Environmental crime: The processes, definitions, parties and disruption involved in money laundering, from the recently released FATF report.
In July the global Financial Action Task Force (FATF) released its Money Laundering From Environmental Crime report, detailing the definitions, processes, parties and disruption involved in money laundering from environmental crime. The report provides insight into the multibillion-dollar black market of illegal forestry, land clearance, mining and waste trafficking that undermines global banking and environmental laws.
Money movement and processes
In 2018 the Rhipto Norwegian center for Global Analyses, Interpol and GI estimated that environmental crime generates $110 billion to $281 billion in criminal gains per year. The money flows in a variety of ways, from small, illicit logging operations using cash couriers to global waste trafficking networks concealed by complex shell corporations to move funds.
No matter the size, type or complexity of the crime, there is one constant factor: commingling. This process involves mixing illegal materials (logs, stones, precious metals, waste products) with their legal counterparts early in the supply chain process. The practice is enabled by corruption and weak regulatory oversight and is very difficult to detect, as the illegal and legal materials are impossible to distinguish once combined.
The FATF report includes specific case studies and diagrams that explain the money laundering processes for the illegal mining and logging supply chains in a range of complexity. The supply chain differs by situation, but a very simple process from start to finish may look like this: Workers illegally source materials, and companies or individuals of influence purchase the materials and then bribe the parties necessary to commingle the illicit materials with legally sourced materials. The now “legitimate” goods are ready to be sold for profit.
Outside of that “simple” process, criminals use a variety of laundering tactics across the supply chain process to make their funds appear legitimate. One method is the use of a front company, or a seemingly legitimate business, to commingle gains from environmental crimes with funds in that business’s accounts.
Another tactic is the use of shell companies to hide beneficiary owners by creating ownership webs and distorting involvement. In addition, trade-based money laundering can conceal funds by using falsified documentation related to the import and export of goods.
Lastly, criminals are manipulating regional and international financial sectors by integrating illicit funds and materials into specific trading and trade finance firms that already have irregular cash flow.
Disruption
To help combat this activity, the FATF recommends that countries institute the following five practices:
- Coordinated risk assessments involving environmental and AML agencies
- Clear and coherent legal frameworks (including criminalization of money laundering for environmental crimes that occur abroad)
- Guides for domestic cooperation
- Joint task forces and information exchange to identify and repatriate environmental crimes proceeds from overseas
- Consultation with the private sector to develop red flags
The report includes challenges, standards and case studies for each of the five practices and describes the potential impact of engaging the private sector and task forces in combat efforts. Download the full report for more details about the current state of environmental crime and money laundering.
A targeted assessment of your institution’s compliance with the Bank Secrecy Act (or BSA, also known as the Anti-Money Laundering Act) can help you identify and understand any gaps within your coverage. Contact RSM’s anti-money laundering and regulatory compliance team to determine how your institution and your BSA/AML program align with the FATF’s five recommended practices.
