The report highlights the use of trade-based fraud and shell companies by criminals to launder proceeds from environmental crime.
The FATF (Financial Action Task Force) has published a new report identifying methods that criminals use to launder proceeds from environmental crime, as well as tools that governments and the private sector can apply to disrupt this activity.
The report was finalised at the fourth FATF Plenary under the German Presidency of Dr Marcus Pleyer on 21-25 June. The outcomes of the Plenary were published here.
“Environmental crime – such as forestry crime, illegal mining and waste trafficking – is an extremely profitable criminal enterprise, generating billions in criminal gains each year,” the FATF said. “It fuels corruption, and converges with many other serious and organised crimes, such as tax fraud, drug trafficking and forced labour.”
According to the report, light sanctions and limited efforts to follow and remove the profits generated from environmental crime make it a ‘low risk, high reward’ source of income for criminals.
In response, the FATF conducted a study to increase understanding of the scale and nature of money laundering threats from environmental crime and to strengthen the response across public and private sectors.
Building on the FATF’s work on the illegal wildlife trade, the new report shows that criminals are profiting by using front companies to mix legal and illegal goods and payments early in the resource supply chains, also relying on corruption, trade-based fraud, and offshore corporate structures to conceal the ultimate criminals benefitting from environmental crime.
The report says the FATF Recommendations provide effective tools to go after and disrupt illicit financial flows generated from environmental crime.
As a priority, the report says countries should consider the risks of criminals misusing their domestic financial and non-financial sectors to conceal proceeds from environmental crimes. This includes countries without domestic natural resources, given that criminals are known to hide proceeds from these crimes across regions, including trade and financial centres.
Countries must also strengthen inter-agency cooperation between financial investigators and environmental crime agencies, to detect and pursue financial investigations into environmental crimes. This includes working with foreign counterparts to share information, facilitate prosecutions and recover assets that are moved and held abroad.
The report highlights the need for greater transparency of beneficial ownership requirements and outreach and engagement to DNFBPs (designated non-financial businesses and professions) as crucial factors in combatting money laundering from environmental crimes.
The private sector also has an important role in detecting financial flows from environmental crimes, the FATF says. The report identifies good practices and risk indicators to help financial and non-financial sectors detect potential cases.
The report also provides detail on the convergence of environmental crime with other crimes, including tax crimes, smuggling of other illicit goods such as guns and drugs, corruption, human trafficking and terrorism.
The FATF will continue its focus on environmental crime moving forward, including to explore whether further policy work is needed.
The full report is available here.