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Environmental crime is estimated to generate between $110 and $281 billion according to the World atlas of illicit flows (p.15). Forestry crimes account for the bulk of the estimate and environmental crime is now considered to be the third largest criminal sector after drugs and counterfeit goods.
In the UK, the Proceeds of Crime Act 2002 sets out that the act is to allow the recovery of ?property which is or represents property obtained through unlawful conduct or which is intended to be used in unlawful conduct?
This all-crimes approach brings in the proceeds of any crime, with the key section for financial services being part 7, the money laundering section of the act.
Since COP26 completed, we have seen some notifications about environmental crimes. FinCEN issued a notice on 18 November 2021 for environmental crimes and SAR filing. This notice covered wildlife trafficking, illegal logging, illegal fishing, illegal mining, and waste and hazardous substances trafficking. The previous day (17 November 2021), the EU had issued a proposal for regulation on deforestation-free products which would seek to minimise the risk of deforestation and forest degradation associated with products placed on the EU market.
While these are very recent notifications, possibly benefitting from a post COP26 announcement, the environmental crimes area has been steadily gaining focus over the last few years.
The UN and Interpol issued a report which covered environmental crimes in December 2016, where section 7 covered natural resources such as forestry, fisheries and minerals and the criminal abuse of those resources.
The Financial Action Task Force (FATF) has also issued two recent papers on money laundering and the illegal wildlife trade, and in the summer of 2021 it issued a report on money laundering from environmental crime. The reports highlighted that the ?low risk, high reward? nature of these crimes was a draw for criminals and organised crime groups.
The 2022-2025 priorities for the Europol - EU EMPACT (European Multidisciplinary Platform Against Criminal Threats) has environmental crime as one of the ten priorities.
Many of these crimes should be caught under existing legislation and allow the jurisdictions concerned to prosecute via domestic legislation. However, as the FATF report highlighted, the regulatory and legal system is not consistent in the global sense and the money laundering and financial aspects risk of these crimes is not fully addressed.
The corruption sanctions available to the US, Canada and UK could be used where there are public officials that are involved in or bribed to overlook environmental crime.
Any new thematic sanctions regime would be reasonably simple for financial services to deal with as these are very likely to result in an asset freeze and travel bans for those listed.
For now, the focus is on environmental crimes as a risk to supply chains and the links to money laundering. However, the old world of AML and Sanctions operating in silos is being broken down and these days a Venn diagram is more representative of the way the many financial crime disciplines interact with each other.
For a thematic sanctions regime to be directed at illegal logging, fishing or mining, there would need to be a foreign policy goal that was not being met, or one which couldn't be met by existing sanctions regimes.
Neil Whiley, Director, Sanctions Policy, UK Finance
Sustainable finance and environmental, social and governance (ESG) issues are top of the agenda of bank regulatory authorities, as is climate change risk and how this will impact banks.