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Money laundering through illegal pollution

Illegal pollution is the result of criminals trafficking and dumping industrial and radioactive waste, and often they launder the proceeds.

Napier AI
December 21, 2021

In Italy, they're known as the ecomafia. It’s a term for organised criminals who cause damage to the environment, mainly by illegally trafficking and dumping industrial and radioactive waste. Profits from the trade are often disguised through money laundering.  

In his 2019 book, The Outlaw Ocean, American investigative journalist Ian Urbina pointed out how the International Maritime Organization banned the dumping of illegal waste in the oceans in the early 1990s. Since then, he said, the practice has continued through “an underworld of global waste traders operating in the Mediterranean, Southeast Asia, and off the coast of Africa”.  

He explained how crime syndicates control this illegal trade: “The most infamous of these syndicates was the ‘Ndrangheta, a criminal organisation from Calabria, Italy, which sank hundreds of drums of radioactive waste in the Mediterranean and off the coast of Somalia, according to criminal prosecutors and journalists who investigated the matter,” he added.  

The sea around Italy’s southern region of Calabria is an area of particular concern. In a 2016 report, entitledNdrangheta: The Global Dimensions of the Most Powerful Italian Mafia, academics from the Universities of Essex and Southampton assessed the impact of this crime syndicate, pointing to the port of Gioia Tauro as a key cog in international trafficking of illegal waste. The authors, Anna Sergi and Anita Lavorgna, stated: “Particularly worrisome is the case of the so-called navi dei veleni (poison ships) or navi a perdere (ships to be lost); allegedly, 39 vessels were suspiciously sunk in deep waters around Calabrian coasts in the 1980s and early 1990s while transporting toxic and radioactive material.”

The worldwide cost of illegal pollution

Just how prevalent is the dumping of illegal waste?

According to the Financial Action Task Force (FATF), it’s extremely prevalent. In their 2021 report, Money Laundering from Environmental Crime, they claim that illegal waste trafficking generates an estimated US$10billion to $12 billion every year.

“The clean-up costs for governments from such crimes are often far more significant, as well as generating threats to public health and safety,” they add.

The report indicates that, in general, it’s North America and Western Europe where this illicit waste originates, while sub-Saharan Africa, Southeast Asia, and Latin America are the primary destinations.  

In some cases, though, there is no destination country, and trafficked waste is simply dumped at sea.

Hiding behind front companies

Like Ian Urbina, FATF points out how, in many advanced economies, it’s criminal syndicates which dominate illegal waste trafficking. In certain cases, they operate legitimate front companies working in waste management, but with vast illegal operations taking place behind closed doors. These companies tend to have ties to the import-export sector, ensuring that any false paperwork looks legitimate.  

In their report on ‘Ndrangheta’, the authors Sergi and Lavorgna alleged that many Italian companies in the construction and earth-moving sectors have links to the illegal dumping of toxic waste. In Lombardy, for example, up to 70 per cent of these firms “appear to be linked to ‘Ndrangheta clans”.  

Furthermore, violent intimidation means that much of the criminal activity around illegal pollution continues unchecked. “Between 2009 and 2012 in Lombardia alone, more than 70 intimidating acts featuring weapons and explosives were recorded,” the authors write. “But most victims did not file complaints.”

Certain criminals also set up shell companies to pretend they are offering legitimate waste disposal services. The Italian Unità Di Informazione Finanziaria (Financial Intelligence Unit), for example, recently exposed a metals and waste disposal company that, suspiciously, had reported no economic activity at all.

Shareholders were proven to have bought the company at well below its market value. Investigations also showed that payments had been made to other Italian companies already under suspicion for tax crimes, illegal waste disposal and money laundering. “Shipping documents were falsified to state that the cargo consisted of goods and raw materials, as opposed to waste,” FATF added.

The difficulties in prosecuting criminals

Unlike other environmental crimes such as logging, mining or the wildlife trade – where the raw materials have a financial value – industrial and commercial waste has no monetary value at all by its nature.  

This means that government authorities have no real financial incentive to crack down on the illegal practice. Should they discover an enormous dump of toxic waste in a lake, for example, they would be obliged to cover all the subsequent costs of disposing of it legally.  

There are other factors making this crime easier to carry out.  

When it comes to transporting illegal waste across international boundaries, for example, traffickers might wrongly classify the cargo as recycled materials, or disguise it by mixing it with legitimate waste material from the legal waste trade.  

Another way of circumventing the rules is to falsify the amounts of waste involved. “Some companies bearing a legitimate permit for handling waste may import much larger amounts of waste than their permit allows and either export it or simply dispose of it,” explains FATF. “This method appears to be most common in Europe, due to the lack of internal border controls.”

Despite the scale of the illegal trade, very few governments have successfully tackled the problem. FATF suggests this is down to toothless law enforcement agencies, a lack of regulation, and a lack of political will. The situation is further complicated by the fact that many crimes span international borders, falling under multiple police jurisdictions.

FATF worries that, too often, authorities view environmental crime as a conservation issue rather than a serious financial crime. To combat these crimes, they offer several recommendations:

  • They stress how law enforcement agencies and environmental protection agencies need to communicate with one another more effectively;  
  • They push for the ownership of non-financial businesses to be more transparent;  
  • They want government authorities that investigate money laundering and the financing of terrorism to have sharper teeth so they might “investigate and trace assets from environmental crimes”.  
  • Finally, they urge companies to strengthen the due diligence of their supply chains and financial flows.

But much of this depends on future changes in the law. Until then, there is another way to keep tabs on the illicit trade in waste trafficking, and that’s by following the trail of illicit financial activity it generates with anti-money laundering (AML) software. This is where Napier can help.

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Book a demo of our Intelligent Compliance Platform or get in touch to find out how Napier can rapidly strengthen your AML defences and compliance capabilities.

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