There is money laundering in environmental crimes. Estimates of the magnitude of money inflows from environmental crimes vary greatly, but evidence shows that revenues amount to hundreds of billions of dollars annually, affecting all areas. Environmental crimes, except trash trafficking, are often committed in resource-rich underdeveloped, and middle-income nations, with revenues coming from wealthier, industrialized economies.
Regional financial centers spread around the globe have a significant role in providing money for these illegal operations as well as laundering the revenues from these crimes because of the irregular cash transactions linked with environmental crimes.
Money Laundering in Environmental Crimes Examples
Money laundering and environmental crimes trade are two interconnected issues that pose a significant challenge to global security and sustainability. Environmental crimes include activities such as illegal logging, wildlife trafficking, illegal fishing, and the dumping of hazardous waste. These activities generate substantial profits for criminal organizations, which often use money laundering techniques to conceal their illicit gains.
Money laundering is the process of concealing the origins of illegally obtained money by making it appear as though it came from a legitimate source. Criminal organizations use money laundering to avoid detection by law enforcement and to integrate their illegal proceeds into the legitimate economy. Environmental crimes are often lucrative, and the profits generated from these activities are often laundered through legitimate businesses and financial institutions.
Involvement of Front Companies
Criminals mix profits from illicit logging, mining, and waste smuggling into their regular company accounts by using front companies. These front firms frequently participate in numerous transactions with little individual profit margins in the environment industry. Such front firms range in sophistication from basic schemes with obvious peculiarities to sophisticated businesses with large legal activities, making distinguishing between lawful and illicit activity difficult for enforcement and the business sector.
Criminals occasionally use front firms in other cash-intensive industries outside the natural resources industry. For example, two rosewood species on the verge of extinction can be found in Madagascar. Authorities point out that organized and sophisticated trafficking practices are emerging and that illicit logging is inextricably related to political stability and corruption. There were 76 cases brought to the court involving an estimated 160 million US dollars in illegal money flows between 2009 and 2020.
Widespread usage of bank transfers, actual cash transit from Madagascar to the location of sellers, and repatriation of foreign currency related to export revenues were all identified by Madagascar as important payment techniques for illicit logging. Criminals frequently mix cash from legal, commercial ventures, such as importing essential items, exploiting and exporting mining products, etc., with illegal revenues to commit money laundering. Authorities have pinpointed the cash-intensive vanilla industry, the nation’s biggest export, as a conduit for laundering from illicit logging. In 2014, people purchased large quantities of vanilla to raise prices to hide the mixing and blending of illegal gains with lawful vanilla earnings.
Involvement in Trade Fraud
The use of trade-based fraud to hide the transfer of money through borders is another feature common to all environmental crimes, which involves falsifying paperwork, especially regarding the export and import of commodities, and making up invoices and trade operations to cover the movement of money over borders. This might especially apply to environmental crimes, such as mislabeling hazardous garbage or protected timber to hide their true significance. The tendency to over- or under-declare transported items and the use of fraudulent specifications are common elements of trade fraud and Trade-based Money Laundering or TBML activity.
Let’s look at this example. A global criminal organization engaged in the trafficking of illegal waste, tax fraud, and money laundering was discovered and destroyed by Italy during a tax examination.
A metal scrap business was the subject of an examination by Guardia di Finanza, which revealed inconsistencies in the waste’s origin, its associated paperwork, and the bills linked to it. The fabricated invoices totaled 68 million US dollars. By faking fraudulent commercial transactions with other nations, proceeds of crime were transferred overseas and then returned.
Involvement in the Financial Sector
All environmental crime revenues are being laundered by criminals utilizing the legal banking system. Incorporating funds obtained through wire transfers to a third party while posing as payments for products and services, as well as investments and sponsorship, are examples of this. Due to the irregular cash flows related to environmental crimes, regional financial centers and commodities trading and trade financing companies all over the world play a significant role. Some investments were made for shell businesses recognized by governmental bodies but did not conduct any major economic activity, thus concealing the actual beneficial ownership.
For example, with the help of Operation Diez Condores, a combined investigation between the FBI and Chile’s Investigations Police was able to dismantle a transnational criminal organization or TCO operating in Chile that was involved in transporting illegal gold. The Chilean operation obtained gold from several illegal sources and worked with shady companies to produce false documentation regarding the composition and real origin of the gold.
TCO couriers flew the gold between Chile to the US on commercial aircraft and delivered it to NTR Metals Miami, a US refinery, which then sent money back to Chile via wire transfer as payment for the gold. Employers at NTR Metals were incentivized to acquire as much gold as rapidly as possible by using a commission-based system.
While part of their activity was genuine, the TCO activities accounted for the bulk. After the investigation revealed that 80 million US dollars in gold shipments were transported through several shell companies, the members of the TCO were detained in Chile in August 2016.
Involvement of Shell Companies
Case studies reveal that in addition to using front firms, criminals frequently use shell companies to impersonate genuine services and payments associated with the timber, mining, or waste sector. A shell company is a company that only exists on paper, has no physical location or staff, but could have a bank account, hold passive investments, or be the legally recognized owner of assets like ships or intellectual property.
For example, a suspicious transaction report or STR detailing the financial transactions of a business engaged in the metals and waste disposal industries but lacking a functional organizational structure or any indication of any recorded economic activity served as the basis of an investigation in Italy. Other inconsistencies included the fact that the previous owners had been under investigation by the Public Prosecutor in 2015, that the stockholder had paid significantly less than the market value for the company, and that they lacked the knowledge and expertise required to run in the highly regulated sector.
Investigations uncovered firm account statements displaying bank transactions, which were explained as advance payments of bills by Italian companies. These companies were operating in the same industry that had previously been probed for tax evasion, unlawful metal disposal of wastes, and laundering of the Mafia’s criminal gains. Some of these businesses have been investigated by the Salerno Public Prosecutor for criminal association concerning the export of trash to East Asian nations.
Investigations revealed a large network of real individuals who traded capital inflows on prepaid cards and withdrew cash that included the beneficial owners of these organizations. This was uncovered by observing that most of the debit transactions in the reported firm account statements included cash withdrawals and bank transfers organized in favor of foreign organizations. The entire amount of cash movements involved was around 14.2 million US dollars.
Money laundering in environmental crimes trade has several adverse impacts on society and the environment. Environmental crimes have a significant impact on biodiversity, natural resources, and the overall health of the planet. By enabling the laundering of the proceeds from these activities, money laundering perpetuates the cycle of environmental degradation and undermines efforts to promote sustainable development.
In conclusion, the link between money laundering and environmental crimes trade underscores the need for a comprehensive and coordinated global response. This response should include measures to strengthen law enforcement and regulatory frameworks, enhance international cooperation, and promote public awareness and engagement. Only by addressing both money laundering and environmental crimes can we effectively combat these interrelated threats to global security and sustainability.