28, 2021. Many environmental crimes, such as forestry crime, illegal mining, and waste trafficking, are included in the topics of this report. The report not only explains the ways in which money laundering is made from these crimes but also explains how the government should follow in order to prevent money laundering in such crimes.
Environmental Crime: What is it and how is it linked to money laundering?
Environmental crime refers to any illegal activity that harms the environment, including the trafficking of wildlife, illegal logging, illegal fishing, dumping of hazardous waste, and pollution. These activities not only cause significant harm to the environment, but they can also have serious social and economic impacts.
One of the major drivers of environmental crime is the huge profits that can be made from these illicit activities. Criminals involved in environmental crime can earn millions of dollars by illegally exploiting natural resources and trafficking wildlife and their products.
Money laundering is often used to hide the proceeds of environmental crime. Criminals use various methods, such as setting up shell companies, purchasing real estate, or investing in legitimate businesses, to make the proceeds of their criminal activities appear legitimate. Money laundering is a crucial part of environmental crime, as it enables criminals to enjoy the profits of their activities without the risk of being caught and prosecuted.
FATF Report Overview and Key Findings
Money laundering in this way has become a very lucrative move, as sanctions on environmental crimes are not sufficient in many countries. FATF defined these crimes as "low risk, high reward" crimes. Some sectors, such as mining, are well suited to exploiting the vulnerabilities of international financial systems. The FATF said, "The private sector also has an important role in detecting financial flows from environmental crimes. The FATF's study identifies good practices and risk indicators to help financial and non-financial sectors detect potential cases." the report's release highlights the role of the private sector in such transactions.
According to the data in the report, environmental crimes generate between $110 and $281 billion in criminal penalties each year. The three sectors on which the studies in the report focused:
- Illegal Mining: It covers mining activities without government permission. It is quite easy to make the revenues generated by this method appear legal, thanks to money laundering.
- Forestry Crime: It is the term that covers all the transactions made without the permission of the state in the forestry sector. All steps, from cleaning to logistics, are examined.
- Waste Trafficking: It includes the illegal export of hazardous or electronic wastes.
According to the Money Laundering from Environmental Crime Report, although there is no single solution for all these sectors, two generalized steps are given for each country. According to the report, countries should do two things firstly:
- All countries with and without domestic natural resources should consider the risks in such sectors for their own safety.
- Countries should increase cooperation between financial investigators and environmental crime agencies to share information and expedite investigations.
These priority steps are very important for the identification of potential risks/incidents and the analysis of subsequent actions.
Environmental Crimes and Countries
The report includes all relevant analyses, case studies, definitions, and necessary information. Looking at these case studies show how much environmental crime-based money laundering actually takes place. For the analysis, a questionnaire from 45 countries was distributed. Countries mentioned in case studies: Argentina, Brazil, the People's Republic of China, Costa Rica, Finland, Germany, Indonesia, Ireland, Italy, Madagascar, Netherlands, Norway, Peru, Singapore, South Africa, Turkey, United Kingdom, United States, and Zimbabwe. The questionnaire has titles such as Country perceptions of risk, national laws, and powers for money laundering and environmental crimes, asset recovery, and international cooperation.
Moreover, according to the FATF's statement, it was stated that the new report was prepared based on the "Money Laundering and the Illegal Wildlife Trade" report. According to the statement, FATF will intensify its research on environmental crimes and will hold a webinar on this issue in September 2021.
Case Studies: Examples of Environmental Crime and Money Laundering
There are many examples of environmental crime and money laundering around the world. Here are a few notable case studies:
- The Rosewood Case: In 2017, international trade in rosewood was banned due to concerns about the depletion of rosewood forests. However, illegal logging of rosewood continued in Madagascar, and smugglers used money laundering to hide the proceeds of their activities. A report by Global Witness found that Chinese companies were buying illegal rosewood from Madagascar and laundering the profits through shell companies in Hong Kong.
- The Elephant Ivory Trade: The illegal trade in elephant ivory has been linked to money laundering and organized crime. In 2018, Chinese nationals were arrested in Tanzania for smuggling ivory and rhino horn and laundering the profits through a network of shell companies. The investigation revealed that the syndicate had made profits of more than $4.5 million from the illegal trade.
- The Illegal Fishing Trade: Illegal, unreported, and unregulated (IUU) fishing is a major global problem that is linked to money laundering and organized crime. In 2020, a Spanish company was fined €17 million for its involvement in a scheme to evade taxes and launder money from IUU fishing. The company had used a complex network of shell companies and bank accounts to launder the profits of its illegal activities.
- The Dumping of Hazardous Waste: The dumping of hazardous waste is a serious environmental crime that can have serious health and environmental impacts. In 2006, the Italian mafia was found to be involved in the illegal dumping of toxic waste in southern Italy. The mafia had used a network of shell companies to launder the profits of their activities, which were estimated to be worth more than €1 billion.
These cases highlight the scale and complexity of environmental crime and money laundering and the need for global action to address these issues.