A cleaner environment without cleaning money

This article was co-authored with Josh Mackenzie.

On 7 December 2021, President of the Financial Action Task Force (FATF), Dr Marcus Pleyer called for a global response to curb the laundering of the proceeds of crime caused from environmental criminal activity.

The FATF publications including Money Laundering and the Illegal Wildlife Trade in 2020 and Money Laundering and Environmental Crime in 2021 also align with Environmental, Social and Governance (ESG) standards that emerged from Goal 2 of the UN Climate Change Conference UK 2021 (COP26) commitment to protect and restore ecosystems.

The increased focus on environmental crime and the associated financial criminal activity, is a reminder of its impact on climate transition targets and the momentum for boards and senior management to be proactive with their ESG measures.

Anti-money laundering and counter-terrorism financing regulators globally, including the Australian Transaction Reports and Analysis Centre (AUSTRAC) are responding to the FATF’s call by educating and equipping reporting entities regarding the increase in environmental crimes and their contribution to money laundering activity.

Understanding the Risk of Environmental Crime

With ESG increasingly at the forefront for boards and senior management, it is important to appreciate the size and impact of, and responding to, environmental crime. Environmental crime is typically viewed among criminal perpetrators as a low risk – high reward predicate crime in order to generate criminal proceeds.

According to the FATF, environmental crime can range from illegal activities such as the illegal extraction and trade of forestry and minerals, to illegal land clearance and waste trafficking. Criminal networks can include organised crime and multinational corporations and rely on both the financial and non-financial sectors to launder their proceeds of crime.

The ‘illegality’ attached to environmental offending may also arise when certain environmental activities occur without government certification, approval or bidding and where tenders or other contracts are procured through corruption or fraud. The extraction of natural resources exceeding quotas or not meeting requirements and impacts on health, sustainable fauna and flora populations and ecosystems can also stimulate illegal environmental activity for financial gain.

In Australia there are various legislative and statutory instruments that apply criminal law regimes and directly or indirectly prevent criminals from profiting from environmental criminal activity:

	Illegal logging Illegal logging typically involves the harvesting, processing, transporting, buying, or selling of timber in contravention of domestic and international laws. In Australia, the Illegal Logging Prohibition Act 2012 (Cth) regulates timber products and the due diligence requirements in order to mitigate the risk of importing or processing illegally logged timber. The legislation also aligns with Australian policy priorities including climate change mitigation, reducing money laundering and alleviating the social costs of corrupt practices in developing countries.
	Illegal Wildlife Trafficking The Environment Protection and Biodiversity Conservation Act 1999 (Cth) regulates the movement of animals, plants and their products to and from Australia. Essentially, the legislation makes it illegal to export a living Australian native mammal, reptile, bird or amphibian to another country for a commercial purpose. In October 2020, AUSTRAC developed a guide to assist financial service providers and law enforcement agencies detect suspicious transactions associated with the illegal trafficking of Australian wildlife.
	Illegal Mining Illegal mining refers to mining activities that are undertaken without state permission (in absence of land rights, mining licenses, and exploration or mineral transportation permits), or mining activity with state permission obtained through corrupt means. State Governments typically have adopted various mining legislative and regulatory instruments to prevent illegal mining activities. For example, unauthorised mining in accordance with section 155 of the Mining Act 1978 (WA) can attract a penalty for a body corporate of up to $300,000 and a further $30,000 for each day the offence continues.
	Waste Trafficking Waste trafficking or environmental pollution covers the illegal disposal or export of waste and hazardous substances. The Hazardous Waste (Regulation of Exports and Imports) Act 1989 (Cth) regulates the export, import and transit of hazardous waste to ensure it is managed in an environmentally sound manner to minimise harmful effects on humans and the environment.

Responding to Environmental Crime

Developing a money laundering and terrorism financing risk assessment which considers environmental crime risk is an example of the types of controls reporting entities should consider. Depending on the type of environmental criminal activity, reporting entities should ensure their risk assessments adopt a combination of financial and criminal risk indicators to conduct further monitoring and identify if a suspicious matter report should be submitted to AUSTRAC.

For example, AUSTRAC’s Financial Crime Guide on Stopping the Illegal Trafficking of Australian Wildlife dated 15 October 2020 details some of the methods used by wildlife traffickers in Australia and provides a list of indicators that financial institutions should be aware of when reviewing profiles and transaction monitoring programs. These include:

1. International and domestic payment details may reference the animal species purchased and can be used for generating profiles and monitoring financial activity.
2. International and domestic payment details may reference the role of the individual being paid (which include coordinator, courier, domestic trader, driver/transport, money mule, overseas trader, and poacher).
3. Payments can be made to individuals, pet/animal related businesses or to family members/associates.
4. IP addresses and network port numbers can assist with identifying the location of offenders.

Ultimately, climate risks and any ancillary financial crime issues should be managed within an institution’s overall business strategy and risk appetite. Boards with a strong focus on a culture of compliance, should be able to evidence its ongoing oversight of these risks.