The link between environmental crime and money laundering

A recent post by RegTech firm Acuminor has examined the connection between environmental crime and financial crime and why it matters.

Underlining the connection, the firm said, “Illicit money must be earned for it to be laundered. However, it also naturally prioritizes a risk-based perspective in its work to mitigate the risks of products and services being used to launder money. The general work of understanding and preventing predicate crimes and criminal threats is left to law enforcement.”

Such an approach – Acuminor stresses – of each side prioritising and focusing on their respective areas of expertise has created siloed work environments resulting in an oversimplified understanding of financial crime. The private sector, meanwhile, looks for specific information of how the threats can impact their products, services and customers – looking for specific risks and typologies explaining how criminals can use them to launder money.

The company gave an example of China, who decided to abruptly ban the importation of plastic waste in 2017. Acuminor detailed, “At the time, assuming a bank had a plastic recycling company as a customer, it most likely would have noticed some changes in the customer’s behaviour, such as exporting its plastic waste to another country, changed business partners, and changes in transaction patterns.

“If the bank lacked contextual knowledge, a 2D circle perspective, the bank may have missed the opportunity to conduct any further assessment of the customer’s developing business. However, with some contextual knowledge, a 3D sphere perspective, the bank could have assessed the situation and learned that the reason China banned the importation of plastic waste was because much of the plastic was contaminated and too bad of a quality to recycle, and ultimately classified as ‘illegal shipments of waste’.”

Acuminor continued, stating that the bank would have launched a KYC review and assessed its risk exposure to waste trafficking crimes, “Even if the customer was able to find new business partners to recycle the plastic waste, additional questions should be raised, such as is the new country of operation a risk for other predicate crimes to consider, i.e., corruption or forced labour issues? Are there any other social issues to be concerned about, such as extreme poverty or pollution, two key indicators of the United Nations (UN) Sustainable Development Goals? The bank does not have to be an expert on plastic waste recycling, but these additional considerations create a wide-ranging scope that enhances money-laundering checks and controls.”

Many criminal organisations can often commit a range of crimes simultaneously to support each other – Acuminor stated it is feasible for a vulnerable person to be exploited for their labour to pick up your waste and dispose of it illegally.

The firm said, “Such a company could operate as a small and medium-sized enterprise using relevant financial products, such as a business account. Furthermore, such operations could include the use of a separate shell company that is used as a funnel account to receive illicit funds and redistribute them to additional accounts. These are scenarios that could be created and worked on theoretically by knowledgeable financial crime professionals, however, the search for contextual knowledge should be incorporated systematically, rather than relying on the spinning wheel of recruitment. The more contextual information you have, the better decisions you can make.”

For law enforcement and regulatory agencies, having a greater knowledge and understanding of products, general operations, customers and services of financial entities can aid in the development of more detailed and relevant indicators.

Acuminor added, “Would it not be more effective to collaborate more consistently with the private sector to release publications that state specific, detailed typologies? Rather than generally classifying cash as a high risk for its attributes, since banks cannot flag every cash transaction anyways, a risk indicator such as “a large cash deposit into an account belonging to a customer who is employed at an environmental or wildlife supervisory authority” provides more specific context that could indicate bribery, corruption, and illicit wildlife trafficking.”

Read the full post here.

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