In this blog, we talk to Alexandria Reid, a Senior Research Fellow at the Royal United Services Institute (RUSI), where she runs their organised environmental crime research programme, within the Organised Crime and Policing research group and focuses on global threats including illegal fishing and the illegal wildlife trade (IWT). Her research aims to equip policymakers and practitioners with the evidence base they need to craft an impactful and holistic response to environmental crime. Naturally, this requires a concerted focus on illicit financial aspects of those crimes.
What is the illegal wildlife trade (IWT) and why is it an issue for anti-money laundering (AML)?
What is IWT?
IWT is a specific type of wildlife crime which involves actions such as the sourcing, smuggling, trading or trafficking of protected species of flora and fauna, including their derivatives, for financial gain.
Wildlife trade becomes illegal when it violates national legislation and international legal frameworks such as the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) – the principal global agreement regulating international trade in endangered species.
IWT delivers high profits for organised criminals
IWT presents an issue for AML professionals because it is a high-proceed generating offence, and for criminals to access those illegal profits, they need to be transferred and laundered through the formal financial system.
What is the scale of IWT and why is it garnering so much attention currently?
IWT is one of the world’s biggest illicit trades
By some calculations timber trafficking alone is worth between $50 and $150 billion annually, with wildlife trafficking amounting to a further $7 to $23 billion a year. Although it’s hard to estimate the exact scale of IWT, known figures would suggest that IWT is the fourth-largest form of illicit trade in the world, after arms, drugs and human trafficking.
IWT involves organised crime and corruption
Wildlife trafficking has steadily moved up in the international security agenda over the decade for several reasons, not least because groups engaged in wildlife trafficking are often involved in other forms of serious and organised crime. Moreover, corrupt actors are involved in every stage of the IWT supply chain.
How has IWT been affected by Covid-19?
The most damaging impacts of IWT
We are in the midst of an environmental crisis that is characterised by three devastating, interlinked issues: biodiversity loss, climate change, and pollution.
Biodiversity loss threatens our ability to meet 80 percent of the Sustainable Development Goals (SDGs), including those on poverty, hunger, health, water, cities and climate. And, as RUSI has argued for some time, climate change is both an existential threat to humanity and a threat multiplier.
IWT contributes to the crisis in each of these areas, as well as posing a clear threat to public health by providing a vector for the transfer of zoonotic diseases.
Why does the current AML regime make financial investigations into IWT so challenging?
IWT is viewed as low priority
The biggest issue is that IWT is a low-priority crime compared to other predicate offences, from both a public and a private sector perspective.
Low numbers of IWT investigations in West Africa
Take, for example, RUSI’s recent research with financial intelligence units (FIU) based in West Africa – a region now at the epicentre of trafficking in elephant ivory, rosewood, and pangolin scales. Although most countries criminalise environmental crime as a predicate offence to money laundering, only one FIU in the region considers itself to be regularly involved in investigating IWT and only 58% referenced IWT in their national risk assessment of money laundering and terrorist financing threats.
Only three of the thirteen FIUs that responded to RUSI’s survey reported ever having conducted a financial investigation related to IWT. No country had completed more than one wildlife-related financial investigation, and none of those inquiries led to a prosecution for money laundering or another financial crime.
IWT should be treated like any other predicate offence
This pattern of low prioritisation of IWT is not unique to West Africa. FATF’s 2020 global analysis found similarly poor performance across the board, leading them to recommend that all countries and regulated entities assess their exposure to illicit financial flows associated with IWT.
To see results, IWT must therefore be treated like any other predicate offence.
What has changed since FATF’s 2020 report on IWT?
Too little really: there has been a lot of discussion about IWT, but most countries continue to perform poorly when it comes to investigating relevant cases.
Progress on FATF recommendations
Some examples of best practice are beginning to emerge:
- In 2020, Australia’s Fintel Alliance produced a report for the private sector including keywords and average values for products commonly trafficked in Australia. The indicators in that guide are designed to be used by financial institutions to review profiling and transaction monitoring programs to help target, identify and stop financial transactions associated with IWT.
- In November 2021, the South African Anti-Money Laundering Integrated Task Force (SAMLIT) published a national IWT typology based on data from suspicious activity reports (SARs). That report led to several cases being reopened, demonstrating the benefit of conducting that exercise.
- Also in November 2021, FinCEN released a notice to the private sector to enhance suspicious activity reporting and analysis related to IWT. The notice explicitly referenced environmental crime’s contribution to the climate crisis, as well as the indispensable role of corruption, in justifying why the US financial sector should focus on environmental crimes.
- Finally, the UK Home Office commissioned RUSI to lead an independent assessment of the UK’s response to the finances of IWT, which was released in January 2022.
How can financial institutions better observe guidance on IWT?
IWT threat assessments should be conducted
The most important action financial institutions can take is to conduct a threat assessment of their exposure to IWT. That assessment must be based on the understanding that every country is a source, transit or destination site for some form of IWT. We must move beyond the idea that IWT is just about certain species, such as elephant and rhino. The Fintel Alliance’s report focuses on illegal trade in indigenous reptiles, for example.
Information sharing on IWT
To help with this process, financial services organisations can join the United for Wildlife Financial Taskforce, which brings together over 40 financial institutions to act on information bulletins and red flags based on unique information provided by civil society. They can also provide practical advice on conducting a group-wide IWT risk assessment.
Incentives for law enforcement to act on IWT
At the same time, however, there needs to be an acknowledgement that law enforcement must be incentivised to act on SARs related to IWT. There is little point encouraging greater reporting by regulated entities unless there is a commitment to act on that intelligence.
What does the future of AML look like to you?
Legislative changes in the pipeline will help
I am particularly interested in the effects of incoming legislation such as the European Union’s Mandatory Environment and Human Rights Due Diligence, as well as anti-deforestation measures such as those introduced under the UK Environment Act. These laws stand to completely transform expectations of what constitutes reasonable due diligence, particularly affecting correspondent banking, credit and trade.
Dialogue between ESG and Financial Crime Compliance teams
Such concerns have traditionally been the remit of Environmental, social and governance (ESG) teams– not of financial crime and compliance staff.
Now the tables are turning. An increased awareness of the risk posed by organised environmental crime has created the need for an urgent dialogue between Financial Crime Compliance and ESG functions to avoid regulatory risk.
If you would like to understand how Napier can transform your compliance process to be more effective at combatting financial crime, contact us or book a demo of our intelligent compliance platform.