There is a variety of risks involved for organizations if they fail to recognize the importance of risk prevention relating to illegal wildlife trade. What are the drivers that bring managing illegal wildlife trade risks to the forefront?
Key Organizational Risks Related To Illegal Wildlife Trade
Despite the fact that threats to wildlife and plant species come from a variety of sources, including pollution, deforestation, habitat destruction, and climate change, wildlife trafficking contributes significantly to the problem by poaching, harvesting, or depleting significant quantities of already endangered or at-risk species. Wildlife, animal parts, and plant trafficking have far-reaching consequences, not only for the species involved, but also for human livelihoods, biodiversity, and governance.
Because of the diverse and significant implications of wildlife trafficking, conservation of wildlife, forests, and fish must be part of a comprehensive approach to achieving poverty eradication, food security, sustainable development, including the conservation and sustainable use of biological diversity, economic growth, social well-being, and sustainable livelihoods.
The first and probably the most important driver are regulatory fines. Regulatory rules are constantly evolving and expectations increasing as to what a reasonable risk-based anti-money laundering program looks like. Examination and testing experiences are also increasing in number, frequency, depth and intensity. The standard expected by regulators has largely shifted from accepting good or common practice to expecting the highest implemented standards as the norm.
The legal framework tied around illegal wildlife trade as it relates to financial crimes such as money laundering is tightening. For example, illegal wildlife trade is recognized as a predicate offense to money laundering in almost 80% of the jurisdictions which responded to the Asia Pacific Group on Money Laundering.
On a wider scale, and according to a study that assessed the anti-money laundering laws of 110 jurisdictions, 62 per cent of jurisdictions met political commitments made at the UN to ensure that offences related to the illegal wildlife trade are treated as money laundering predicate offences.
Not meeting regulatory expectations relating to the prevention of money laundering – which is certainly in conjunction with its predicate offenses such as drug trafficking, arms trafficking, human smuggling, and illegal wildlife trade – exposes organizations to the risk of being handed significant financial penalties. We can see this quite impressively at the numbers of recent enforcement actions for the year 2019.
According to an analysis by the Encompass Corporation, the U.S. are top of the list. Their regulators have imposed 25 AML related penalties adding up to 2.3 billion US-Dollar. British regulators took second place globally issuing 12 penalties totaling almost 400 million US-Dollar. France had the highest single AML fine of 5.1 billion US-Dollar. This was down to Swiss bank UBS after it was found guilty of illegally soliciting clients and laundering the proceeds of tax evasion. But even this fine still does not trump the 8.9 billion US-Dollar AML fine issued in 2014, which saw France’s biggest bank fined by US regulators for transferring billions of dollars on behalf of Sudan and other countries blacklisted by the US.
Looking across the board, the average monetary fine was 145.33 million US-Dollar in 2019 and only under half of these were given to banks. Meaning that the remainder was given to non-bank businesses and organization. This is quite interesting, because historically, the majority of these fines have been given to banks, but this year the proportion was less than half, demonstrating that money laundering is now recognized as a general business issue, not just one that is specific to financial services.
For example, regulators in the gambling and gaming sector were particularly active in 2019, handing out five fines, all of which were well over 1 million US-Dollar and the highest being 7.2 million US-Dollar.
Legal Liability Risk
The second driver relates to the legal liability risk that organizations might face if they’re involved in illegal wildlife trade and held accountable for it. For example, freight forwarders or logistics services providers may be held accountable for illegal products entering the cargo if they fail to adequately ensure the safety and integrity of the stuffing process and/or fail in other matters related to diligence on the cargo they handle.
In one case, a freight forwarder in Singapore was fined for not flagging weight discrepancy. In 2015, customs authorities in Singapore intercepted a shipment that contained elephant ivory and pangolin scales estimated to be worth almost $1 million. The trader declared that the shipment contained a load of synthetic wigs, but the weight of the cargo exceeded 800 kg. The court found that the discrepancy between the reasonably expected weight of the cargo declared and the weight of the actual cargo shipped should have been identified and flagged by the freight forwarder.
Despite the full cooperation of the freight forwarder with Singaporean authorities during the investigation, the company was fined for failing to ensure that the shipment did not contain contraband. The authorities made sure to remind all “shipping, transport, logistics and freight forwarding companies to be prudent and exercise caution when accepting shipping and freight assignments to ensure that their companies are not implicated in wildlife trafficking”.
Co-optation Of Employees By Trafficking Networks
Unlike the South American drug cartels that have developed their own transportation methods, trafficking networks tend to exploit legitimate transportation companies to move their products. In addition, wildlife traffickers might not always have access to sophisticated money launders that provide services for funneling the illegally obtained funds around the world. In fact, co-opting employees, such as employees of a freight forwarder or of a financial institution, to bypass internal procedures has also been identified as an effective strategy for trafficking networks.
Risks Posed By Customers And Document Fraud
The use of fraudulent documents to conceal illegal wildlife products by traders is another risk faced by freight forwarding and logistics companies, driving the importance of recognizing illegal wildlife trade as an organizational risk. This includes amending and tampering with documents such as the maritime bill of lading, road consignment or air waybill. All such export documents require the trader to clearly identify the type of cargo being transported.
In addition, financial institutions are at risk as well, especially if they facilitate payments related to international trade or offer specialized trade finance products such as letters of credit. Consequently, financial institutions might unknowingly engage in illegal wildlife trade if customers use of fraudulent documents to conceal illegal wildlife products.
According to the World Customs Organization, the main incentive to commit document fraud in international shipping is to evade customs duties and tax payments, or to circumvent shipping restrictions and sanctions. Especially a breach of sanctions can be a significant concern for all organizations, including financial institutions. Sanctions fines are among the highest fines an organization might be handed. In one example, the French bank BNP Paribas has been sentenced to pay a record penalty of almost $9 billion for sanctions violations.
Thus, fraudulent shipping documents pose a heightened legal risk for customs brokers, freight forwarders, financial institutions active in trade finance, and other organizations as well as intermediaries involved.
In the end, the level of illegal wildlife trade risk to organizations largely depends on the effectiveness of enforcement measures by customs, border and tax authorities as well as law enforcement authorities in the source, transit and destination countries. These enforcement measures may now strengthen as a result of wider political factors. Illegal wildlife trade has increased in visibility in the past decade, moving from a purely conservation discussion to increasingly highlighting other negative outcomes beyond the reduction in biodiversity. Most notably, it has made recent headlines because of the close association of the consumption of illegal wildlife products with the coronavirus pandemic.
These types of external shocks have shown in the past to have the ability to catalyze responses by countries and the international community to what traditionally have been contentious topics or politically overlooked issues. For example, consider the increase in trade security and legally mandated counter-terrorist financing measures following 9/11 which was implemented not only by the US but many countries across the world.
And while 9/11 is not directly comparable to the circumstances surrounding illegal wildlife trade and the covid-19 pandemic, it does demonstrate that despite the usual slow pace of policy development and implementation, external factors can dramatically speed up these processes when governments decide to prioritize action. China and Vietnam have already announced bans on the trade and consumption of wildlife and more traditional demand countries are expected to follow suit. This could lead to a drastic change in the risk level that organizations face in relation to illegal wildlife trade and should be taken into account in the future development of compliance across all industries.
Wildlife trafficking undermines and jeopardizes states’ ability and efforts to manage their natural resources. It has the potential to cause severe economic losses, particularly in developing countries that rely on revenue generated by legal trade. Wildlife, forest, and fisheries crime can endanger rural livelihoods that rely on wildlife for subsistence and income, including those based on ecotourism.