environmental crime
Editor's Choice Ethical Banking Europe

Digging Deeper: Unearthing the Roots of Environmental Crime

Environmental crime – such as illegal logging, illegal wildlife trade and waste trafficking – has become one of the world’s most profitable crimes. Understanding and managing your organisation’s exposure to environmental crimes is essential.

ComplyAdvantage is the financial industry’s leading source of AI-driven financial crime risk data and detection technology. Its mission is to neutralise the risk of money laundering, terrorist financing, corruption, and other financial crime.

More than 1000 companies rely on ComplyAdvantage to understand the risk of who they’re doing business with through the world’s only global, real-time database of people and companies. The company identifies thousands of risk events daily from millions of structured and unstructured data points.

Andrew Davies, global head of regulatory affairs at ComplyAdvantage, is a veteran of the financial crime risk management world. Before joining ComplyAdvantage, he served as vice president of global market strategy at Fiserv. Andrew works with customers worldwide to design and deploy effective risk management solutions to mitigate financial crime risks. 

Here Davies discusses the impact of environmental crime.
Andrew Davies
Andrew Davies, global head of regulatory affairs at ComplyAdvantage

In January 2021, deforestation in the Brazilian Amazon reached its highest point in 15 years. Preliminary data from January 2022, however, shows the destruction has increased five-fold, with an estimated 90 per cent of it being illegal.

Generating an estimated $110 to $281billion in criminal gains each year, environmental crime is growing at an annual rate three times faster than the world’s GDP. According to the Financial Action Task Force (FATF), inconsistent regulatory standards and legal environments worldwide have contributed to the ‘low-risk, high reward’ perception of environmental crime among criminals. As a result, regulators are taking action.

The impacts of environmental crime go far beyond financial costs to the economy or economic gains to criminals. Collectively, these crimes adversely affect our life support systems. From irreversibly polluting the air we breathe to threatening biodiversity and extinction, the threats of environmental crime are not only wide-reaching, they are time-sensitive.

As countries commit to meet the UN sustainable development goals (UNSDGs) and pledge to limit increases in global temperatures, anti-money laundering and combatting the financing of terrorism (AML/CFT) regulations have also been revised to reflect some of the latest criminal trends. For example, the most recent EU AML/CFT directive, 6AMLD, has added environmental crime as a predicate offense to money laundering. Additionally, FinCEN has issued warnings on wildlife trafficking, highlighting the critical role financial institutions play in protecting the US financial system from associated illicit finance.

But what can firms do to identify and manage environmental crime risks?
1. Increase understanding and awareness of risk

Effective understanding and awareness of financial flows connected to environmental crimes is key for all front-line staff. Through a thorough financial crime risk assessment, reporting entities can help map the common risk indicators within specific countries or regions. Firms should also consider their position in the global environmental crime supply chain and recognise common predicate crimes, including bribery, customs fraud, and gun trafficking.

The US’s Eliminate, Neutralize, and Disrupt (END) Wildlife Trafficking Act (2016) also contains a list of environmental criminal offences, including:

  • Destruction and trade in protected flora and fauna
  • Illegal, unreported, and unregulated fishing
  • Forest crimes and illegal logging
  • Production of ozone-depleting substances
2. Adopt enhanced screening practices

Organisations that conduct business with entities operating in areas at higher risk of ecological exploitation should ensure environmental crime factors are embedded into existing know your customer (KYC) procedures to build a more comprehensive customer risk assessment strategy.

Risk indicators include:

  • Prevalence of import-export and logistics companies
  • Transactions involving wildlife-associated entities
  • Convergence with gold, jewelry, precious metals, and antiquities
  • Overt or covert references to wildlife, wildlife parts, or wildlife products

Environmental crime risk triggers should also be embedded within a firm’s adverse media screening. In negative news search strings, terms related to green crime issues can identify environmental risk events when returning potential hits. Firms should speak with their data service providers to understand what additional sources are being collected and if they provide and tag negative press that covers environmental crimes.

3. Submit targeted suspicious activity reports (SARs)

FATF Recommendations 20 and 23 require that if a reporting entity suspects or has reasonable grounds to suspect that funds are the proceeds of criminal activity, it must report its suspicions promptly to a financial intelligence unit (FIU). However, in 2020, the FATF noted that suspicious activity reporting (SAR) had been underutilised as a source of intelligence to initiate or support financial investigations into environmental crime.

Suspicious activity reporting should be commensurate with a business’ risk exposure. In light of the FATF’s findings, firms may consider reviewing their reporting history to determine whether environmental crime activity is being missed or not treated with the appropriate level of urgency or understanding by front-line staff.

According to a notice from FinCEN, when filing SARs related to the proliferation of environmental crime, financial institutions should select SAR field 38(z) (Other Suspicious Activities – other). The most relevant keywords, such as ‘wildlife trafficking’, ‘illegal logging’, ‘illegal fishing’, ‘illegal mining’ or ‘waste trafficking’ should also be included in the narrative. Firms may also consider sharing information on suspected environmental crimes offenses to identify and report illicit financial activity.

Understanding and managing your organisation’s exposure to environmental crimes is a critical pillar of your ESG (environmental, social and governance) programme.

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